TEXT-Fitch on RBC's acquisition of Ally Canada's auto finance business

Tue Oct 23, 2012 5:15pm EDT

Oct 23 - Fitch Ratings views Royal Bank of Canada's (RBC; 'AA/F1+')
announced agreement to buy the auto finance and deposit business of Ally Credit
Canada Ltd. (Ally Canada) and ResMor Trust Company, the Canadian auto finance
business of Ally Financial, Inc. ('BB-/B') as neutral to RBC's ratings. In
Fitch's opinion, the acquisition fits with RBC's Canadian consumer banking
strategy and is manageable in size, relative to RBC's overall capital base and
Canadian franchise. 

RBC has agreed to pay $3.1 billion to $3.8 billion in cash for Ally Canada's 
auto finance origination platform and sales force, and Canadian auto finance 
receivables of approximately $9 billion in the first 12 months following closing
in the first quarter 2013 (1Q'13). RBC is not acquiring leases, nor is it 
acquiring any insurance assets as part of this transaction. The actual purchase 
price will depend on the dividend taken by Ally Canada prior to closing and will
include $600 million of goodwill and intangibles. Excess capital at Ally Canada 
decreases RBC's net investment to approximately $1.4 billion. The transaction is
expected to reduce Tier 1 capital ratio (Basel II) by approximately 60 basis 
points (bps) and Basel III Common Equity Tier 1 ratio by approximately 40 bps at
closing, on a pro forma basis as of 3Q'12. The transaction is expected to be 
accretive to earnings with expected profits of $120 million in the first 12 
months after closing and before transaction-related costs of approximately $50 
million.

This acquisition will raise RBC's Canadian auto finance receivables to 
approximately $24 billion, thereby strengthening RBC's market position in line 
with its leading consumer banking strategy in Canada. RBC will integrate Ally 
Canada's auto finance operations into its existing Canadian banking segment to 
generate operating efficiencies and cross-sell opportunities to provide full 
banking services to customers and auto dealerships. Earnings could also benefit 
from a shift to support future originations with RBC's comparatively lower 
funding base, including its stable and cost-effective core deposits. 

Overall, Canadian auto loans have performed well as an asset class through the 
cycle. However, future performance warrants close monitoring considering record 
levels of household debt in Canada. Furthermore, auto financing is a competitive
business as it is an attractive market for a number of lenders. Although RBC has
entered a subvention agreement with GM Canada, GM itself could also look to 
increase its share of the Canadian auto financing market. 

Contact 

Fabrice Toka

Senior Director

+1-212-908-0369

Fitch, Inc.

One State Street Plaza

New York, NY 10004 

Nathan Flanders

Managing Director

+1-212-908-0827 

Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: 
brian.bertsch@fitchratings.com.

Additional information is available at 'www.fitchratings.com'.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.  
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: 
here.  IN ADDITION, RATING 
DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S 
PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'.  PUBLISHED RATINGS, CRITERIA AND 
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES.  FITCH'S CODE OF 
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE 
AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF 
CONDUCT' SECTION OF THIS SITE.

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 Time        USN  User  Headline
 23/10/2012  WNA  WE    FITCH: RBC ACQUISITION OF ALLY CANADA'S AUTO
 17:00:36    252  SCRI  FINANCE BUSINESS RATINGS NEUTRAL
                  T     
 NEW YORK, October 23 (Fitch) Fitch Ratings views Royal Bank of Canada's (RBC;
'AA/F1+') announced agreement to buy the auto finance and deposit business of
Ally Credit Canada Ltd. (Ally Canada) and ResMor Trust Company, the Canadian
auto finance business of Ally Financial, Inc. ('BB-/B') as neutral to RBC's
ratings. In Fitch's opinion, the acquisition fits with RBC's Canadian consumer
banking strategy and is manageable in size, relative to RBC's overall capital
base and Canadian franchise. RBC has agreed to pay $3.1 billion to $3.8 billion
in cash for Ally Canada's auto finance origination platform and sales force, and
Canadian auto finance receivables of approximately $9 billion in the first 12
months following closing in the first quarter 2013 (1Q'13). RBC is not acquiring
leases, nor is it acquiring any insurance assets as part of this transaction.
The actual purchase price will depend on the dividend taken by Ally Canada prior
to closing and will include $600 million of goodwill and intangibles. Excess
capital at Ally Canada decreases RBC's net investment to approximately $1.4
billion. The transaction is expected to reduce Tier 1 capital ratio (Basel II)
by approximately 60 basis points (bps) and Basel III Common Equity Tier 1 ratio
by approximately 40 bps at closing, on a pro forma basis as of 3Q'12. The
transaction is expected to be accretive to earnings with expected profits of
$120 million in the first 12 months after closing and before transaction-related
costs of approximately $50 million. This acquisition will raise RBC's Canadian
auto finance receivables to approximately $24 billion, thereby strengthening
RBC's market position in line with its leading consumer banking strategy in
Canada. RBC will integrate Ally Canada's auto finance operations into its
existing Canadian banking segment to generate operating efficiencies and
cross-sell opportunities to provide full banking services to customers and auto
dealerships. Earnings could also benefit from a shift to support future
originations with RBC's comparatively lower funding base, including its stable
and cost-effective core deposits. Overall, Canadian auto loans have performed
well as an asset class through the cycle. However, future performance warrants
close monitoring considering record levels of household debt in Canada.
Furthermore, auto financing is a competitive business as it is an attractive
market for a number of lenders. Although RBC has entered a subvention agreement
with GM Canada, GM itself could also look to increase its share of the Canadian
auto financing market. Contact Fabrice Toka Senior Director +1-212-908-0369
Fitch, Inc. One State Street Plaza New York, NY 10004 Nathan Flanders Managing
Director +1-212-908-0827 Media Relations: Brian Bertsch, New York, Tel: +1
212-908-0549, Email: brian.bertsch@fitchratings.com. Additional information is
available at 'www.fitchratings.com'. ALL FITCH CREDIT RATINGS ARE SUBJECT TO
CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND
DISCLAIMERS BY FOLLOWING THIS LINK:
here. IN ADDITION, RATING
DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S
PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE
AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF
CONDUCT' SECTION OF THIS SITE. NORMAL RATINGS Fitch: RBC Acquisition of Ally
Canada's Auto Finance Business Ratings Neutral yes
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