Royal Bank of Canada has confirmed its deal to acquire the Canadian auto finance and deposit business of Ally Financial Inc.
The bank says the deal will strengthen its position as a consumer and commercial lender, as well as significantly increase its presence in auto-related financing. The net cost for the deal will be about $1.4 billion, it says, after excluding excess capital to be acquired in the deal.
Including excess capital, RBC will pay between $3.1 billion and $3.8 billion.
Ally Financial’s Canadian unit provides financing to nearly 600 auto dealerships across the country.
Yesterday, RBC was in talks to buy the company, said U.S. business channel CNBC. A source told CNBC that TD Bank and Royal Bank had been bidding on the assets, but it was unclear whether TD would top Royal Bank’s latest offer.
Ally is an auto and mortgage lender, and it bailed out by the U.S. government as part of the auto industry aid package.
RBC told the Globe and Mail, “The addition of Ally Canada to RBC’s existing business will result in a leading auto-financing player in Canada, with about $24-billion in receivables and financing to more than 890 dealerships.”
The bank expects Ally business to generate approximately $120 million in net income on a standalone basis in the first 12 months after closing (before integration costs, amortization of intangibles and transaction costs), based on estimated average receivables of approximately $9 billion.
RBC also announced it’s entered into an agreement with General Motors of Canada to become a provider for its subvented business upon close of the transaction. Subvented loans are low rate consumer auto loans subsidized by the manufacturer.
The acquisition is expected to be modestly accretive to earnings per share in the first year after closing, and it’s expected to reduce RBC’s July 31, 2012 Tier 1 capital ratio of 13% on a pro forma basis by approximately 60 bps.
On an estimated Basel III basis, the bank expects its Common Equity Tier 1 ratio to remain above 8% following the close, given its “solid capital position and internal capital generation.”
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