RBC is easily able to afford buying out Dexia’s share in RBC Dexia Investor Services, a joint venture currently 50 percent held by Dexia and 50 percent by RBC, analyst John Aiken wrote. With RBC “actively pursuing a strategy of global expansion in wealth management, Dexia’s operations might be attractive” at the right price.
Facing huge Greek sovereign debt exposure, Dexia group is being forced to sell its Luxembourg-based businesses as part of a Franco-Belgian government bailout plan. Although RBC holds pre-emptive rights to any sale of Dexia’s stake in the joint venture, “we are not commenting on negotiations” involving Dexia, a spokeswoman for RBC previously told Delano.
Limited impact
Canada’s largest bank is officially giving no signal that it wants to buyout its partner, saying any new ownership structure will not impact the business. The Barclays report concurred with that assessment.
At the same time, RBC may prefer that another international player takes over Dexia’s share. After all, the banks originally pooled operations to “leverage the geographic client base of each while gaining scale,” Aiken noted. “Going it alone risks the potential loss of European mandates, without the relationships that Dexia brought to the venture.”
Indeed, the success or failure of such a transaction “is not really material to the bank,” Brad Smith, head of research at Toronto-based Stonecap Securities, told Delano. The joint venture “has seen it earnings fall considerably in recent years due likely to erosion in its core customer base.” However, he speculates RBC could “gain some other opportunities to expand its global wealth management strategy through the possible re-organisation at Dexia.”
Dexia Asset Management
If the Canadian giant purchased Dexia’s Asset Management unit--also based in the Grand Duchy--“much of the risk” in buying RBC Dexia “could be alleviated,” Barclays said. But gaining that larger European customer footprint would cost the Canadians between one and one-and-a-half billion dollars, Barclays estimated. That is on top of the estimated 300 to 400 million dollars to purchase the other half of RBC Dexia Investor Services.
Another stumbling block: “Dexia’s board would need to find a separate buyer for its insurance operations,” currently in the same group as the asset management unit. That is because RBC is unlikely to be interested in expanding into the area, Aiken explained.
The board--which will meet Saturday, October 8--may not want to sell the insurance business separately. In that case, unless RBC could find a joint bidder, chances are low the Canadian bank would pursue the deal.
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