Royal Bank of Canada (TSE: RY), the country's largest bank, said Tuesday it will acquire the 50 percent of RBC Dexia Investor Services Ltd. it doesn't already own from its joint-venture partner Banque Internationale à Luxembourg S.A. for C$1.1 billion ($1.1 billion) in cash.
This is the latest example of non-European companies picking up distressed euro zone properties as the region still flounders under sovereign debt.
Camargo Correa SA, Brazil's second largest construction company, recently bid €2.48 billion ($3.32 billion) for the 68 percent stake it doesn't already own in Cimpor-Cimentos de Portugal SGPS SA, a publicly traded Portuguese cement company with global operations.
The Franco-Belgian bank Dexia, which held a huge chunk of Greek debt, was the first bank to get bailed out as a result of the European debt crisis.
The transaction announced today has significant strategic value to us, not only as a standalone business but also in its complementary capabilities to RBC, Gordon M. Nixon, RBC's president and chief executive, said in a statement.
France, Belgium and Luxembourg stepped in last October, to wind up the bank following fears it could go bankrupt. The three governments promised to provide up to €90 billion to secure borrowing over the next 10 years. As of February, however, the bank had received less than half of that amount and warned it could go out of business.
Last year's bailout was the second time in three years that Dexia has asked for help. It had to be bailed out in 2008, with the three governments putting in €6.4 billion euros to keep it afloat.
RBC Dexia provides fund and pension administration, shareholder services and treasury services to institutional investors.
For the 12 months ended Dec.31, RBC Dexia had net income of €123 million. At the end of 2011, RBC Dexia's book value was €1.7 billion.
Following the closing of the transaction, Royal Bank of Canada will own 100 percent of RBC Dexia.
The acquisition of the stake means that RBC has to revalue its existing investment in the joint venture to reflect the purchase price due to accounting rules. This will result in a noncash loss of about $170 million after tax, which will be recorded in the second fiscal quarter.
RBC said the acquisition will moderately add to earnings in 2013. The acquisition is expected to close in mid-2012.
Separately, in a big lawsuit, the U.S. Commodity Futures Trading Commission CFTC accused RBC of running a trading scheme of massive proportion to gain lucrative Canadian tax benefits.
The alleged scheme, known as wash trading, was brought to light in a civil suit filed in the Southern District of New York on Monday.
RBC rejected CFTC's allegations as unwarranted, saying, The CFTC has been aware of these transactions since 2005.
Given no objection to the trading activity by either the exchange or the CFTC in 2005, it is absurd to now claim these trades were either fictitious or wash sales. This lawsuit is meritless, the company said in a statement.
Shares of Royal Bank of Canada (TSE:RY) closed up 2 percent, to C$58.74 a share.