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Fitch: RBC Acquisition of Ally Canada's Auto Finance Business Ratings Neutral

  Fitch: RBC Acquisition of Ally Canada's Auto Finance Business Ratings   Neutral  Business Wire  NEW YORK -- October 23, 2012  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.  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: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. 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.  Contact:  Fitch Ratings Fabrice Toka, +1 212-908-0369 Senior Director Fitch, Inc. One State Street Plaza New York, NY 10004 or Nathan Flanders, +1 212-908-0827 Managing Director or Media Relations: Brian Bertsch, +1 212-908-0549 Email: brian.bertsch@fitchratings.com