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OTTAWA (Reuters) - Canada's competition watchdog gave the green light on Friday to Royal Bank of Canada's (RY.TO) plans to buy the Canadian auto finance and deposit arm of Ally Financial.
The deal, which was announced in October and closed last week, nearly doubles the size of RBC's commercial auto lending business, making Canada's largest bank a leader in this market segment.
The acquisition also exposes RBC to a relatively low-risk business that lends at wider margins than does its consumer mortgage business, which provides the bank's main revenue stream and one that has begun slowing as Canadian borrowers try to trim debt.
The deal is worth roughly $3.7 billion, said RBC, adding that its investment net of excess capital is in the range of $1.4 billion.
Ally, majority-owned by the U.S. Treasury, outlined plans in May to sell its international operations to speed up repayment of government bailouts during the financial crisis.
The company said last week it is working to repay the $5.9 billion in preferred stock owned by the U.S. Treasury in the near future. The preferred stock is part of the $17.2 billion that the government poured into Ally, the former auto lending arm of General Motors Co (GM.N), during a series of crisis-era bailouts.
Ally's Canadian arm offers commercial loans to more than 580 auto dealerships across the country, while its consumer business offers retail financing to Canadian consumers through about 1,600 dealerships.
In its statement Canada's Competition Bureau said it has concluded that the deal is unlikely to harm competition, as RBC's market share in these areas following the deal would remain modest. The anti-trust watchdog said the deal remains subject to approvals from the finance ministry and the bank regulator.
RBC's ended the session up 0.4 percent at C$62.89 on the Toronto Stock Exchange.
Reporting by Louise Egan; Editing by Janet Guttsman, Chizu Nomiyama and Leslie Gevirtz