LONDON/TORONTO (Reuters) - Royal Bank of Canada (RY.TO) has agreed to buy British fund manager BlueBay Asset Management BBAY.L for 963 million pounds ($1.5 billion) in a push to cement its position as a leading global wealth manager.
Canada’s biggest bank said on Monday it was offering 485 pence for each BlueBay share, representing a premium of 29 percent above its closing price of 375.70 pence on Friday.
Royal, along with Canada’s other big banks, survived the global financial crisis relatively unscathed, and is now looking to expand its international operations at a time when many U.S. and European banks are still struggling to recover.
The bank has previously signaled it was eyeing wealth management opportunities in Europe, and rivals such as Bank of Nova Scotia (BNS.TO) and Bank of Montreal (BMO.TO) are also seeking growth in the sector.
“I would expect the Canadian banks to be acquisitive going forward in fund management,” said Ben Phillips, a partner at management consultancy Casey Quirk.
The acquisition of BlueBay, which sells several of its own bond funds, will add about $40 billion to the C$200 billion ($197 billion) RBC’s asset management division already manages.
The bank’s total wealth management assets, which include assets across its capital markets and international divisions, total close to $400 billion.
“Our combination with BlueBay is a significant step in establishing leadership on a global basis in asset management,” George Lewis, RBC’s head of global wealth management, said during a conference call.
RBC expects global wealth management to grow at a faster pace than other bank sectors, driven by a huge retirement-age client base and a growing high net worth segment.
RBC said it will pay cash for the transaction, and so will take a small hit to its capital levels as a result.
This suggests Canadian banks are increasingly comfortable with their capital positions heading into an expected finalization in November of stricter Basel III global capital requirements for banks, agreed Sumit Malhotra, an analyst at Macquarie Equities Research.
The acquisition will also increase RBC’s exposure to lucrative fixed-income assets management in a time of modest financial market returns.
BlueBay shares rose 29.7 percent to 489 pence, pushing slightly above RBC’s offer price. However, analysts suggested there was little likelihood of rival bids.
“This price looks very full and may not leave room for any counter-bidders,” Oriel Securities analysts said in a note.
KBC Peel Hunt said in a research note that RBC’s offer valued BlueBay at around 19 times its expected 2011 earnings, while Numis Securities said the bid valued BlueBay at 18 times its forecast 2011 earnings. Such multiples are roughly in line with other deals in the sector.
BlueBay said in a trading update it was optimistic about its prospects for the current financial year and beyond. In September, it reported a 183 percent surge in full-year profits, boosted by its core investment-grade debt products.
Perella Weinberg Partners advised RBC on the deal, while Spencer House Advisers and Credit Suisse advised BlueBay.
Royal Bank shares rose 65 Canadian cents to C$56.20 on the Toronto Stock Exchange.
Bank executives said the acquisition would have no immediate earnings impact, and would strip about 55 basis points from RBC’s robust 12.9 percent Tier 1 capital ratio.
Reporting by Sudip Kar-Gupta in London and Cameron French in Toronto