Royal Bank of Canada to buy Ally auto finance unit

Tue Oct 23, 2012 3:50pm EDT
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By Euan Rocha and Cameron French

TORONTO (Reuters) - Royal Bank of Canada has agreed to buy the Canadian auto finance and deposit arm of Ally Financial Inc in a $4.1 billion deal to expand its auto-lending business at a time when its mortgage-lending business is facing slower loan growth.

RBC, Canada's largest bank, said on Tuesday the deal will nearly double its commercial auto lending business, making it a leader in the Canadian segment with about C$24 billion ($24.18 billion) in receivables.

It will also expose 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 cut debt.

"It's a stable business with a low loan-loss profile, and that's always what you're looking for in an acquisition," Dave McKay, RBC's group head of personal & commercial banking, told Reuters in an interview. "Canadians pay off their car loans."

RBC expects the Ally Canada business to generate about C$120 million in net income on a standalone basis within the first 12 months after closing, while modestly boosting RBC's earnings per share.

Detroit-based Ally, majority-owned by the U.S. Treasury, outlined plans in May to sell its international operations, aiming to speed up repayment of government bailouts during the financial crisis.

The company is the former auto lending arm of General Motors Co. Last week it agreed to sell its Mexican insurance business to ACE Ltd for $865 million.

Ally, once known as GMAC, received $17 billion in bailouts from the U.S. government during the financial crisis. Including dividend payments, it has paid back $5.8 billion.   Continued...

A Royal Bank of Canada (RBC) logo is seen at a branch in Toronto November 9, 2007. REUTERS/Mark Blinch