April 5 - Overview -- Royal Bank of Canada (RBC) has announced that it signed a share purchase agreement under which it will fully acquire U.K.-based RBC Dexia Investor Services Ltd. (RBC Dexia). -- This 100% acquisition reinforces our view of RBC Dexia's status as a "core" subsidiary of RBC under our group methodology. We consequently equalize the ratings on RBC Dexia with those on RBC. -- We are affirming our 'AA-/A-1+' long-term and short-term ratings on RBC Dexia and removing the ratings from CreditWatch negative. -- The stable outlook reflects that on prospective full parent RBC and our expectation that RBC has both the ability and willingness to provide full support to RBC Dexia. Rating Action On April 5, 2012, Standard & Poor's Ratings Services affirmed its 'AA-' long-term and 'A-1+' short-term counterparty credit ratings on U.K.-based RBC Dexia Investor Services Ltd. (RBC Dexia). The outlook is stable. We also removed the long- and short-term credit ratings from CreditWatch with negative implications, where they were placed on Dec. 14, 2011. Rationale The rating action follows the Royal Bank of Canada's (RBC; AA-/Stable/A-1+) announcement on April 3, 2012, that it has signed a share purchase agreement to acquire the 50% stake in its joint venture with Belgium-based bank Dexia S.A. (Dexia) that it doesn't already own. RBC's full ownership of the joint venture will result in its 100% stake in RBC Dexia. We equalize the ratings on RBC Dexia with those on RBC, in accordance with our criteria for rating entities in banking groups. We consider that RBC's full ownership of RBC Dexia is further evidence of its importance to its prospective full parent. The transaction reinforces our view of RBC Dexia's status as a "core" subsidiary within RBC under our group rating methodology. At this stage, we consider that the transaction would have significant strategic value for the RBC group. RBC Dexia operates in the investor servicing business, handling core clients, which RBC has indicated it views as integral to its strategy. RBC Dexia's clientele includes clients from RBC, such as pension funds, insurers, financial institutions, mutual funds, and private banks. We expect that the full acquisition of RBC Dexia will enable RBC to complement its two globally run business lines, wealth management and capital markets. RBC Dexia's franchise is important to RBC's banking presence, in addition to its strategy, especially in light of the subsidiary's strong Canadian market share of more than 40% in assets under administration. We understand that RBC has aimed to curb any risk that Dexia's damaged image would spread to RBC Dexia's franchise. Moreover, we believe that RBC Dexia is largely insulated from Dexia given the way RBC Dexia manages liquidity and credit risk. In the context of the global credit crisis, we understand that RBC Dexia has enhanced its monitoring of credit and counterparty risk management, and implemented a concrete set of credit risk-mitigating factors. Specifically, because it has substantial interbank exposure, including that to Dexia, RBC Dexia has favored collateralization of credit exposures, through triparty repurchase agreements and holdings of other low credit-risk mitigated vehicles including covered bonds, and state-guaranteed paper. Lastly, we understand that the share purchase agreement includes an asset swap transaction with Dexia, allowing RBC Dexia to exchange some Dexia issued securities for U.S. dollar denominated bonds issued by large global financial institutions. RBC Dexia has indicated that its holdings of Dexia securities pre- and post- asset swap were or are all collateralized, or have strong credit risk mitigation either through cover assets or state guarantees. Outlook The stable outlook on RBC Dexia reflects that on its prospective full parent RBC. The outlook also factors in Standard & Poor's expectation that RBC has both the ability and willingness to provide full support to RBC Dexia. Given that we equalize the ratings on RBC Dexia with those on RBC, any rating action on RBC would trigger the same action on RBC Dexia. We could lower the ratings on RBC Dexia if we considered RBC to be less committed to RBC Dexia in the future or if RBC Dexia's prospective ownership structure changed. We would review the ratings if the transaction did not close, although we see this outcome as very remote at this stage. Related Criteria And Research -- Group Rating Methodology And Assumptions, Nov. 9, 2011 -- Banks: Rating Methodology And Assumptions, Nov. 9, 2011 Ratings List Ratings Affirmed; CreditWatch Action To From RBC Dexia Investor Services Ltd. Counterparty Credit Rating AA-/Stable/A-1+ AA-/Watch Neg/A-1+ Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.