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TEXT-S&P affirms RBC Dexia Investor Services at 'AA-/A-1+'
April 5, 2012 / 2:17 PM / 6 years ago

TEXT-S&P affirms RBC Dexia Investor Services at 'AA-/A-1+'

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.

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