Moody’s Investors Services, one of the world’s three largest credit agencies, reduced its rating for RBC Dexia Investor Services two grades, from AA3 to A2. While the lower score is still considered “investment grade” and is not likely to dramatically reduce client confidence levels, it is likely to drive up the custody bank’s cost of borrowing in the global capital markets.
Moody’s had said it would review the credit rating after Dexia Group disclosed earlier this year that it would sell its share of RBC Dexia as part of a state rescue plan.
In April, Royal Bank of Canada announced that it would buy-out the 50 percent stake in RBC Dexia from its joint venture partner Dexia Group, giving the Canadian giant--that country’s largest bank--full control of the business.
Then in June, Moody’s downgraded RBC two notches--along with 16 other major North American banks, including Bank of America, J.P. Morgan and Morgan Stanley--citing exposure to volatile global capital markets.
“Today’s downgrade reflects Moody's decision to align RBC Dexia’s issuer rating to the A2 standalone credit assessment of RBC, which will become the full owner of the joint-venture after completion of the transaction with Dexia,” the ratings agency said in a report issued early Wednesday morning. “Moody’s believes that the operational, reputational and financial ties between the two entities will increase further, thus warranting the alignment of RBC Dexia’s issuer rating at the level of the
unsupported rating of its future sole owner (RBC).”
“This rating action was expected and does not reflect a change in RBC Dexia’s financial condition,” a spokesman told Delano shortly after the Moody’s report was issued. “There was no impact on RBC Dexia when Moody’s announced its review in February and we do not expect any impact now. RBC Dexia’s ‘AA-’ credit rating from S&P was affirmed on April 5, 2012 and is among the highest credit ratings of its peer group.”
Indeed the firm’s executives in Esch have been keen to point out the positive side of the acquisition. “In terms of our own growth strategy at RBC Dexia, both at the global level and on a local basis, the backing of RBC will really help us in our growth plan for the next five years,” Sebastien Danloy, managing director of RBC Dexia in the Grand Duchy, told Delano in April.
Deal pending
Moody’s acted before the takeover has been completed. Competition officials at the European Commission said in May that they did not oppose the deal, however other reviews remain outstanding.
“The transaction is subject to regulatory approvals and other customary closing conditions and is expected to be completed in the third quarter of 2012,” the bank’s spokesman said.