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Royal Bank of Canada (RY - Snapshot Report) completed the sale of its Jamaican operations – RBC Royal Bank (Jamaica) Limited and RBTT Securities Jamaica Limited – to  Sagicor Group Jamaica Limited, marking its exit from the Caribbean country after facing significant challenges with bad loan portfolio in the market. Notably, the move came as part of the company’s strategy to restructure its Caribbean footprint.

In an effort to strengthen its position in the Caribbean region where it has presence for more than 100 years, Royal Bank of Canada added RBTT Securities Jamaica to its operations following the acquisition of RBTT Financial Group back in 2008.

The move to exit Jamaica comes as a strategic decision by the Canadian bank. The company struggled with its operations in the region amid Jamaica’s stressed economic conditions, which has not reversed significantly post the 2008 meltdown even after a bailout of US$2 billion from the International Monetary Fund.

While it has offloaded its Jamaican business, Royal Bank of Canada will continue to stay focused on the Caribbean region, concentrating on markets in which it has greater share.

Financial Implications

The deal, which was inked in January this year, did not reveal any financial terms and conditions. However, Royal Bank of Canada stated the sale price to be around the book value of the Jamaican operations. The company incurred a loss of C$60 million (before and after tax), related to the sale of these operations and consequently reflected the same in its first-quarter 2014 (ended Jan 2014) results.

The company in its latest release mentioned that owing to this transaction it will incur an additional loss of C$37 million (before and after tax). However, the net loss figure may vary and consequently third-quarter 2014 results (ending Jul 2014) will reflect the impact.  

Bottom Line

Repositioning of business fundamentals to withstand any crisis remains the trend of non-U.S. banks. We remain encouraged owing to Royal Bank of Canada’s restructuring efforts that are poised to benefit the company in the long run.

Royal Bank currently holds a Zacks Rank #2 (Buy). Some other top-ranked stocks in the foreign banks space include Brazil-based Banco do Brasil S.A. (BDORY), Argentinia’s BBVA Banco Franc (BFR - Snapshot Report) and U.K-based The Royal Bank of Scotland Group plc (RBS - Snapshot Report). All these stocks sport a Zacks Rank #1 (Strong Buy).

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