DBRS Morningstar Comments on Royal Bank of Canada's Planned Acquisition of Brewin Dolphin Holdings PLC

DBRS Morningstar Comments on Royal Bank of Canada's Planned Acquisition of Brewin Dolphin Holdings PLC.

DBRS Limited (DBRS Morningstar) notes the ratings for the Royal Bank of Canada (RBC or the Bank), including its Long-Term Issuer Rating of AA (high) with a Stable trend, are unaffected following the announcement that RBC Wealth Management (Jersey) Holdings Limited (RBC Wealth Management), a wholly owned subsidiary of RBC, will be acquiring all share capital of Brewin Dolphin Holdings PLC (Brewin Dolphin) for approximately $2.6 billion (GBP 1.6 billion). The all-cash transaction is expected to close by the end of Q3 2022 subject to customary conditions outlined in the Rule 2.7 announcement, including regulatory, antitrust, and Brewin Dolphin shareholder approvals.

DBRS Morningstar views the acquisition as consistent with RBC's strategy of expanding its global wealth management footprint, allowing the Bank to enhance its depth and breadth of services and expand distribution channels in a key RBC growth market. Founded in 1762, Brewin Dolphin is a leading independent provider of discretionary wealth management in the UK and Ireland. RBC will acquire Brewin Dolphin's network of more than 30 offices and approximately GBP 59 billion in assets under management (AUM) as at December 31, 2021 (average client AUM of approximately GBP 700,000). On a combined pro forma basis, the complementary acquisition results in GBP 64 billion in AUM and a platform for future growth, positioning RBC Wealth Management as a top three wealth manager in the UK and Ireland (along with leading and growing market positions in Canada and the United States, respectively). RBC is expected to retain the current Brewin Dolphin leadership team and Brewin Dolphin will initially be managed as a subsidiary and stand-alone division of RBC to ensure the smooth transition of clients, employees, and operations before being subsequently combined with RBC Wealth Management to take advantage of the benefits of the combined business.

RBC anticipates the aggregate wealth management business in the UK, Ireland, and Channel Islands to generate a cumulative average growth rate (CAGR) in revenue of approximately 9% (compared with Brewin Dolphin's five-year CAGR of 8%) and adjusted profit before tax of approximately $0.5 billion (including revenue synergies from expanded distribution and banking capabilities and cost synergies from overlapping functional and administrative areas). Additionally, RBC expects the acquisition will result in an adjusted earnings per share accretion of approximately 1% in the first year following the close of the transaction (excluding future revenue synergies).

The transaction represents a strategic deployment of RBC's excess capital, with the Bank expecting its CET1 ratio to reduce by approximately 40 basis points. As of January 31, 2022, RBC's CET1 ratio was a solid 13.5%, just above the 13.3% average for the Big Six Canadian banks. Despite the announced acquisition, DBRS Morningstar expects RBC to continue its current share buyback program (normal course issuer bid program to repurchase up to 45 million common shares).

Notes:

All figures are in Canadian dollars unless otherwise noted.

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