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RBC selling Jamaican unit to rival lender as market challenges weigh

An RBC bank on Toronto’s Bay Street.

Gloria Nieto/The Globe and Mail

Royal Bank of Canada is selling its Jamaican arm to a rival lender in the Caribbean, marking the latest restructuring move in what has become a challenging regional market.

The Canadian financial institution is unloading RBC Royal Bank (Jamaica) Ltd. and RBTT Securities Jamaica Ltd., which comprise its business in the country, to Sagicor Group Jamaica Ltd. Financial terms weren't disclosed, but RBC said the deal amounts to the book value of the collective Jamaican operation, and that it will incur a $60-million after-tax loss on the sale.

The loss mostly stems from writing down goodwill and other intangibles acquired when purchasing RBTT in 2008.

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RBC said selling the business to Sagicor makes the most sense because the buyer has the "size, scale and complementary capabilities that RBC Jamaica does not currently possess." However, the bank stressed that it remains committed to the Caribbean and won't be cutting and running any time soon. Instead, it will focus on countries where it has sizable market share.

"I really do think it is about focusing our efforts on the places where we can be a sustainable leader for the long-term," Kirk Dudtschak, RBC's Caribbean banking president, said in an interview. "We have no plans for further divestitures."

"There clearly are challenges in the region, but it varies from country to country," he added, noting that southern, more resource-driven islands such as Trinidad and Tobago are performing better than others that are dependent on tourism.

The sale extends a growing list of restructuring moves taken by Canadian banks that operate in the Caribbean – namely RBC, Canadian Imperial Bank of Commerce and Bank of Nova Scotia. When reporting their last quarterly earnings, all three warned about the challenging state of the market.

The Caribbean economy is struggling because tourist dollars have been harder to come by over the past five years. Many islands were also dramatically affected by the global financial crisis as the economic slowdown hurt commerce in the region and resulted in weaker demand for loans as well as higher loan writeoffs. RBC's Jamaican operation had some loan charges of its own stemming from the hotel sector.

CIBC took a $39-million charge to restructure FirstCaribbean International Bank Ltd. last quarter, and RBC also incurred a restructuring charge, the size of which wasn't disclosed.

"While credit quality in our Caribbean portfolio has been stabilizing, challenges are likely to persist in the near term until we see sustained improvements in the regional economic environment," RBC chief risk officer Mort Friis said on a conference call in December.

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The sale process for RBC's Jamaican arm started roughly four months ago, according to Mr. Dudtschak. "When we looked at our competitive position in the market, we felt it was something we needed to at least explore," he said. RBC currently has a 9-per-cent loan market share in the country, while Jamaica's top two lenders, NCB Jamaica and Bank of Nova Scotia, have a combined market share of 75 per cent. RBC was the fourth largest bank by asset size.

The sale makes Sagicor Jamaica's third largest bank, catapulting the lender from sixth place. It also gives the bank a much-needed boost to its branch and employee count.

RBC's divestiture comes after CIBC announced last month that it was implementing a restructuring that chief executive officer Gerry McCaughey said would "put a brake on the growth in costs." The bank announced plans to reduce head count by 10 per cent across the 17 islands where it operates.

During the fourth quarter, Scotiabank said its own operations in the region experienced "ongoing softness" – code for being in rough shape.

RBC acquired RBTT Securities Jamaica when the Canadian bank bought RBTT Financial Group for $2.2-billion (U.S.) to complement its existing Caribbean footprint about six years ago. RBC's biggest Caribbean operations are in the Bahamas and Trinidad and Tobago.

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