Ally Financial is selling its Canadian auto finance operation to Royal Bank of Canada (RBC) for $4.1 billion.
The $824 billion-asset RBC has agreed to pay a $630 million premium for Ally's Credit Canada Limited and ResMor Trust units, which had a book value of about $3.5 billion in the third quarter. Ally, based in Detroit, is the former lending arm of General Motors.
The deal, announced Tuesday, is expected to close in the first quarter. Ally, which is 74% owned by the Treasury Department, is selling its operations in Canada, Europe, Latin American and Mexico as part of a plan to strengthen its capital, narrow its focus and speed repayment of the government.
Last week Ally agreed to sell its Mexican insurance business to the Ace Limited (ACE) for $865 million in cash.
"This transaction represents another significant step toward our plans to pursue strategic alternatives for our international operations and accelerate plans to repay the remaining U.S. Treasury investment," Michael Carpenter, Ally's chief executive, said in a news release. "The Canadian transaction is the second transaction in a week to support these goals."
Ally said it expects to provide an update next month on plans for its automotive finance units in Europe and Latin America.
"Ally Canada will add significant scale to our existing consumer and commercial auto financing business and will strengthen RBC's position as a leader in the Canadian auto finance industry," Dave McKay, RBC's group head of personal and commercial banking, said in a separate release. "This is a strong business with favorable industry dynamics, and the combination with RBC provides opportunities to leverage our existing strengths and cross-sell capabilities."
The Ally units to be acquired finance inventory for roughly 580 automobile dealerships across Canada, according to RBC. The consumer part of the business offers financing through 1,600 dealerships and has about 450,000 loans.