Reports are circulating that Sagicor Group is in talks to acquire the RBC Royal Bank Jamaica’s operations. IC Insider understands that an official announcement could be made to the Jamaica Stock Exchange by the end of Wednesday.
From all indications, RBC operations would be absorbed into Sagicor Bank. IC Insider gathers that the deal has not yet been inked, but talks are in fact taking place that will most likely to lead to a deal.
As is the case with the acquisition of this nature, the deal would be subject regulatory approval and due diligence. No purchase price has been revealed but Sagicor will most likely acquire it for a figure that will be lower than book value that is currently around $10.5 billion as the bank’s Jamaica operations has been bleeding for some time at close to $2 billion per year based on 2013 numbers.
How much will Sagicor spend? | For the twelve months to September last year, the RBC lost $1.7 billion and $456 million between July and September according to BOJ’s data. The continued losses suggest a price around $5 billion. For the year ending October 2012, RBC reported a loss of $2 billion before tax, which was down from $3 billion in 2011. In 2012, loan losses contributed $650 million to the loss and income was inadequate to cover housekeeping expenses. Most likely the NDX in 2013, that cut interest rates, would have negatively affected the bank thus reducing the net interest margin. The bank’s biggest problem, apart from heavy loan losses, is the fixed operating cost that the income generated cannot match. It would require major loan growth to deliver the required income and that has not been growing fast enough having reached $32 billion in 2013 from $30.5 billion in October 2012.
If the deal goes through, it would create a combined banking group with assets of nearly $150 billion, loans of $40 billion and revenues around $12 billion.
Sagicor would enjoy significant cost savings from a merger of both entities as some of the branches overlap and should lead to closure of some and expansion of others. Head office operations would result in major cost savings as well, once the two are fully integrated. This would not be the first time that Sagicor Bank have entered in merger arrangements having absorbed Manufacturers Merchant Bank and Trafalgar Development Bank some years ago.
Sagicor Jamaica is a IC Insider Buy Rated Stock. To view the full list, click here.
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