Royal Bank of Canada will pay $1.1 billion cash to buy the remaining half of RBC Dexia, an advisor to pension fund managers and institutional investors.
The bank’s partner, a French-Belgian company formerly called Dexia, had indicated months ago it would sell its half of the joint venture and RBC announced in October it was in talks to acquire full control of RBC Dexia.
RBC’s definitive agreement to buy the rest of RBC Dexia was announced Tuesday as the Canada’s largest bank fends off major allegations from a U.S. regulatory agency.
The U.S. Commodity Futures Trading Commission accused RBC on Monday of hundreds of millions of dollars in sham trades—an allegation the bank rejects.
Royal Bank says the accusation is “absurd” and that it had sought guidance from the CFTC before making the trades and acted within the agency’s guidelines.
The CFCT alleges, however, that the Canadian bank concealed the true nature of the trades and made false statements to a futures trading exchange.
The activity, so-called “wash trading” is an illegal stock trading practice in which an investor simultaneously buys and sells shares in a company through two different brokers, usually to avoid taxes. Wash trading is illegal in the U.S. according to futures laws.
The CFTC said the bank’s trading strategy was devised to gain Canadian tax credits on its holdings of U.S. and Canadian company stocks. It said the strategy was created and carried out by a group of executives at the bank. However, the agency’s suit didn’t name any individuals.
Dexia, which has been renamed Banque Internationale a Luxembourg SA, is one of the victims of the European debt crisis and the 2008 credit crunch sparked by the failure of Lehman Brothers, a Wall Street investment bank.
Dexia SA was the first major European bank to need a bailout in 2011 as a result of concerns over the sovereign debt crisis. It formed the partnership with Royal bank about six years ago.