Royal Bank of Canada (RY) announced yesterday that it has agreed to acquire JPMorgan Chase & Company’s (JPM) third-party registered investment advisor (RIA) servicing business. Royal Bank of Canada (or RBC) took this step to expand its U.S. wealth management division.

Following the acquisition, the RIA business of JPMorgan will become a part of RBC Advisor Services, a unit of RBC Wealth Management’s U.S. division which provides custody and clearing services to third-party registered investment advisors.

The wealth management division of RBC directly serves affluent and high net worth clients in Canada, the United States, Latin America, Europe and Asia with a full suite of investment, trust and other wealth management solutions. The division recruited more than 300 financial consultants so far in fiscal 2009. We expect the recent deal to enhance its competitive position in the RIA marketplace.

Pending regulatory approvals and other customary closing conditions, the deal is expected to close in the second quarter of 2010.

The biggest lenders of Canada were at the top to emerge from the worldwide financial turmoil. They did not accept government bailouts, but maintained high levels of excess capital.

Though strong trading environment is expected to somewhat offset deteriorating asset quality of RBS, there are concerns related to its U.S. real estate exposure. The management intends to reduce U.S. acquisitions in the near term as they realign their U.S. operations. However, we expect U.S exposure to continue to result high loss rates for awhile.

Zacks Investment Research
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