RBC lifer tasked with matching record profits
Stepping into the shoes of Gord Nixon, David McKay, 50, has the unenviable task of matching the performance of a predecessor who generated more profit than any CEO in RBC history. And, if possible, trying to eclipse it.
More disturbing, RBC, like its peers, has relied on robust retail banking activity that many experts regard as overly exuberant for its growing profits. Of late, that overconfidence among borrowers has been diminishing, as Canadians re-focus on reducing personal indebtedness that has reached record levels. Borrowers have been pulling back on mortgages, car loans, credit-card debt and other sizeable borrowing that characterized the previous decade.
Credit-market debt in Canada, with mortgages as the major component, has soared as a percentage of disposable income to a record and dangerously high 163.7 per cent. With outside experts as varied as the International Monetary Fund and the Organization for Economic Co-operation and Development warning that over-indebted Canadians are at risk from potential housing bubbles, McKay and his peers are caught in a quandary.
Canada’s Big Five banks benefit from extensive international operations, to be sure. But domestic retail banking remains the core profit centre for RBC and its Canadian competitors. Further growth there is essential to continued lofty profits — and dividends. Yet most policymakers believe it’s time to remove the punch bowl from the party, as central bankers say of exuberance that can go too far and put the financial system at risk. So at least in the short term, McKay might find himself presiding over a pull-back in RBC’s aggressive pursuit of retailbanking business, and a resulting profit decline. As recently as this month, McKay, who earned the top job as head of RBC’s retail bank, has insisted that the all-important Canadian real estate market is “balanced.” But that’s not a widely shared view, partly in light of sanguine comments ahead of the implosion of a U.S. housing bubble that sparked the Great Recession.
An RBC lifer, with 25 years’ experience in risk management, corporate banking at home and in Japan, and most recently running the domestic retail bank, McKay “does run 50 per cent-plus of the bank” already, Nixon said. The incoming CEO knows where the traps are, both in RBC’s culture and the industry worldwide. Nixon said this month that “Dave would be considered one of the best retail bankers in the world” by now had he not been working in Nixon’s shadow.
That will change on Feb. 26, when the official changing of the guard occurs. For all the potential slow-growth prospects on the immediate horizon for Canadian banks, there’s no reason to expect McKay’s acumen and prudence will serve RBC any less profitably than Nixon’s.