RBC tar­gets mar­ket share gains in US in­vest­ment bank­ing

The Pak Banker - - COMPANIES/BOSS -

Royal Bank of Canada (RBC) plans to boost its share in the US in­vest­ment bank­ing mar­ket by tap­ping op­por­tu­ni­ties with ex­ist­ing mid-sized and large clients and fill­ing gaps left by Euro­pean banks that are scal­ing back, one of its key ex­ec­u­tives said.

With Euro­pean banks like Deutsche Bank, Bar­clays and Credit Suisse ton­ing down their in­vest­ment bank­ing strate­gies and in some cases play­ing a less ag­gres­sive role in the deal flow, Cana­dian banks are ex­pand­ing their pres­ence in US cap­i­tal mar­kets. US in­vest­ment bank Mor­gan Stan­ley (MS.N) said last year that it planned to cut up to 25 per­cent of its fixed-in­come jobs.

"We've got strong mo­men­tum. Some banks are hav­ing dif­fi­cul­ties, and we're well-po­si­tioned to cap­i­tal­ize on op­por­tu­ni­ties that arise," said Blair Flem­ing, head of RBC Cap­i­tal Mar­kets in the United States.

RBC, Canada's big­gest bank, has bro­ken into the top ten in U.S. in­vest­ment bank­ing rank­ings. It ad­vised on Dell Inc's $24.4 bil­lion deal to go pri­vate in 2013 and the lever­aged buy­out of U.S. se­cu­rity com­pany ADT Corp by pri­vate equity firm Apollo Global Man­age­ment LLC this year.

RBC stepped up in­vest­ments in the US mar­ket since the fi­nan­cial cri­sis and is see­ing ben­e­fits of that push as the brand be­comes more well known and the com­pany tar­gets big­ger deals. It also ex­pects its re­cent $5 bil­lion ac­qui­si­tion of City Na­tional, a Los An­ge­les-based bank fo­cus­ing on high-net worth clients, to open doors.

As the Cana­dian mar­ket be­comes fairly sat­u­rated, the United States has be­come cen­tral to RBC's global strat­egy. "In the U.S., we're 3 per­cent against a $40 bil­lion fee pool," Flem­ing said in an in­ter­view, re­fer­ring to the com­pany's mar­ket share in U.S. in­vest­ment bank­ing. "That fee pool won't likely grow dra­mat­i­cally, but we feel we can take mar­ket share from 3 per­cent to 3.5 per­cent to 4 per­cent."

About 60 per­cent of RBC's cap­i­tal mar­kets rev­enue and net in­come is from the United States. Its U.S. cap­i­tal mar­kets rev­enue is dou­ble the cap- ital mar­kets rev­enue from Canada.

While RBC wants to grow, it is not eye­ing a top 5 po­si­tion. "Break­ing into the top 5 would re­quire a lot of cap­i­tal and tak­ing sig­nif­i­cant risk - this isn't some­thing we as­pire to," Flem­ing said. "Over­all 7 to 10 is a rea­son­able spot for us to oc­cupy."

The com­pany is also look­ing to in­crease the pro­por­tion of rev­enue that comes from M&A to about 25 per­cent, he said.

"We've ac­cel­er­ated our growth of larger M&A op­por­tu­ni­ties," said Vito Sper­duto, head of U.S. merg­ers & ac­qui­si­tions at RBC. "For ex­am­ple, the num­ber of deals that have been $5 mil­lion or higher in M&A fees has been con­sis­tently grow­ing ev­ery year."

RBC is also look­ing to take ad­van­tage of top tal­ent and could make key hires as the Euro­pean banks change gears.

RBC, which has roughly dou­bled its bankers since the fi­nan­cial cri­sis, has hired bankers from Gold­man Sachs (GS.N), Cit­i­group (C.N), Mor­gan Stan­ley (MS.N) and Bank of Amer­ica (BAC.N). Its U.S. cap­i­tal mar­kets staff head­count since 2009 has in­creased about 42 per­cent to 2,700.

"We pro­vide a bulge bracket ex­pe­ri­ence for the em­ployee, but with a bou­tique men­tal­ity," Flem­ing said.

To be sure, the en­vi­ron­ment for in­vest­ment banks is be­com­ing more chal­leng­ing. The year has seen few ini­tial pub­lic of­fer­ings, com­pa­nies with big debt piles are strug­gling to raise fund­ing, trad­ing is tough as in­vestors are risk-ad­verse and the M&A lev­els are not ex­pected to reach the records set last year.

Flem­ing said the higher level of reg­u­la­tory de­mands will in­crease costs for RBC and noted taxes are higher than in Canada. Still, RBC is look­ing to im­prove the unit's re­turn on equity and bring it closer to where it is in Canada, he said. Other Cana­dian banks have also been try­ing to crack the U.S. in­vest­ment bank­ing mar­ket in re­cent years. BMO has ex­panded ag­gres­sively since the fi­nan­cial melt­down, and TD said last year it was look­ing to dou­ble its U.S. cap­i­tal mar­kets busi­ness in three to four years.

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