|
|
Records are getting to be the norm for RBC – it posted another best-ever set of earnings for its 2018 fiscal year, with earnings up 8%. Its return on equity for the full year was 17.6%, well in line with the 16%-plus target that it set at the end of 2016 as strong earnings have been coupled with share buybacks.
The growth story at RBC is usually the US, which it regards as its second home market. But in 2018 that hasn’t been the only area of progress. The bank has been building its capital markets coverage teams in the UK and continental Europe, adding senior bankers throughout the year. Overall it has added 20 managing directors to its M&A and ECM coverage effort outside Canada.
“Growth in the US remains a top priority and also in the UK, but we’re also enhancing our existing footprint in Frankfurt and Paris to serve clients in a post-Brexit environment,” says Rod Bolger, CFO of RBC.
That said, the US continues to increase in importance for the group. Five years ago revenues from there accounted for 18% of the bank’s total, now they are 23%. Bolger says that the bank is prioritizing investment in its existing businesses in the US – capital markets and wealth management – for organic growth.
In his fourth-quarter earnings call, RBC chief executive Dave McKay reminded analysts that assets were expensive and so the emphasis would be on organic growth, although he wanted to “keep our optionality”. For the moment, however, the priority is organic expansion into markets such as Boston, Washington, New York and Minneapolis.
“We’re seeing the benefits of our targeted US strategy,” Bolger says. “We are able to exchange referrals, make larger commitments and win bigger mandates to add more value for our clients because of the size and scale of our operations around the world.”
 |
| Dave McKay |
The acquisition of City National in Los Angeles in 2016 has given RBC a foothold in California, but there is plenty more that can be done there. “In California… we’re still a small market share player and we’ve got a lot of opportunity to grow our existing footprint organically,” says Bolger. The bank’s capital markets division saw record profits for the year, while its global markets operation had a respectable year in fixed income and its second best ever in equities.
The bank worked in 2018 on the $14.5 billion Melrose acquisition of GKN – it wasn’t a lead adviser, but the transaction was the largest industrials deal that the bank had advised on in Europe. And it was also a bookrunner on the $38 billion debt financing to support T-Mobile’s merger with Sprint.
Finding untapped pockets of growth potential continues to be harder in Canada, but the bank has proved that it is not impossible. Take RBC Ventures, a snazzy tech-driven way of attracting potential customers by providing them with apps and other solutions designed to solve problems and thereby encourage them to switch to RBC for their banking services.
Since introducing Ventures in June 2018, the bank has clocked up 350,000 registered users. At the time of launch the bank said it could attract five million by 2023 and the platform is an important part of the bank’s broader target to add 2.5 million customers by that time (it also added 300,000 customers to Canadian banking in 2018).
Such hopes might not be unrealistic. The bank has proved its ability to engage with users on digital platforms: it boasts 6.5 million digital users in Canadian banking and the mobile banking user base has risen 17% in the past year.
There are tech developments elsewhere too. The bank’s artificial intelligence unit, Borealis AI, now numbers more than 60 PhD researchers in five research centres. It is work like theirs that drives products like Aiden, an AI-based execution algorithm for institutional clients, or Nomi, an automated savings and analysis platform for Canadian banking customers. And the bank will shortly be releasing more details on RBC InvestEase, a robo-adviser.
As with the bank’s capital markets business, diversification of RBC’s overall exposure is an increasingly important strategy. The question of the health of Canada’s real estate market is one that RBC regularly has to consider, but moves to expand the network are having an impact. Its commercial real estate exposure is more globally diversified than ever, something that was further helped by the City National acquisition – and also by a shift into the mortgage side of the business rather than construction finance, a historically more risky area.
“We have a great growth strategy in Canada, the US and key global markets,” says Bolger. “We are making investments in people and technology to create the bank of the future, while keeping a disciplined approach to costs, deploying capital and managing risk through the cycle.”
