Still spreading its wings
With record net income that rose 4% year on year, helped by strong performances in personal and commercial banking and wealth management that helped to offset a tougher environment for capital markets, RBC showed the importance of its broad spread of business in 2019.
While its international presence is one of the differentiating factors for the firm, David McKay’s RBC is showing that it is possible to squeeze growth out of its domestic market in spite of challenges – and it did so particularly in wealth management and mortgages during the year.
“Our fiscal 2019 performance is a testament to the strength of our diversified business model and unwavering focus on delivering value for our clients and shareholders, even against a challenging operating environment,” says Rod Bolger, chief financial officer of RBC.
That environment, characterized by macro headwinds such as low rates and trade tensions, is why Bolger argues that it is more important than ever that a bank differentiates itself from the competition through its client experience and its advice.
RBC stands out among its domestic peers for the fact that its overseas operations go well beyond the obvious expansion into the US market – although the country that Bolger describes as the bank’s “second home market” remains the most important avenue for growth abroad.
“Growth in the US market remains a key pillar of our strategy,” he says. “We will continue building our businesses and leveraging synergies across our teams to strengthen our brand in the US.”
One important avenue for that growth is in the bank’s wealth management business in the US, which includes the City National Bank brand where RBC has invested in more client-facing roles over the year.
But as important is the capital markets business, where RBC has notched up some notable wins, including acting as sole adviser to BB&T in its merger with SunTrust.
Europe has long been a focus for the bank – it has operated there for 110 years. And it is still building literally as well as figuratively. It is opening a new headquarters in London that will bring together its capital markets, wealth management and investor and treasury services businesses.
It has also been busy growing across the continent, with expanded office space in Germany, senior hires in France and more staff for its M&A and infrastructure teams in Spain. Over the last year the bank opened a new office in Amsterdam, from which it will serve clients across the Benelux region.
For the moment though, the priority is more of the same organic growth.
While RBC has pursued overseas expansion more readily than most of its domestic peers, Bolger argues that there are still opportunities in the Canadian market.
He points to strong mortgage volume growth of 6% year on year in 2019 and deposit growth of 9% across retail and commercial. The bank added 300,000 net new clients in its Canadian banking business, repeating the performance it saw in 2018.
The bank has the biggest adviser network in Canada – it added more than 200 in the last year – and is working to recast how it interacts with clients through continued development of its online and mobile channels. It now has 7.2 million active digital users, a rise of 8% year on year. Digital is a big topic at RBC. It helps that the bank has its own fintech startup – RBC Ventures – which has now helped it create 3.2 million connections with Canadian individuals. It has 17 ventures that are already in the market and there are another 14 under development.
Some of these are fairly conventional: advice on moving to Canada, an app for organizing personal memberships and subscriptions, as well as numerous cash-back initiatives that tap into a variety of store networks. But others help with house purchases or prompt you to take out your garbage on the right day.
What all these initiatives share, however, is a drive to become embedded in people’s day-to-day lives. The programme is a response to the competition being felt across the financial services industry from the big global technology companies that latched onto that strategy quicker than other sectors; the key to it is in attracting interest and use by people who are not yet clients.
The bank wants five million users of its digital offerings by 2023 and it has previously spoken of a target of converting 10% of those into full customers. For Bolger, building new technological capabilities goes hand in glove with the drive for more efficiency and the capture of growth in difficult conditions.
“We’re managing the bank with a disciplined approach to costs, deploying capital and managing risk through the cycle,” he says. “The strength of our balance sheet and our focus on prudent risk management positions us well to help our clients navigate any market environment.”