The bank’s chief says the current political climate is making deals a struggle
Canada’s second-largest banking group is putting the brakes on plans to increase acquisitions in the US, citing risks from the political climate under President Donald Trump.
Dave McKay, president and CEO of the Royal Bank of Canada (RBC), wants to add to the platform it established via its 2015 acquisition of City National for US$5.4 billion. According to the Financial Times, he’s eyeing the states of Washington, New York, and Texas to expand its share of the US wealth-management market.
However, uncertainty in economic and fiscal reforms has made him reluctant to float the idea with the bank’s board. Given an early setback over healthcare, the Trump administration’s ability to act on other proposed policies, such as a tax-code shakeup and an infrastructure spending plan, has been cast into doubt.
McKay said that banks’ share prices, which have retained the gains they enjoined immediately after Mr Trump’s November election win, seem to assume the success of such initiatives.
“How do you value an acquisition right now? Man, I struggle,” he told the Times. “If [share prices] have built tax reform in, if they’ve built higher interest rates in, if they’ve built economic growth in, and you’d expect to pay a premium — how do you get comfortable with that risk? The answer is to focus on organic growth, and save your capital.”
RBC’s southward expansion is partly driven by credit rating agencies that have called out Canada’s biggest banks for being too heavily geared toward their domestic market. Several of Canada’s big banks got a downgrade from Moody’s, which cited their exposure to high home prices and heavy debt burdens.
RBC’s purchase of City National was the biggest deal in the US banking sector for several years, and it has been quite fruitful. McKay told analysts at a second-quarter earnings call that the unit has enjoyed double-digit growth in loans and deposits. Net income also rose 12% year-on-year to US$57 million.
In April, RBC announced assets amounting to $1.2 trillion, just a shade below Toronto-Dominion’s reported $1.25 trillion.
McKay said he will continue to run “playbooks” of potential acquisitions, mostly from the US, and not act until the uncertainties surrounding Trump’s reform agenda dissipate.
“Six months from now, you might have a much greater insight,” he said. “We’re going to use that time well, to do our homework, to tweak our playbooks, so if the right moment presents itself, we’ll be ready.”
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Dave McKay, president and CEO of the Royal Bank of Canada (RBC), wants to add to the platform it established via its 2015 acquisition of City National for US$5.4 billion. According to the Financial Times, he’s eyeing the states of Washington, New York, and Texas to expand its share of the US wealth-management market.
However, uncertainty in economic and fiscal reforms has made him reluctant to float the idea with the bank’s board. Given an early setback over healthcare, the Trump administration’s ability to act on other proposed policies, such as a tax-code shakeup and an infrastructure spending plan, has been cast into doubt.
McKay said that banks’ share prices, which have retained the gains they enjoined immediately after Mr Trump’s November election win, seem to assume the success of such initiatives.
“How do you value an acquisition right now? Man, I struggle,” he told the Times. “If [share prices] have built tax reform in, if they’ve built higher interest rates in, if they’ve built economic growth in, and you’d expect to pay a premium — how do you get comfortable with that risk? The answer is to focus on organic growth, and save your capital.”
RBC’s southward expansion is partly driven by credit rating agencies that have called out Canada’s biggest banks for being too heavily geared toward their domestic market. Several of Canada’s big banks got a downgrade from Moody’s, which cited their exposure to high home prices and heavy debt burdens.
RBC’s purchase of City National was the biggest deal in the US banking sector for several years, and it has been quite fruitful. McKay told analysts at a second-quarter earnings call that the unit has enjoyed double-digit growth in loans and deposits. Net income also rose 12% year-on-year to US$57 million.
In April, RBC announced assets amounting to $1.2 trillion, just a shade below Toronto-Dominion’s reported $1.25 trillion.
McKay said he will continue to run “playbooks” of potential acquisitions, mostly from the US, and not act until the uncertainties surrounding Trump’s reform agenda dissipate.
“Six months from now, you might have a much greater insight,” he said. “We’re going to use that time well, to do our homework, to tweak our playbooks, so if the right moment presents itself, we’ll be ready.”
For more of Wealth Professional's latest industry news, click here.
Related stories:
RBC acquisition paying dividends
Canadian fund giant steps up with second real-asset ETF
