Dave McKay cites potential challenges and opts for US growth without major acquisitions
Dave McKay, chief executive officer of Royal Bank of Canada (RBC), has shared several reasons why he is not considering purchasing a US bank at this time.
According to BNN Bloomberg, McKay, who leads Canada’s largest lender, expressed concern about inheriting problems associated with attracting customer deposits and making the investments required for growth.
He explained his stance at Bank of Nova Scotia’s annual financial-industry conference in Toronto.
“The first question I always ask myself on an acquisition is, ‘Why are they selling and what problems am I inheriting, and can I run this business better than the current management team can?’” McKay said.
Scotiabank analyst Meny Grauman highlighted that despite the potential for a “wave of consolidation” in the US banking sector, sentiment regarding Canadian takeovers of US banks has become more negative.
McKay clarified that he still appreciates the US market, stating, “My message isn’t a negative — I love the US market.” However, he emphasized that it is difficult to align all the necessary factors to ensure shareholder returns, particularly in the current uncertain environment.
As a result, he prefers to focus on organic growth in the US rather than pursuing acquisitions, as he mentioned during RBC’s third-quarter earnings call: “We don’t feel we need to bet the organization on a US acquisition.”
McKay’s previous acquisition of Los Angeles-based City National Bank for $5bn, his first major move as CEO nearly a decade ago, has faced profitability issues, requiring a balance sheet bailout and dealing with regulatory fines for compliance lapses.
He referred to the acquisition as “opportunistic,” made when the founding family sought an exit, and remains optimistic about its future, saying, “We’ll make this bank great again.”
Meanwhile, Bank of Montreal (BMO) CEO Darryl White expressed continued optimism about the US market, despite facing some challenges. BMO acquired San Francisco-based Bank of the West last year and has dealt with sluggish revenue growth, higher funding costs, and expensive deposits in the US.
White acknowledged the difficulties but remains committed to investing in the US as a long-term strategy.
Canadian Imperial Bank of Commerce (CIBC) CEO Victor Dodig also indicated a focus on organic growth in the US, while Scotiabank’s Scott Thomson pointed to the company’s plans to acquire a stake in Cleveland-based KeyCorp.
Toronto-Dominion (TD) Bank, however, faces regulatory limitations on US acquisitions due to ongoing probes into anti-money laundering compliance, which caused it to abandon its $13.4bn deal to acquire First Horizon Corp.
