Canada's Economy - Royal Bank’s Nixon Says Worst of Crisis Is Over
April 1 (Bloomberg)
The Royal Bank of Canada Chief Executive Officer Gordon Nixon says the worst of the financial crisis may be over.
“The financial services crisis has stabilized,” Nixon said in an interview yesterday in New York. “The worst is over.”
Still, Canada’s biggest lender is in no rush to buy U.S. banks. The Toronto-based bank hasn’t made a U.S. acquisition since its $1.64 billion takeover of Alabama National Bank Corporation in February 2008, even as the financial crisis has driven down bank stocks.
Prime Minister Stephen Harper is urging the Canadian lenders to take advantage of their strengths to expand abroad, according to an interview published yesterday in the Financial Times.
“There’s no question that if you believe that companies in your country should be continuing to expand, to grow internationally, it is an opportunity today that wasn’t there previously,” Nixon said. “At the same time, in today’s environment, you don’t want to do things that compromise your financial strength.”
Nixon said there is still too much “uncertainty” in the U.S. market to make acquisitions to add to its consumer bank based in Raleigh, North Carolina and its New York-based investment bank.
“We’re not capable of making decisions in an environment with a significant degree of uncertainty in terms of what regulation rules are,” Nixon said. “Until that uncertainty clears up, we’re going to continue to be fairly conservative.”
More Opportunities
Royal Bank’s patience may be rewarded, said Ian Nakamoto, director of research at MacDougall MacDougall & MacTier Inc. in Toronto, which owns Royal Bank shares among about $2.4 billion in assets. “There still seems to be a lack of confidence in U.S. financials,” he said. “Why should you rush in now and buy something? Those who have gotten in early have paid the price dearly.”
Nixon said the bank is more concerned about the economy than about the crisis in the financial services industry. Rising loan losses led to a 15 percent decline in first-quarter profit, to C$1.05 billion ($830 million).
“What we are watching much more carefully today is Main Street,” he said. “What’s happening to credit cards, what’s happening to consumer loans.”
Nixon said opportunities are emerging to deploy capital in the U.S. at attractive rates of return due to the need for funding. The bank probably has at least C$3 billion in excess capital that could be used for acquisitions, said John Aiken, a bank analyst at Dundee Securities in Toronto.
Take Advantage
“We’re certainly spending a lot of time thinking about how we take advantage to some degree of what may unfold in the U.S. marketplace and other parts of the world,” he said.
He added that Royal Bank may pursue acquisitions “over the next three years.”
Nixon, 52, wouldn’t say what business areas the bank would target when it resumes acquisitions.
“This is going to sound really boring,” Nixon said. “We have been saying the same thing for the last eight years since I’ve been around, which is that we like our diversified strategy because we think it serves us well through good times and difficult times.”
He said the bank tries to limit its investment-banking earnings to no more than 30 percent of overall profit, with the rest coming from consumer lending and money management.
Recent Takeovers
Royal Bank has spent more than C$2 billion on U.S. acquisitions in the past three years, including Atlanta-based Flag Financial Corp. and Alabama National. The bank also bought RBTT Financial Holdings Ltd. in Trinidad and Tobago for about $2.2 billion in June.
“There are probably going to be significantly better opportunities over the next five years than during the last five years,” Nixon said.
Royal Bank rose 98 cents, or 2.7 percent, to C$36.78 in Toronto Stock Exchange trading yesterday.