Royal Bank Drops Reference to U.S. From 2011 Goals

Royal Bank of Canada dropped references to the U.S. from its strategic goals for next year, a sign that Canada’s largest lender may be putting less emphasis on its money-losing U.S. consumer bank.

In its 2010 annual report released today, the Toronto-based bank stated it wanted “globally, to be a leading provider of capital markets and wealth-management solutions.” In annual reports for the previous eight years, the goals included being a leading provider of banking in the U.S.

The language change comes after Royal Bank posted 10 consecutive quarterly losses in its international banking division, which includes Raleigh, North Carolina-based RBC Bank.

“This may be an indication that they’re either going to look to exit completely out of the U.S., or at least not put any more assets in that direction,” said Barry Schwartz, who helps manage about C$375 million ($373 million) including Royal Bank shares at Baskin Financial Services Inc. in Toronto.

The change reflects how investment banking and wealth management have become bigger businesses than consumer lending in the U.S., Barbara Stymiest, group head of strategy, treasury and corporate services, said today in an interview. RBC Bank now falls within the company’s goal of being a leading provider of select financial services in “targeted markets”.

“We remain committed to the U.S. banking business and the Caribbean banking business,” Stymiest said. “We are very focused in terms of our commitment to the U.S. and turning it around.”

U.S. Expansion

Royal Bank spent about $4.6 billion on U.S. consumer banks since 2001, when it entered the U.S. market with its $2.1 billion takeover of Centura Banks. Royal Bank has spent more than a year reorganizing the consumer lender since taking a C$1 billion writedown on the business in April 2009.

Royal Bank exited the U.S. life and health insurance business in October when it sold Liberty Life Insurance a decade after buying it for $650 million. The bank reported a C$116 million loss today from that sale.

The goal revision doesn’t suggest Royal Bank will stop investing in Caribbean banking, U.S. banking and the RBC Dexia custodial business, Chief Executive Officer Gordon Nixon said.

“I would say it’s more of a tweak of our goals to be consistent with what we’ve been building over the last period of time,” Nixon said during a conference call with analysts today. “Our truly global businesses are wealth management and capital markets.”

Wealth Management

“Our aspiration is not to build a global retail banking operation,” Nixon said. “If you look at what we’re going to do in China and India and South America and Europe, it’s going to be geared towards wealth management and capital markets.”

Nixon said in a March interview that “everything is on the table” in weighing options for its U.S. consumer bank, including a sale, merger or takeovers to revive the business.

Buying troubled U.S. banks “is not a short-term priority for us because we’re very focused on fixing what we’ve got,” Stymiest said today.

James Westlake, who oversees international banking for Royal Bank, said he expects his division to have quarterly profits during fiscal 2011. That may not be enough for investors like Schwartz.

“The results have been lousy in international,” Schwartz said. “It’s time to cut the cord and move on.”

Royal Bank fell C$2.47, or 4.4 percent, to C$53.25 by the 4 p.m. close of trading on the Toronto Stock Exchange, the biggest drop since May 2009.

To contact the reporters on this story: Doug Alexander in Toronto at dalexander3@bloomberg.net; Sean B. Pasternak in Toronto at spasternak@bloomberg.net.

To contact the editor responsible for this story: David Scanlan at dscanlan@bloomberg.net; David Scheer at dscheer@bloomberg.net

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