Royal Bank of Canada will probably miss its 2015 target of C$2 billion ($2.04 billion) in annual profit from it wealth-management unit because of low interest rates, the firm’s head of that business said.
Canada’s biggest bank by assets forecast last year that profit at the unit would triple its 2010 earnings, with gains from internal growth, acquisitions and “normalized” interest rates.
“Between 40 and 50 percent of that is through a normal level of interest rates, which we’re not seeing and has arguably been pushed out by at least one or two years,” George Lewis, group head of wealth management, said in an interview today after an Economic Club of Canada event in Toronto. “It’s safe to say that that would apply to the overall goal as well.”
The Bank of Canada has kept its overnight interest rate at 1 percent for more than two years, and economists don’t expect an increase in rates until at least the second half of 2013.
Royal Bank’s profit goal is more than double the C$811 million it earned from the business in the year ended Oct. 31, 2011 and triple the C$669 million earned in fiscal 2010, according to financial statements. The wealth-management unit represents about 10 percent of total profit for the Toronto-based lender this year.
Royal Bank’s “primary source of growth” for its wealth-management unit will come from within existing operations, Lewis said, though the lender is looking for small to medium-sized takeovers of asset managers outside Canada to accelerate growth. The bank would be looking at acquisitions of less than C$1 billion, he said.
Royal Bank reported C$556 million in profit from wealth management for the first three quarters of 2012, down 12 percent from a year earlier.
“We continue to do well in our asset-management business and Canadian wealth business and gain share, our U.S. business is performing better in terms of raising productivity per advisers,” Lewis, 52, said. “We’re taking the benefits of that growth that we’re seeing primarily in Canada and really building out our operations in emerging markets and the U.K., and that is creating some strain in terms of our existing P&L.”
Royal Bank rose 1.1 percent to close at C$58.75 in Toronto. The shares gained 13 percent this year, the best performer among Canada’s six-biggest banks.
“We have not changed our outlook for the wealth-management business,” Katherine Gay, a bank spokeswoman, said in an e-mail. “The only element of the plan that is behind schedule is the assumption of improving market conditions.”
Royal Bank’s wealth-management unit has more than C$562 billion of assets under administration and more than C$324 billion under management.