RBC Eyes Bigger Cut of $40 Billion in U.S. Investment-Bank FeesBy
Royal Bank wants to lift its fee-pool share to 4.5% from 3.5%
TD sees need to ‘significantly’ grow U.S. wholesale business
Royal Bank of Canada seeks to capture as much as 4.5 percent of the $40 billion pool of U.S. investment-banking fees within three years as it expands operations in the world’s largest market for deal-making.
Royal Bank currently collects 3.5 percent of fees paid to investment banks for U.S. activities such as advising on takeovers, arranging equity financing and managing bond sales, according to Blair Fleming, head of RBC Capital Markets in the U.S.
“We’re punching at a decent level,” Fleming said Tuesday during a panel discussion in Toronto hosted by Bloomberg LP, adding that the bank is aiming for share of 4 percent to 4.5 percent in the next two to three years.
Domestic rivals Bank of Montreal and Toronto-Dominion Bank also are seeking ways to gain more U.S. investment-banking business. BMO Capital Markets is coming off its biggest year for U.S. deal-making in 2016, while Toronto-Dominion’s TD Securities is looking to build up what is the smallest U.S. operation among the three Canadian banks with significant capital markets businesses ik.
Bank of Montreal, which has about 900 capital markets employees across the U.S., intends to follow last year’s success by doing “more of the same,” Patrick Cronin, head of BMO Capital Markets, said in the panel discussion. Leveraging the bank’s balance sheet for lending and building on longstanding ties with companies will be key components to expanding U.S. share, he said.
“Part of it is just simply the maturation of client relationships," Cronin said. “It’s just a slow and steady maturity of that relationship that leads to bigger transactions and more relevant positions within transactions."
Toronto-Dominion, whose largest U.S. operation is its TD Bank retail lender, has been ramping up wholesale banking under Glenn Gibson, regional head for TD Securities USA. The firm has about 1,000 employees in U.S. wholesale banking, compared with about 23,000 in retail businesses including TD Bank.
“My role in the last three years has really been to develop and try and build our wholesale brand in the U.S.," Gibson said. “When you look at our retail brand on the East Coast, what we’re trying to do on the wholesale side is leverage off of that."
TD Securities in the U.S. is on track for a goal outlined in 2015 to boost lending to multinational companies and double the number of corporate, institutional and government clients within three to five years, Gibson said. He also sees growth potential from its January purchase of New York-based prime brokerage Albert Fried & Co.
“TD Securities is only 10 percent of the bank’s earnings and we need that to be bigger -- ideally I’d like it to be up in 12 to 15 percent,” Gibson said. “The only way we’re going to get TD Securities to that level is grow significantly our U.S. business.”
Royal Bank found success by expanding through the 2008 financial crisis when U.S. rivals shrunk and foreign firms retreated, recruiting bankers, gaining more business and leveraging its balance sheet. Today, about 70 percent of Royal Bank’s net income from the U.S. comes from its capital markets business, according to Fleming. RBC set a goal in 2010 of becoming a top 10 investment bank in the U.S. for all its lines of business.
“We’re top 10 in virtually every product except for M&A," Fleming said. “M&A is the toughest product because it’s board level, it’s CEO level, it takes a long time to develop the credibility. That’s obviously the silver grail."