RBC targets market share gains in U.S. investment banking

By John Tilak
NEW YORK, March 3 (Reuters) - Royal Bank of Canada RY.TO
plans to boost its share in the U.S. investment banking market
by tapping opportunities with existing mid-sized and large
clients and filling gaps left by European banks that are scaling
back, one of its key executives said.
With European banks like Deutsche Bank DBKGn.DE , Barclays
Plc BARC.L and Credit Suisse CSGN.VX toning down their
investment banking strategies and in some cases playing a less
aggressive role in the deal flow, Canadian banks are expanding
their presence in U.S. capital markets.
U.S. investment bank Morgan Stanley (NYSE:MS) MS.N said last year
that it planned to cut up to 25 percent of its fixed-income
jobs.
"We've got strong momentum. Some banks are having
difficulties, and we're well-positioned to capitalize on
opportunities that arise," said Blair Fleming, head of RBC
Capital Markets in the United States.
RBC, Canada's biggest bank, has broken into the top ten in
U.S. investment banking rankings. It advised on Dell Inc's $24.4
billion deal to go private in 2013 and the leveraged buyout of
U.S. security company ADT Corp (NYSE:ADT) by private equity firm Apollo
Global Management LLC APO.N this year. (http://reut.rs/1UBoblc)
RBC stepped up investments in the U.S. market since the
financial crisis and is seeing benefits of that push as the
brand becomes more well known and the company targets bigger
deals. It also expects its recent $5 billion acquisition of City
National, a Los Angeles-based bank focusing on high-net worth
clients, to open doors.
As the Canadian market becomes fairly saturated, the United
States has become central to RBC's global strategy.
"In the U.S., we're 3 percent against a $40 billion fee
pool," Fleming said in an interview, referring to the company's
market share in U.S. investment banking. "That fee pool won't
likely grow dramatically, but we feel we can take market share
from 3 percent to 3.5 percent to 4 percent."
About 60 percent of RBC's capital markets revenue and net
income is from the United States. Its U.S. capital markets
revenue is double the capital markets revenue from Canada.
While RBC wants to grow, it is not eyeing a top 5 position.
"Breaking into the top 5 would require a lot of capital and
taking significant risk - this isn't something we aspire to,"
Fleming said. "Overall 7 to 10 is a reasonable spot for us to
occupy."
The company is also looking to increase the proportion of
revenue that comes from M&A to about 25 percent, he said.
"We've accelerated our growth of larger M&A opportunities,"
said Vito Sperduto, head of U.S. mergers & acquisitions at RBC.
"For example, the number of deals that have been $5 million or
higher in M&A fees has been consistently growing every year."
RBC is also looking to take advantage of top talent and
could make key hires as the European banks change gears.
RBC, which has roughly doubled its bankers since the
financial crisis, has hired bankers from Goldman Sachs (NYSE:GS) GS.N ,
Citigroup (NYSE:C) C.N , Morgan Stanley MS.N and Bank of America (NYSE:BAC)
BAC.N . Its U.S. capital markets staff headcount since 2009 has
increased about 42 percent to 2,700.
"We provide a bulge bracket experience for the employee, but
with a boutique mentality," Fleming said.
To be sure, the environment for investment banks is becoming
more challenging. The year has seen few initial public
offerings, companies with big debt piles are struggling to raise
funding, trading is tough as investors are risk-adverse and the
M&A levels are not expected to reach the records set last year.
Fleming said the higher level of regulatory demands will
increase costs for RBC and noted taxes are higher than in
Canada.
Still, RBC is looking to improve the unit's return on equity
and bring it closer to where it is in Canada, he said.
Other Canadian banks have also been trying to crack the
U.S. investment banking market in recent years. BMO has expanded
aggressively since the financial meltdown, and TD said last year
it was looking to double its U.S. capital markets business in
three to four years.
RBC climbs U.S. investment banking rankings http://reut.rs/1UBoblc
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