(Bloomberg) -- Royal Bank of Canada Chief Executive Officer Dave McKay has a list of reasons he won’t be shopping for a bank in the US anytime soon.
McKay, who leads Canada’s biggest lender, said he’s not interested in paying for someone else’s problems when it comes to attracting customer deposits or making the investments needed to grow from a mid-size regional bank to a large one.
“The first question I always ask myself on an acquisition is, ‘Why are they selling and what problems am I inheriting, and can I run this business better than the current management team can?’” he said Wednesday at Bank of Nova Scotia’s annual financial-industry conference in Toronto.
Scotiabank analyst Meny Grauman said the sentiment on Canadian takeovers of US banks seems to have turned negative, despite the fact that there’s likely a “wave of consolidation” looming in the word’s most-developed banking market.
“My message isn’t a negative — I love the US market,” McKay said, noting that it’s tricky to line up all of those factors and deliver returns for shareholders. But in today’s uncertain environment, he’d rather focus on organic growth in the US, he said, echoing a remark he made last week during RBC’s third-quarter earnings conference call: “We don’t feel we need to bet the organization on a US acquisition.”
Less than a decade ago, his first major move as CEO was to acquire Los-Angeles-based City National Bank for $5 billion. That deal has proved to be a headache in recent years, with profitability challenges, a balance sheet bailout and a regulatory fine for compliance lapses.
He characterized it as an “opportunistic” acquisition, made when the founding family was looking for an exit. While the subsidiary is “going through a bit of a lull,” he said, “we’ll make this bank great again.”
BMO’s Optimism
Bank of Montreal CEO Darryl White, whose firm acquired San Francisco-based Bank of the West last year, said he’s still optimistic about the US market despite facing some recent challenges there.
“I acknowledge the popularity index on investment in the US is not very high right now, but I think you have to be very careful to not paint that with one brush,” he said at the Scotiabank conference, noting that Wednesday was the 40th anniversary of BMO’s purchase of Chicago-based Harris Bankcorp.
BMO has been beset by sluggish revenue growth in the US, higher funding costs and more expensive deposits, White said. And its exposure to US commercial lending was a big factor in the bank’s outsize credit-loss provisions that dragged down third-quarter results.
But the size of the market dwarfs Canada’s, and White said he remains convinced that the US is the best place to deploy excess capital as a long-term strategy.
Canadian Imperial Bank of Commerce CEO Victor Dodig said Wednesday that he’s looking at organic growth in the US, and Scotiabank’s Scott Thomson touted his company’s recent announcement of plans to acquire just under 15% of Cleveland-based KeyCorp.
Toronto-Dominion Bank, meanwhile, could face regulatory limits on US acquisitions when it resolves a series of US probes into alleged lapses in its anti-money laundering controls. It already had to walk away from its $13.4 billion deal to acquire First Horizon Corp. as a result of the investigations.
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