By John Tilak
NEW YORK, March 3 (Reuters) - Royal Bank of Canada plans to boost its share in the U.S. investment banking marketby tapping opportunities with existing mid-sized and largeclients and filling gaps left by European banks that are scalingback, one of its key executives said.
With European banks like Deutsche Bank, BarclaysPlc and Credit Suisse toning down theirinvestment banking strategies and in some cases playing a lessaggressive role in the deal flow, Canadian banks are expandingtheir presence in U.S. capital markets.
U.S. investment bank Morgan Stanley said last yearthat it planned to cut up to 25 percent of its fixed-incomejobs.
"We've got strong momentum. Some banks are havingdifficulties, and we're well-positioned to capitalize onopportunities that arise," said Blair Fleming, head of RBCCapital Markets in the United States.
RBC, Canada's biggest bank, has broken into the top ten inU.S. investment banking rankings. It advised on Dell Inc's $24.4billion deal to go private in 2013 and the leveraged buyout ofU.S. security company ADT Corp by private equity firm ApolloGlobal Management LLC this year. (http://reut.rs/1UBoblc)
RBC stepped up investments in the U.S. market since thefinancial crisis and is seeing benefits of that push as thebrand becomes more well known and the company targets biggerdeals. It also expects its recent $5 billion acquisition of CityNational, a Los Angeles-based bank focusing on high-net worthclients, to open doors.
As the Canadian market becomes fairly saturated, the UnitedStates has become central to RBC's global strategy.
"In the U.S., we're 3 percent against a $40 billion feepool," Fleming said in an interview, referring to the company'smarket share in U.S. investment banking. "That fee pool won'tlikely grow dramatically, but we feel we can take market sharefrom 3 percent to 3.5 percent to 4 percent."
About 60 percent of RBC's capital markets revenue and netincome is from the United States. Its U.S. capital marketsrevenue 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 andtaking significant risk - this isn't something we aspire to,"Fleming said. "Overall 7 to 10 is a reasonable spot for us tooccupy."
The company is also looking to increase the proportion ofrevenue 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 orhigher in M&A fees has been consistently growing every year."
RBC is also looking to take advantage of top talent andcould make key hires as the European banks change gears.
RBC, which has roughly doubled its bankers since thefinancial crisis, has hired bankers from Goldman Sachs,Citigroup, Morgan Stanley and Bank of America. Its U.S. capital markets staff headcount since 2009 hasincreased about 42 percent to 2,700.
"We provide a bulge bracket experience for the employee, butwith a boutique mentality," Fleming said.
To be sure, the environment for investment banks is becomingmore challenging. The year has seen few initial publicofferings, companies with big debt piles are struggling to raisefunding, trading is tough as investors are risk-adverse and theM&A levels are not expected to reach the records set last year.
Fleming said the higher level of regulatory demands willincrease costs for RBC and noted taxes are higher than inCanada.
Still, RBC is looking to improve the unit's return on equityand 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 expandedaggressively since the financial meltdown, and TD said last yearit was looking to double its U.S. capital markets business inthree to four years.
(Reporting by John Tilak; Editing by Chizu Nomiyama)
Barclays (BARC)
