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Royal Bank of Canada cautiously eyes M&A landscape

26/03/08

By Lynne Olver

TORONTO (Reuters) - Royal Bank of Canada is looking to acquire talent as the credit crunch takes its toll on investment banks, but it will not make a big deal in that area, its chief executive said on Wednesday.

"You're not going to see a significant acquisition on the wholesale side," RBC President and CEO Gordon Nixon told a Canadian financial services conference.

"Yes, we are interested in being an opportunistic buyer, but not in the capital markets side of the business."

RBC, Canada's largest bank, prefers to keep corporate and investment banking at around 25 percent of its overall business, but it is looking at adding investment banking teams or certain parts of wholesale banks, Nixon said.

"What we are seeing on the corporate and investment banking side is an opportunity to acquire talent and to do business that we have not seen in many years," he said.

He indirectly shot down a rumor that RBC had taken a look at acquiring stricken investment bank Bear Stearns Cos Inc , saying "we would not make an investment that would take our corporate and investment banking operations up to the level that something like that would have done."

JPMorgan Chase sweetened its offer this week to buy Bear Stearns, with the deal value rising to about $2.1 billion.

RBC has recently struck deals to acquire wealth-management businesses in Canada and the United States, and it is looking to do further acquisitions in wealth management and global private banking.

Its natural orientation is to look for smaller or mid-size "tuck-in" acquisitions and it will not look outside its existing strategies to buy firms, Nixon said.

"We're not going to go out and buy a consumer finance business because it's cheap and available," he said.

As for large or so-called "transformational" deals, banks are always considering those, Nixon said.

"I think the only thing that's different from a year ago is (that) the relative size of different financial institutions around the world has just changed so dramatically," he said.

"It's just staggering...banks that were significantly larger than us or other Canadian banks are now significantly smaller."

That means RBC can consider doing deals that were not in the realm of possibility before the credit crisis hit, but "whether they make sense strategically or whether we are bold enough to consider those is something that we spend time on, but (is) very difficult to predict."

The U.S. banking environment is "very challenging" and it is tough to earn returns, yet there are still "weak banks" whose stocks are trading at higher price-to-book ratios than RBC's, Nixon said.

"So while there may be opportunities, I'm not sure that our shareholders would be supportive, even at today's prices and today's economic environment, of taking those kinds of steps."

RBC's stock has fared better than other Canadian bank stocks this year, as some of its rivals took much-bigger writedowns related to deteriorating credit markets.

RBC shares were down 1.9 percent at C$47.68 on the Toronto Stock Exchange on Wednesday, and are down about 6 percent year-to-date.

($1=$1.02 Canadian)

(Reporting by Lynne Olver; Editing by Peter Galloway)