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Canadians play the long game

Written by Anton Murray Consulting on . Posted in News

Michael Smith

Expansion is rare in the investment banking world but that is not worrying Doug Mc­Gregor, who is overseeing plans to increase the contribution that deals make to Royal Bank of Canada’s global operations.

McGregor, who was in Australia last week, says a measured approach is the key to the strategy. Big banks burnt during the global financial crisis know only too well the risks of expanding too quickly.

“We are going to add people but we are going to do it at a very measured pace,” McGregor says of RBC’s Australian operations. “This market has slowed down in terms of capital raising activity and it is not just around mining. My perception is there are certainly ample banks and bankers in this country.”

McGregor is chief executive of RBC Capital Markets, the investment banking arm of the Canadian giant. RBC had an advantage over its American and European rivals because it launched its push into deal-making in 2007 just when its peers were retreating. Suddenly, bankers from the likes of Lehman Brothers who would never have dreamt of working for a Canadian bank pre-crisis were knocking on the door. Scenes in the 2010 movie Wall Street: Money Never Sleeps were shot on its new trading floor in New York.

RBC is now the 13th largest bank in the world and its late push investment banking is expected to continue under new chief David McKay, who starts in August. Capitalising on a retreat by competitors and focusing on staying profitable by serving niche markets is central to the formula.

McGregor is in charge of a drive to increase targeted earnings from the investment banking business to 25 per cent from 20-21 per cent currently.

Australia, one of RBC’s four key markets, will play a role in achieving this goal and McGregor says the similarities between the two nations means the time is ripe to expand.

“The brand of Canada and Canadian banks, like Australian banks, significantly improved outside their home markets after the financial crisis,” McGregor told The Australian Financial Review while in Australia.

“We find corporations are much more receptive and interested in doing business with us outside of Canada than they would have been pre-crisis. This is the season to be hiring people.”

AUSTRALIA REGARDED THE PERFECT FIT

For a while RBC was often confused with another bank with a similar acronym, Royal Bank of Scotland, but is slowly pushing its way into the industry’s upper ranks. Its home market of Canada remains its strongest followed by the United States, Europe and Australia.

“We are not trying to fight the battle on too many fronts,” McGregor says.

Dominic Hudson and Gavin Ezekowitz, who co-head RBC’s global banking business and equity markets business in Australia, are recruiting. McGregor says there are plans to add talent to specific industries such as real estate and fixed income.

It helps that some of RBC’s biggest customers such as Brookfield, Blackstone and big Canadian pension funds, are making substantial investments in Australia.

While RBC is now pushing into real estate advisory in Australia, infrastructure remains its biggest business.

Hudson, who was elevated to the senior role about a year ago, says there are $80 billion to $100 billion worth of asset privatisation processes coming up in the e next three years. RBC is understood to have mandates on Queensland Motorways, Port of Newcastle, and Northern Star. It is close to Hastings and many of the Canadian pension funds which have been active in looking at ­Australian infrastructure.

“The Canadian pension funds are very comfortable given the similarities with the market structure, the rule of law and the culture of Australia,” McGregor says.

 

RBC PURSUES FOUR ‘VERTICALS’ STRATEGY

Infrastructure is one of RBC’s four “verticals” in Australia. It also focuses on mining and metals, also a huge industry in Canada. The other segments are oil and gas and utilities and transport as well as the more recent push into real estate.

While large miners are less active, RBC says there are still opportunities in the small to mid-cap mining space.

“Any sector that has had rapid growth or where companies have been exposed to greater risk, are likely to need additional investor capital,” says Ezekowitz, who moved to Australia in September to help build up the local business.

“We think there are going to be more ­private equity type scenarios in terms of ­refinancing businesses coming out of the cycle. We believe a number of public ­companies are well situated to make some acquisitions.”

RBC is known for its strength as a lender and McGregor says the lending environment is good in Australia with favourable returns. RBC ‘s levels of lending in Australia are in the billions of dollars.

Most investment banks have advisory boards of well-connected business leaders and Hudson said RBC was talking to several potential “senior advisers” who had expertise across the businesses it was focused on.

While RBC is outflanked by some of the larger European and American banks, it has been growing in Australia since 2006. The Australian investment banking business has about 150 staff, including 30 ­investment bankers.”

It is a long game for McGregor who says it can take decades to build the brand and relationships that you want. Being consistent through cycles was also important.

The Australian Financial Review

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