RBC To Curb Its Efforts to Be a Top 10 Investment Bank in the U.S.

Royal Bank of Canada has doubled the size of its investment bank over the last five years, but it's now curbing hires and expansion amid volatile capital markets.

That news comes directly from RBC Capital Markets co-head Doug McGregor, who told Bloomberg that “this is the time to consolidate and try to make some money.”

“I don’t think you’ll see any headlines about us doing anything dramatic in terms of major hires or buying businesses,” McGregor said. “You’ll hopefully just see us be profitable consistently throughout the course of the year and continue to take market share.” RBC may benefit in 2012, for instance, as rival banks retreat from investment banking amid the European debt crisis and as they face regulatory demands to bolster capital, McGregor said.

Careful and calculated approach

Toronto recruiter Janice Detta Colli, a Boyden managing director in Toronto heading its financial services practice in Canada, says the latest developments don’t surprise her one bit. She sees them as more a sign of RBC’s careful and calculated approach to doing business than anything else.

“Royal Bank is always focused on being in the number one position and generating a profit for shareholders,” Detta Colli told eFinancialCareers.

This is a bank with a history of “completing every strategy and moving on to the next level,” she says, noting that RBC garnered some phenomenal talent for their investment banking operation as a result of the U.S. fallout—building a large team of industry specialists in New York, for instance. “Now they’re simply corralling their talent and focusing on their goals.”

Increasing its U.S. business 

And it's true that so far its strategies have paid off for Canada's largest lender by assets. RBC Capital Markets scored an annual profit of C$1.58 billion on revenue of C$5.93 billion for the year ended October 31. Three years earlier, the division had a profit of C$1.17 billion in sales. RBC also provided lending to an additional 300 U.S. companies in the last year, increasing its U.S. loan book by about 25 percent, said McGregor.

According to Bloomberg, RBC has extended its coverage of industries, added more bankers and traders and gained corporate clients, while rising up in the rankings for firms advising on U.S. takeovers and arranging stock sales. The bank's goal says Bloomberg is to be a Top 10 investment bank in the U.S.

Not escaping the cutbacks

RBC has not totally escaped the cutback trends that have been so popular at other banks, as it had 585 fewer employees last quarter from the previous period. It’s not a huge reduction, however, since all told, RBC Capital Markets alone has about 6,000 employees, which includes about 3,600 investment bankers, research analysts and traders—about double the workforce it had in early 2007.

“I would not take [the latest news] as a sign they’re in any type of trouble or struggling in any way,” recruiter Detta Colli reiterates, observing that RBC’s numbers have been “phenomenal” overall, and that noting that in Canada, where RBC Capital Markets has a major operation in Toronto, 2011 was a great year for investment banking.

Most likely, RBC has its next phase of expansion set already, she says.