The word is out. RBC, Canada’s largest bank, is in the bidding for Bank of America’s non-U.S. wealth management business.
While it’s tough to make firm predictions right now, Royal Bank of Canada and Credit Suisse reportedly are among those making initial bids to buy the non-U.S. wealth management business of Bank of America in a deal that could be worth about $2 billion. Strategically, the deal would make a lot of sense for RBC in particular, says recruiter Janice Detta Colli of Boyden Toronto.
Reuters has reported that Swiss bank Julius Baer is also among those bidding for some of BofA's units in Europe, the Middle East, Latin America and Asia excluding Japan, according to knowledgeable sources.
It’s believed that BofA is auctioning off the business because its non-U.S. wealth division—which manages about $90 billion of an estimated $2 trillion that the wealth division oversees—is too small to produce “meaningful profits,” according to Reuters. The news agency added that the deal is expected to be the biggest in the wealth management industry since ING Group sold its private banking assets in Europe and Asia in 2010 to Julius Baer and Singapore's Oversea-Chinese Banking Corp, respectively, for a total of about $1.9 billion.
For its own part, RBC has made clear it wants to expand its wealth management operations organically and with small- and medium-sized acquisitions. It is also buying some overseas units of the Coutts private banking business from Royal Bank of Scotland. Other acquisitions over the past couple of years have included British fund manager BlueBay Asset Management for $1.5 billion.
Reporting second quarter earnings last week, RBC stated that its wealth management net income was C$212 million—down C$15 million compared to last year due to favorable accounting and tax adjustments which occurred a year earlier. Still, RBC said, there were higher transaction volumes in the latest period, “reflecting improved market conditions in the early part of the quarter and higher average fee-based client assets resulting from capital appreciation and higher net sales.”
"In wealth management, we are attracting new clients, improving efficiencies and investing in our business to strengthen our global leadership position," RBC President and CEO Gordon Nixon said. "Our agreement to acquire certain private banking assets from Coutts aligns with our strategy to increase market share in high net worth segments within key emerging markets,” he added.
“Strategically it makes a lot of sense for the Canadian banks—and specifically RBC—to buy up American wealth divisions to extend their international footprint,” Detta Colli told eFinancialCareers. “The Canadian banks have the cash to spend so it is a good time to grow,” she says, and “Royal Bank [in particular] wants to have that international footprint given that so many of its Canadian clients have homes in other locations.”
The ability to offer the same service to customers whether they reside in Hong Kong or Toronto would be “phenomenal for RBC,” the recruiter says.
Moreover, “These assets are already in one nice, neat package so that makes a lot of sense to—as opposed to them going out and doing due diligence on each geo area and buying one at a time.”
Finally, whereas Detta Colli doubts RBC would be recruiting new hires in 2012 based on intelligence about a potential bid that the bank has not as yet acknowledged, she says if such a deal were to emerge, there could be a need for RBC to hire wealth professionals later on in some of the geographic regions where BofA has maintained only minor operations.
For now, Bank of America's commission-based compensation model is proving to be a challenge for many suitors, sources tell Reuters.
Private banking—like other financial planning sectors—is an area where financial adviseps increasingly are being paid fees based on assets under management.