Royal Bank of Canada has its sights set on expansion in Asia, with an eye to building its wealth management business to take advantage of China's rising prosperity.
But Canada's largest bank is being forced to play a waiting game when it comes to acquisitions there.
Amid upheaval in the European banking sector, dozens of banks across Europe are jettisoning assets around the globe to raise capital and shore up their balance sheets. But the fire sale doesn't apply when it comes to Asia. Those same financial institutions are holding on tightly to their wealth management assets in the region, believing China and other nearby countries will be their salvation for growth.
"We know there are certain banks that are going to give up [on Asia] but nobody's ready to blink yet," Barend Janssens, RBC's head of wealth management in emerging markets, said in a recent interview.
"There is a lot of pressure in the European markets for a lot of these banks, so they are trying to find their growth in places like Asia … They all still think they're going to grow to unbelievable numbers. But unfortunately with 125 market participants, it's not going to happen for all 125, that's for sure."
In the meantime, RBC has looked elsewhere for deals to expand its global wealth management arm, which caters to wealthy investors. Last month, RBC struck a deal to buy Royal Bank of Scotland Group PLC's private banking assets in Latin America, Africa and the Caribbean, which will add about $2-billion in assets under management to the books.
Analysts say wealth management, though hindered by low interest rates of late, provides healthy returns for banks without tying up capital. Canadian banks have been on the acquisition trail over the past two years, looking to expand their wealth management divisions by plucking profitable assets from international banks needing to sell.
In addition to RBC, Bank of Montreal and Bank of Nova Scotia have both bolstered their capabilities in Asia, while Canadian Imperial Bank of Commerce has purchased a stake in a U.S. firm.
RBC has the largest wealth management business of the Canadian lenders. That focus has led to overtures from motivated sellers in Europe looking to shed assets, such as the recent Royal Bank of Scotland deal.
"We've been very public about our growth ambitions," said George Lewis, head of RBC Wealth Management. "When [banks]come to a decision to exit a certain business, we receive the call because they know that we have the strategy."
Offers to buy in the Asian market remain sparse for now. It is a lucrative place to do business, but far more fragmented than North America, Europe or Latin America, Mr. Janssens said.
Customers in Asia with $5-million or more to invest will use as many as four banks on average for their wealth management. By comparison, investors in other countries will typically use one or two. "It is a much more competitive environment," Mr. Janssens said.
RBC manages about $20-billion of assets for clients in emerging markets including Asia, Latin America, the Middle East and Africa. But the bank figures it can more than double that number, driven particularly by business in Asia.
Despite the recent Royal Bank of Scotland acquisition that focused on non-Asian markets, "our first and foremost opportunity is Asia," Mr. Janssens said, noting that there are 300,000 Canadian passport holders in Hong Kong's population of seven million. "We have a significant opportunity as a Canadian bank, just because of the fact there are so many links to Canada already," he said.
At home, RBC wants to expand its share of the wealth management business in Canada to 20 per cent from 17 per cent in the next three years. In 2010, RBC had about 15 per cent of that market, but has been adding staff and picking up assets since its 2008 acquisition of investment firm Phillips Hager & North.
"We are actively looking for small and medium-sized opportunities to really tuck into our existing businesses," Mr. Lewis said. "It continues to be our primary area of focus for acquisition capital."