How RBC is making waves in New York
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Boyd Erman / Globe and Mail - Capital Markets Reporter May 23, 2010
Jonathan Hunter, left, global co-head fixed income and currencies at RBC Dominion Securities, and Mark Standish, co-CEO, at the RBC trading floor in New York City Micheal Falco For The Globe and Mail
With one of the largest trading floors in the Big Apple, Canada’s biggest bank shows off its new-found heft
Royal Bank of Canada's (RY-T55.39-1.46-2.57%) sprawling trading floor in New York drives home just how big the bank has become south of the border, and that is exactly the point.
With seats for more 700 traders buying and selling stocks, bonds, currencies and derivatives, RBC reckons it’s one of the largest floors in the city. It’s much bigger than the trading floor at the firm’s Toronto headquarters – from which the bank ranks tops in most aspects of Canadian capital markets – or its London outpost.
It’s a crucial time in the U.S. market. The competition is on the rebound as U.S. firms that had been hit hard by the credit crisis try to fight back. Hiring bankers has become much tougher and more expensive as markets have rebounded. Competitors are becoming more aggressive in lending, and are even starting to stake out ground again in RBC’s backyard in Canada.
For clients and potential customers unfamiliar with RBC’s new heft in the U.S., the trading floor is an education.
“When you bring a client for the first time onto the trading floor, you literally see their eyes widen and their comment is ‘I had no idea,’ ” said Mark Standish, the New York-based half of the co-chief executive officer team that runs RBC Dominion Securities Inc.
What’s more, the vast floor is not big enough. RBC is expanding its trading operations onto another level of the World Financial Center tower where the firm has its New York offices, just across from the old World Trade Center site.
The U.S. securities business, which includes bankers as well as traders, has gone to about 2,000 people from around 800 in about three years time.
That’s more people than at RBC’s Canadian capital markets operations. The U.S. side now brings in more revenue and, for the first time, RBC is now beginning to earn more in profit from capital markets south of the border than in Canada.
“Maintaining our market share and being the leading financial institution here [in Canada] is our highest priority, but the opportunity in the U.S. is quite incredible,” said Doug McGregor, the other, Toronto-based half of the co-CEO tandem.
It’s not just U.S. clients who don’t realize how much the centre of gravity has shifted toward New York. When Canadian clients hear the size of the U.S. operation, they are taken aback, Mr. McGregor said.
“Nine out of 10 look at me like I don’t know what I’m talking about, or I’ve made a mistake. They don’t believe it.”
That could be because for a long time, RBC was struggling to get its U.S. capital markets operations running smoothly and profitably.
RBC really got into the U.S. about 10 years ago, acquiring such firms as Dain Rauscher. Dain was a Midwestern firm focused on areas like technology, and RBC had to rebuild it almost from the ground up to try to take it from an also-ran to a firm that could compete with the big New York and global investment banks.
For a time, it wasn’t clear that the bet on New York would work. Prior to the 2007 crisis, rival banks were willing to take risks that RBC wasn’t willing to take. That meant that the firm was having trouble competing.
“We were really scratching our heads questioning where we were going to make money,” Mr. Standish said.
“It was very difficult for a lot of our people because clients wanted to do business that we found unattractive and were getting it done at other firms. It was very difficult.”
Then came the credit crisis. RBC could pick off top staff from wounded rivals. The bank could also grab clients who had seen their traditional banks cut back on lending and trading or even disappear outright, like Lehman Brothers Holdings Inc.
RBC hadn’t hired aggressively enough in the previous big market turnaround, after the tech crash in the early 2000s, and learned from that by making a big push this time.
“We stepped up and took advantage of it,” Mr. McGregor said. “We really filled in the holes. It really made a big difference. It put us on an equal footing with our competitors.”
The hiring isn’t done, as RBC is now seeking more well-connected bankers to go out to call on corporations to pitch for businesses in areas such as manufacturing and aerospace. The same is true for bankers who specialize in corporate lending.
To raise its profile with potential clients, RBC has also ramped up its spending in the U.S. on marketing, buying newspaper ads and inking big sponsorship deals, such as becoming a lead sponsor of the PGA golf tour.
That’s helping it to get in the door with more clients, said Jonathan Hunter, who oversees much of the New York trading floor as RBC’s global co-head of fixed income and currencies.
“We’re getting that level of brand awareness that we didn’t have before.”
The firm has momentum and is making money in all its U.S businesses, Mr. McGregor said. The trick now will be in making it last.
What’s more, owning a trading business in the U.S. could potentially go from being a dream to a nightmare, should some law- and policy-makers get their way and impose tighter handcuffs on the industry. The RBC executives said the bank is betting that its Canadian roots and its strong capital position will mean it can still compete, no matter what regulators come up with.
“I don’t know what the final regulatory environment is going to look like but I feel RBC is well-positioned to be even stronger in the new regulatory environment,” Mr. Standish said. |
