Is this strange or what? Courtesy of csy2k:
The news today that the Royal Bank of Canada is putting up
for sale a major part of its real estate portfolio including
24 office buildings in most major Canadian cities and nine
processing centres (but not its branches) is a major
development IMO primarily for what it reveals about the
strategic planning by the bank on how it will be delivering
banking services over the next ten years, but also,
considering the timing, how its Directors want to be
positioned capital-wise for the rollover. It's not like
they decided to sell off just their highest value assets, or
just their worst performers. They're selling the entire
tangible part of the administrative end of the business, to
be replaced by what? Leased facilities and computers? I'd
bet they would have sold the branches too, if they thought
the regulators would let them get away with it. Maybe they
figured best not rile people up right now.
http://www.nationalpost.com/
"Royal Bank puts real estate on sales block: Could fetch
$1-billion
Katherine Macklem Financial Post
Royal Bank of Canada has put up for sale the largest real
estate portfolio ever to be offered on the market in Canada --
including the prized, gold-tinted Royal Bank Plaza in downtown
Toronto --in a move expected to trigger similar selloffs by Canada's
other major banks.
Royal Bank properties, to be sold as a package, could fetch
at least $1-billion.
The bank said it will get a better return on the capital
now locked into the bricks and mortar if it is invested in
other banking ventures, such as wealth management or e-commerce.
"We've had a change in posture here, the whole [financial services] industry is being shaken up," said Ron Masleck, senior vice-president for real estate operations at Royal. "We are satisfied . . . that we can redeploy this capital and get 16%. There was a time when a lower return [from real estate] . . . could be accepted because the returns elsewhere in the [bank's] portfolio were so significant
that you still were giving the shareholders a good deal, a
better deal than they could get anywhere else. We just can't
afford to be cavalier about things anymore."
The portfolio includes 24 office buildings in most major Canadian cities, plus nine processing centres, but does
not include stand-alone branches. The bank is looking for a deal that lets it lease back the properties it now occupies.
The bank also wants the buyer to offer jobs to bank employees affected by the sale.
"It's very smart. It shows the Royal is serious about competing with U.S. banks for shareholder investment," said Michael Ancell, bank analyst with Edward Jones.
He suggested that even though the bank is not putting
its branches on the block, the real estate selloff could be
a first step toward a world dominated by the Internet. "Maybe this is the starting gun for the replacement of
real estate with information technology in the financial
services world," he said. "As payment systems become
electronic, the need for a physical site to execute financial
transactions is really diminishing."
Other banks, in particular Bank of Nova Scotia and
Bank of Montreal, are likely to follow suit, industry
observers said. "Whenever one bank makes a bold move, the others are sure to follow," one observer said.
The timing of the offering is good, said Blake
Hutcheson, chief operating officer at CB Richard Ellis Ltd.
"There's a tremendous appetite for good product. It's as good a
time as any to sell the properties." He said real estate prices have fallen slightly since 1997 for properties that are not of top quality, but they've held steady for the best buildings.
Others, however, questioned the timing. "The capital markets are not at the level of euphoria that they were at in 1997," said Ross Moore,
vice-president of real estate for Colliers International. "In the last 60 days, things have improved dramatically, but you still have a very nervous stock market. It's very volatile." Mr. Moore said any public company bidding for the properties would need to raise capital in the public markets.
The book value of all real estate owned by Royal was $887-million at the end of October, 1998, according to its annual report. Included in that are branch properties and other land that is not included in the portfolio that's up for sale.
Potential buyers for the portfolio include Oxford
Properties Group Inc., TrizecHahn Corp., Brookfield
Properties Corp., Gentra Inc. and the Ontario Municipal Employees Retirement System."
* * * *
I'm not smart enough to know what Royal's move means in
conjunction with the Bank of England's decision to sell off
half (?) of its gold reserves, or the authorization given to
Italy to increase its fiscal deficit beyond 2% of Gross
National Product (news that unfortunately caused the Euro to
plummet), or the U.S. Federal Reserve's request for
permission to provide large emergency loans through its
"discount window" if the need arises. IMO, these disparate
events provide glimpses of a mindset in the financial
services community that flexibility must be maximized today
in order to deal with any unforseen problems (or
opportunities) in the near future. None of these events are
"consolidating" moves that typically occur in the middle or
end of executing a strategy. They are the initial steps of
a new strategy. What does it all mean? I don't know, but I
think they're positive moves in the sense that those
decision makers perceive some unusual risks and are taking
steps to be ready.
About the Royal Bank in particular, I'd bet they've assessed
the threat to traditional banking services from internet
financial services entrepreneurs and digital currencies (to
name a few considerations) and have decided to create a
major presence for themselves in cyberspace, in other words
out-distance the competition in the new medium. There's an
awful lot of work to be done to get the banking industry
ready for the day when large corporations will begin trials
in issuing their own digital currencies, as distinct from
the national currency, but convertible with it. That's
where the next period's profits will come from. Royal Bank
will be aware that overall, Canadians pay a total of 46 per
cent of their gross incomes in various taxes (StatsCan).
That represents a pretty significant potential market if the
chartered Banks can become the intermediaries between
anonymous sellers and buyers in cyberspace and, eventually,
on the street.
The Royal Bank has taken a major step. The timing to get
rid of their unnecessary bricks and mortar is curious. Why
not do it later in the year, or next year when their plans
might be further along? At one level, their rationale is
probably very similar to the reasons why some programmers
have sold their principal residence and moved to the country
(see garynorth.com
Anyway, don't expect me to be able to make a whole lot of
sense of this. I'm just freely associating, and I don't
have enough education to be able to connect it thoroughly.
Got other work to do.
Walt Peterson
"We can't solve problems by using the same kind of thinking
we used when we created them." Einstein
Any comments? |
