Bank remains bullish on market, eyes growth after HSBC Canada acquisition
Royal Bank of Canada CEO Dave McKay is confident its US operations will turn profitable, transforming its struggling unit, City National Bank, into a "net contributor" to RBC’s bottom line.
City National Bank, acquired by RBC in 2015, experienced difficulties in the past year that necessitated capital injections and executive shake-ups.
RBC chief executive officer Dave McKay said the bank’s woes stemmed from overly rapid expansion that tripled its size at the expense of profitability. The bank is now focused on improving operations, regulatory compliance and restoring profit margins.
"This is a good pause to reset the foundation for the next leg of growth, and we’re very positive that City National will be a net contributor to the bank going forward," McKay said in an interview with Reuters after completing the $10 billion purchase of HSBC’s Canadian unit over the weekend.
Read more: RBC takes another step forward in HSBC takeover
McKay said RBC is now prioritizing operational improvements and regulatory compliance and restoring City National to its previous profitability levels.
"The US story is just as exciting," McKay stated, expressing bullishness on American prospects.
The City National distraction unfolded as RBC worked to integrate HSBC Canada, a CA$13.5 billion deal announced in November 2022 that tightened RBC’s domestic market dominance by adding CA$120 billion in assets.
McKay, who marks 10 years as CEO this year, said Canada’s job market remains strong and mortgage risks are manageable.
As part of the HSBC deal’s approval conditions, the government required RBC to maintain and create new Canadian jobs for at least six months post-close.
McKay said the bank had largely addressed pandemic over-hiring through layoffs before closing the deal.
"There will be some displacement of roles but we’re doing our best to take those employees that are impacted over the next six months and find them other roles," he said.
The CEO dismissed concerns about reduced mortgage competition, calling it a "myth" and saying HSBC did not significantly discount mortgage rates despite perceptions driven by advertising.
Make sure to get all the latest news to your inbox on Canada’s mortgage and housing markets by signing up for our free daily newsletter here.
