RBC Cautious But Will Not 'Bail' on Southeast Market

US Banker | March, 2010

Jim Westlake, as a Royal Bank of Canada executive and the head of its U.S. unit, has an interesting vantage point from which to assess the U.S. and Canadian banking systems.

Canadian banking companies are emerging from the global economic crisis stronger than many U.S. counterparts. While the U.S. operations of many of those companies continue to struggle, Royal Bank of Canada, Bank of Montreal and Toronto-Dominion Bank are seen as likely buyers of that banks fail here.

Westlake, Royal Bank's head of international banking and insurance, also took over as chief executive of RBC Bank in October. The U.S. bank, once an active acquirer in the Southeast, has been relatively quiet for the past two years after being stung by bad loans to home builders. RBC Bank has been busy restructuring.

Speaking at a North Carolina Bankers Association conference in Greensboro last week, Westlake outlined how regulation and risk management practices helped Canadian banks weather the storm. He talked with American Banker afterward about the parent company's U.S. strategy, why foreign banks are missing out on most failed-bank deals with the Federal Deposit Insurance Corp. and whether conservative principles from Canada are applicable to banks here. A condensed version of the interview follows.

How do you view RBC Bank's relationship with regulators?

JIM WESTLAKE: Individually it is just fine … [but] we certainly don't like a lot of the rhetoric we hear, whether it is straight from [President] Obama or the Volcker plan, or one of the regional heads of the FDIC saying, 'Let's break up banks.' We're saying, 'Why should we break up when we learned how to manage it? So don't slam big banks who knew how to manage it.'

What we hope in the U.S. market is that cooler heads will prevail and realize we're in a global environment. There's no point in having regulation that stifles growth and opportunity here in this domestic market and gives those same growth opportunities to people in other markets.

In your speech you said Canadian banks are poised to take advantage of opportunities. Where are those opportunities in the U.S.?

WESTLAKE: We have hired hundreds of people and teams for our capital markets business. We have also been focused on wealth management. You'll see a lot more of that. We're still very concerned about making big bank acquisitions — or any acquisition — in an uncertain regulatory environment where you don't know what the cost of capital is. God forbid you buy something that you have to split up. So we're being conservative about what we look at. The businesses that have been quickest to show those opportunities have been capital markets and wealth management. Maybe it would be a different story if we were primarily a U.S. domestic bank. There has been little participation by foreign banks in the restructuring process on an assisted basis.

Have you been in talks about FDIC-assisted deals?

WESTLAKE: We've watched with some interest. It is safe to say there has not been a lot. … I will say that looking for very small banks in our market was not at the top of our list on an assisted basis. I am not critical, though, of the U.S. position, because at a time where there was a lot of [Troubled Asset Relief Program] money in assisted deals, it would be a tough position for a regulator to defend using good taxpayer money to subsidize Royal Bank of Canada to buy a bank in the United States. As the market starts to return to normal and we get a clearer picture, the Spanish banks and the Canadian and European banks will be right there.