Canada's largest bank is throwing its hat into the U.S. leveraged finance ring.
Royal Bank of Canada late last week said it had hired Credit Lyonnais veteran Frederick Haddad as a managing director to head up a New York-based leveraged finance group.
The bank plans to hire 10 to 12 professionals for the team, which will serve highly leveraged and non-investment-grade corporations, both directly and through private equity sponsors.
The move makes Royal Bank the latest Canadian firm to enter the leveraged finance business. CIBC Wood Gundy Securities Corp. and TD Securities Corp. have been aggressively building leveraged finance operations for several years.
But the 48-year-old Mr. Haddad said he is not deterred.
"I never get concerned about going into a business, whether it's crowded or not," Mr. Haddad said, "as long as the strategy is well thought out and you're in there for the long term."
At Credit Lyonnais, Mr. Haddad was head of leveraged lending, loan syndication, loan trading, and asset recovery. Attila Koc, a first vice president and manager of leveraged finance, assumed management responsibilities for leveraged finance at Credit Lyonnais.
David Robertson, senior vice president and general manager of Royal Bank's U.S. operations, said it is taking a "generalist approach" to leveraged finance and concentrating on creating a diversified loan portfolio.
"We're putting a portfolio management approach into place, reviewing our positions market to market on a monthly basis to monitor our risk," he said.
Since the bank got section 20 approval from the Federal Reserve Board seven years ago, it has been building piecemeal its investment banking business, RBC Dominion Securities Inc.
Three years ago, it started an asset-backed securities group. The next year it added a global equity derivatives group, and last year, started leveraged loan sales and trading.
"You want to get things going and under control before you jump on the bandwagon," said Mr. Robertson. "It takes time to get the right people and the right team together."
Bank analyst John Leonard of Salomon Brothers International said Royal Bank's move is "certainly a logical outgrowth of some of their existing middle-market and corporate banking businesses."
"This fills a gap between what the bank has done in the past on its own balance sheet," Mr. Leonard said.
"Setting up this group will be an alternative way of providing competitive services to their customers."
Though RBC Dominion Securities has led high-yield issues for its clients on a limited basis, including a Canadian dollar-denominated $240 million offering for Clearnet Communications Inc. last month, a formalized high- yield shop must be established "in due course," Mr. Robertson said.
