Royal Bank of Canada isn't giving up on U.S. consumer banking even after Canada's largest lender took a C$1.57 billion ($1.57 billion) writedown on the sale of its money-losing U.S. bank.
Royal Bank is looking for ways to re-enter the consumer lending business in the U.S. through acquisitions and partnerships in payment systems, as well as expanding its Internet bank, said David McKay, group head of personal and commercial banking.
The push follows RBC's failure to make inroads in U.S. consumer banking after almost 11 years of building on its $2.16 billion purchase of Centura Banks in 2001. Royal Bank sold its North Carolina-based RBC Bank and credit-card assets in March to PNC Financial Services Group Inc. for $3.62 billion.
"We had the wrong franchise for what we needed to do, and we got an albatross off our back," McKay, 49, said yesterday in an interview at Bloomberg's Toronto office. "We're liberated to think creatively now."
McKay called the U.S.-based bank a "painful" learning experience that may ultimately help the Toronto-based company.
The bank will take those lessons and "see if there's a path forward," McKay said. "But we don't feel any pressure to have to do something because we have very strong franchises. We want to be opportunistic and smart."
John Kinsey, who helps manage about C$1 billion of assets at Caldwell Securities Ltd. in Toronto, remains skeptical of Royal Bank's return to U.S. consumer banking.
"I think you have to show me, because they didn't do well in the U.S.," Kinsey said in an interview from Toronto. "Royal had said that, after they pulled out of the U.S., their focus was going to be on international and wealth management, and those are two banking areas where they have expertise."
Royal Bank rose 0.3 percent to C$61.63 at 9:48 a.m. in Toronto trading. The bank has risen 2.9 percent this year, outperforming the eight-member Standard & Poor's/TSX Commercial Banks Industry Index.
Canadian lenders have mixed strategies on U.S. consumer banking. Toronto-Dominion Bank, the country's second-largest lender, has spent more than $25 billion since 2004 building a U.S. branch network that spans from Maine to Florida. TD Bank is now targeting corporate banking in the U.S. with a focus on "mid-tier" companies. Bank of Montreal, Canada's fourth- biggest bank, ramped up its U.S. presence by buying Wisconsin lender Marshall & Ilsley Corp. in July 2011 for $4.1 billion, building on a Chicago-based Harris Bank franchise it bought in 1984.
Bank of Nova Scotia, the country's third-largest lender, never ventured into U.S. consumer banking while Canadian Imperial Bank of Commerce, the fifth-biggest bank, closed an electronic banking platform in the U.S. known as Amicus in 2002 after an expansion failed.
Royal Bank may build off its U.S.-based Internet bank, which currently caters to Canadians living and working in the U.S. and has more than 150,000 customers, said McKay, who has worked at the bank for more than 20 years.
"The world of banking is rapidly changing, it's over- branched," McKay said. "With the technology changes that are happening in the U.S., there are a number of non-traditional opportunities there to lever a virtual bank that are quite exciting."
Royal Bank has a unique opportunity and time to look at the U.S. and mull partnerships to "take a more disruptive approach to the U.S. marketplace" rather than the more traditional approach, said McKay, who has an MBA from the Western University's Richard Ivey School of Business and a bachelor's degree in mathematics from the University of Waterloo.
