Bulked-Up RBC Capital Pursuing Bigger Clients

RBC Capital Markets, which aggressively expanded its staff over the past 12 months, has moved beyond its traditional middle-market client base and is chasing large-cap companies.

The investment banking arm of Canada's largest bank, Royal Bank of Canada, last year added 400 professionals worldwide, including 100 in the U.S., and it hopes to win mandates by relying heavily on its parent's balance sheet.

"We have a very strong balance sheet, and as you're probably aware, Canadian banks have done very well through the credit crunch," said Blair Fleming, RBC Capital's head of U.S. investment banking since January.

The $657 billion-asset Royal Bank, rated triple-A by Moody's Investors Service, became a U.S. primary dealer last year. It is one of several foreign banking firms, including Barclays, Nomura and BNP Paribas, trying to get more business from Wall Street. These firms have taken advantage of the credit crisis to snare talent from competitors, and the capital markets units are touting the large commercial banks behind them at a time when corporate treasurers are anxious about their next source of credit.

For RBC Capital, "it seems like a logical step right now, because some of their competitors just aren't there anymore. … It certainly opens a door for them," said Mario Mendonca, co-head of equity research at Genuity Capital Markets in Toronto, who covers Royal Bank and has a "buy" rating on its shares.

Royal Bank has come to rely heavily on the U.S., where last year it generated more than $5.5 billion of its revenue, or 45% of its total. Analysts who track the Toronto bank say this may be the right time to grab more U.S. investment banking business.

"The capital markets business has done well, coincident with the company's significant investment in that business," said Peter Rozenberg, an equity analyst at UBS.

Mendonca said Royal Bank "didn't get caught up in a big way in the subprime crisis, and they're benefiting from the buoyancy we're seeing across the [Canadian bank] group."

Over the past year, much of RBC Capital's push has been in underwriting high-yield bonds and leveraged loans. Now it wants to hire more merger and acquisition bankers. That effort will be led by Scott Moskowitz, who has been with the firm since July 2008 and just became head of U.S. M&A.

"We have all the products and services that one would have as a bulge-bracket firm, and we're taking advantage of that," Moskowitz said. "We continue to move upmarket, and retaining our midmarket strength gives us more diversification."

RBC Capital has 52 M&A banking professionals scattered around the world. Moskowitz said he wants to compete with the top 10 M&A firms and counsel businesses with a market capitalization of $2 billion to $10 billion. That would mean competing head to head with bankers from Morgan Stanley, Goldman Sachs and JPMorgan Chase.

RBC Capital employs more than 2,000 U.S. professionals in 40 offices; it inherited the extensive network from the Minneapolis brokerage Dain Rauscher Corp., which Royal Bank acquired in 2001.

Since starting its hiring spree last year, RBC Capital has attracted more than 100 senior bankers from companies like Bank of America Merrill Lynch, Citigroup and Lehman Brothers.

According to Thomson Reuters, RBC Capital rose to 14th in global M&A league tables last year, with $71.5 billion raised; in 2008 it ranked 37th with $35.3 billion.

In worldwide equity issuance it jumped from 25th in 2008 with $2.4 billion, to 17th last year, with $7.5 billion. In global leveraged lending, RBC Capital has taken advantage of private-equity interest in senior bank debt and junk bonds. Thomson Reuters said it rose from 18th in 2008, with $13.8 billion, to 13th last year, with $9.2 billion.

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