Royal Bank of Canada may spend as much as C$1 billion ($1.06 billion) to buy asset managers outside Canada as the country's largest lender seeks to triple profit from wealth management in the next four years.
"We would be interested in small and medium-sized acquisitions that could bolster our U.K., European and Asia equity capabilities," said George Lewis, group head of wealth management, in an interview in Toronto.
Royal Bank set an annual profit goal of C$2 billion from wealth management by 2015, or three times more than the C$669 million it earned from the business in the fiscal year ended Oct. 31, Lewis said.
About 30% of that growth is based on financial markets delivering a 6% average annual return over the period and "normalized" interest rates, Lewis, 51, said.
"To the extent that the market environment is not as favorable in the near term, perhaps that will provide some acquisition opportunities to bolster our growth," Lewis said.
Royal Bank has been expanding its wealth-management unit through acquisitions in the past four years, including its C$1.52 billion takeover of London-based BlueBay Asset Management Plc in December. The purchase of BlueBay, a money manager that specializes in fixed-income funds, added $40 billion in assets under management to Royal Bank's business.
The BlueBay acquisition, along with Royal Bank's C$1.33 billion takeover of Vancouver-based Phillips, Hager & North Investment Management Ltd. in 2008, is expected to drive "significant growth" toward the five-year goal, Lewis said.
Canadian banks have been building up their wealth- management operations to help counter an expected slowdown in consumer lending in Canada, as debt-laden borrowers curb spending amid concerns that interest rates will rise.
Royal Bank reorganized its wealth-management business in November, moving from three geographic areas to four — Canada, the U.S., U.K. and emerging markets — to serve wealthy clients in international markets.
"We do view wealth management as a segment of financial services that will grow at a faster rate than the average financial-services business," Lewis said.
Wealth management will outpace other banking operations due to increased demands from an aging population and as more people build wealth, particularly in emerging economies, according to Lewis.
Royal Bank serves affluent individuals in Canada, the U.S., Latin America, Europe, Middle East, Africa and Asia, and provides asset-management products and services to institutional and individual clients through its RBC Global Asset Management business. Royal Bank's wealth-management unit has more than C$535 billion of assets under administration and more than C$300 billion under management.
In Canada, Royal Bank is looking to boost its market share of serving wealthy clients to 20% in the next five years, from 16 % now, Lewis said.
Royal Bank also aims to improve its U.S. wealth business, where it seeks to increase revenue per adviser to levels in Canada, Lewis said. Royal Bank's Canadian advisers bring in revenue of about C$1 million a year, compared with $600,000 in the U.S., he said.
The bank is also adding more products to appeal to wealthy clients and institutional investors, including hedge funds and exchange-traded funds.
"We have a fund-of-funds capability that is U.S.-based that we're looking to bring to Canada," Lewis said. "We're constantly looking for additional offerings."
RBC Global Asset Management filed papers with regulators earlier this month for eight corporate bond exchange-traded funds.
"Given that we're the largest user of ETFs from an adviser and a client perspective, we're interested in providing as much as we can" in this growing market, Lewis said.
RBC Wealth Management was recognized this month as one of the world's 10 largest money managers in an annual survey of the global wealth industry by Scorpio Partnership, a consulting firm.