Royal Bank of Canada's U.S. brokerage unit has hired a team of executives, including four from Lehman Brothers Holdings Inc., that it says it will use to target middle-market institutional clients, a relatively neglected market segment.
Minneapolis-based RBC Dain Rauscher announced Thursday that it had hired seven middle-market specialists to sell small and midsize money management companies the trading capabilities and research products of RBC Capital Markets.
Mark Whaley, the director of RBC Dain Rauscher's New York region, said the hirings are part of the firm's initiative to significantly increase its heft in the New York metropolitan area. It already employs 120 financial advisers in New York, New Jersey, and Connecticut, and it plans to continue aggressively expanding this work force.
Royal Bank of Canada has spent the past three years aggressively making deals in the United States. It has bought Centura Banks in Rocky Mount, N.C.; Dain Rauscher in Minneapolis; Prism Financial Corp. in Chicago; Prism Builder Finance Group in Houston; Liberty Life Insurance Co. in Greenville, S.C.; and Tucker Anthony Sutro in Boston.
These deals have added 2.5 million customers to Royal Bank's 10 million in Canada and made RBC Dain Rauscher the ninth-largest retail brokerage firm in the United States, where it has more than 2,000 brokers.
But RBC Dain Rauscher's strategy in New York has focused on hirings rather than deals. Geoffrey Bobroff, an East Greenwich, R.I., wealth management analyst, said it is crucial in a market like New York to grow by careful hiring of executives who have developed relationships.
"This is a crowded market," he said. "The Northeast is actively marketed and sold to, and their success will depend on how they distinguish themselves from their competition. By bringing in this team, they can have an automatic presence. But in a crowded market, it will be a challenge."
The seven new middle-market managers include four - Michael Marrale, Christopher Basta, William Kimberly, and Emilia Medakovich - who worked for Lehman Brothers in New York. The others in the new group are Andy Ballou, who had worked at Red Coat Capital Management; Raymond Hayes, formerly an institutional sales professional in RBC Dain Rauscher's New York office; and Ada Feygenson, who was an associate at CIBC World Markets.
"Our goal is to service midsize institutional money management firms and hedge funds who are typically ignored by the bulge-bracket firms," Mr. Whaley said in a press release.
Stephen M. Vine, who heads the corporate and securities practice at the New York-based asset manager Akin Gump, said most hedge fund managers are doing everything they can to distance themselves from banks and this could mean trouble for a firm like RBC Dain Rauscher.
"I am not heavily interested in partnering with a bank," Mr. Vine said. "There is a feeling that banks want to handle everything on their own, and most managers are comfortable allowing them to do that. [But m]ost hedge fund managers don't fit, and don't want to fit, into a typical structure of a bank."
Other analysts said RBC Dain Rauscher could find significant success with this approach because it is intelligently targeting a segment of the market that has been largely ignored.
"There is success to be had here because midsize firms need services and products," said Burton Greenwald, an analyst in Philadelphia. "Securities firms focusing on medium-sized trading and investment banking clients are outperforming their larger rivals."
