Mergers and acquisitions are about to heat up in the financial services sector, Royal Bank of Canada chief executive officer Gordon Nixon believes. The question for banks will be where exactly to put their money.
"We've gone through this period where there's been very little M&A [merger and acquisition]activity in financial services for obvious reasons," Mr. Nixon told a gathering of U.S. bank executives at a conference in Boston on Thursday.
"Most people have been focused on battening down the hatches … We are now in a very different environment. A lot of financial institutions have been recapitalized," Mr. Nixon said. "I think the banks will start to invest more aggressively."
Mr. Nixon, whose own U.S. retail bank was put on the block a few weeks ago, figures the financial sector has emerged from a period of forced deals, when distressed financial institutions were selling assets to shore up their balance sheets, to a new phase of strategic deal making.
Canadian financial institutions are arguably at the forefront of this trend. After preserving capital for the past few years in advance of new global financial regulations, RBC and several of its rivals have each made significant acquisitions.
Bank of Montreal bought Marshall & Illsley Bank in the midwestern U.S. in December, while Toronto-Dominion Bank purchased the assets of Chrysler Financial Corp., the auto maker's former leasing arm. In November, Bank of Nova Scotia bought out independent fund manager DundeeWealth Inc. And in October, RBC purchased U.K. wealth manager BlueBay Asset Management.
Mr. Nixon figures banks around the world with healthier balance sheets will now be getting into the act.
RBC is said to be considering shedding its struggling U.S. retail bank operation, or partnering with an existing U.S. bank on the business. The bank has not commented publicly on the process. (RBC does not intend to exit the profitable wholesale division in the U.S.) Mr. Nixon said he sees opportunity for growth in wealth management, which drove the BlueBay purchase. Analysts are forecasting that the modern banking sector will see the biggest transfer of wealth in its history as the baby boom generation passes assets to its children. This has boosted interest in wealth management assets.
"I think you're seeing a lot of institutions looking at the M&A market as an opportunity to expand in that area," he said.