After scouring the world for wealth management assets, Royal Bank of Canada is inching closer to what could be one of its biggest deals yet in that sector.
Sources close to the bank confirmed Thursday that RBC has tendered a bid for Bank of America's wealth management business outside the United States, a deal that could be worth as much as $2-billion (U.S).
Whether or not RBC can beat out other bidders – a group said to include Swiss power houses Credit Suisse Group and Bank Julius Baer & Co. Ltd. – remains to be seen. But RBC's desire to own assets like the ones Bank of America has put up for auction is clear.
George Lewis, head of RBC Wealth Management, has said the bank is on the acquisition trail, looking to build its capacity for catering to the investment and money management needs of wealthy and ultra-wealthy clients. The business is looked upon favourably by analysts and investors since it provides healthy returns in times of higher interest rates, without tying up capital.
But depressed interest rates and upheaval throughout the banking sector in North America and Europe have meant many wealth-management assets are going on the block. Around the world, struggling banks are jettisoning assets to raise capital and stabilize their balance sheets, creating an opening for buyers.
Nearly two years ago, RBC bought U.K.-based Blue Bay Asset Management PLC for $1.6-billion, sending its strongest signal yet of its intention to build its wealth-management capacity as other lenders sell. A smaller move in March to buy Royal Bank of Scotland Group PLC's private banking business in Latin America, Africa and the Caribbean is a continuation of that strategy.
But if RBC were to win the bidding for the Bank of America business, it could represent one of the bank's biggest wealth-management moves yet. Estimated to be worth between $1.5-billion and $2-billion, the assets could turn out to be one of the biggest wealth-management sales on record, depending on the price they fetch.
RBC spokespersons wouldn't comment Thursday on whether the bank was a bidder for the Bank of America assets. RBC reports second-quarter earnings on May 24. However, in a March interview, Mr. Lewis told The Globe and Mail the bank was still searching for acquisitions in wealth management.
"We've been very public about our growth ambitions," Mr. Lewis said. "When [banks]come to a decision to exit a certain business, we receive the call because they know that we have the strategy."
The bidding process is said to be in its early stages and a shortlist of potential suitors is being notified by Bank of America if they have reached the next stage of the auction, according to a report Thursday by Reuters.
One question hanging over the auction is whether Bank of America could be forced to divide its assets to complete a sale. RBC may not be interested in the U.S. bank's wealth-management businesses in the Middle East, while Julius Baer is believed to only want some of the international businesses.
Several Canadian banks are focusing on expanding their wealth-management businesses, in part to balance their riskier capital markets operations with a steady flow of lower-risk income. RBC is the biggest Canadian bank in capital markets, where earnings are more susceptible to market fluctuations, and is also the largest in wealth management.
Bank of Montreal and Bank of Nova Scotia have both expanded their wealth-management capabilities in Asia, while Canadian Imperial Bank of Commerce purchased a 41-per-cent stake in U.S. firm American Century Investments nearly a year ago for $848-million.