If Gordon Nixon had quit after his first few years as Royal Bank of Canada's CEO, he would be forgotten by now for the simple reason that he didn't seem to accomplish much at the time.
The first third of Mr. Nixon's 13-year stint as RBC's boss could be characterized as a low-grade guerrilla war with his top executives, most of whom were carry-overs from the regime of John Cleghorn, the CEO who wanted to leave his mark on RBC by merging it with Bank of Montreal.
Mr. Nixon, 56, who announced Thursday he would retire in mid-2014, was at a disadvantage. Gord, as he is universally known, was young – he was 43 when he landed the job – and had spent his career at RBC Dominion Securities, meaning he knew little about running a diversified bank where the retail business was the biggest division.
He was surrounded by Type A personalities who had different ideas about strategy, value creation and geographic expansion. Worse, he had to figure out what to do with RBC's hodgepodge of businesses in the United States.
Mr. Nixon had overcome those obstacles by 2005, save the American portfolio, after which the bank became truly his. RBC became bigger, but not simply through the type of mindless asset grab that would gravely wound many rival banks during the financial crisis of 2008 and 2009. It became stronger and more focused on high-return businesses, such as retail banking and wealth management. It was able to limp through the crisis instead of getting trampled by it, and emerged intact.
While the common view is that RBC and the other Canadian banks were saved by Canada's strict regulators, some bank watchers think it was Mr. Nixon's mid-decade management and strategic overhaul that did the trick. "In terms of avoiding the worst of the crisis, the contribution from Canada's vaunted regulatory regime was vastly overblown," said Rob Wessel, managing partner of Hamilton Capital Partners, a Toronto asset manager that specializes in the financial industry. "The bank's management team deserves the bulk of the credit."
Mr. Nixon is leaving the bank in rude health. When he started as CEO, profits were $500-million to $600-million a quarter. It's now hauling in $2-billion-plus. Compound total return to shareholders has been 13.5 per cent a year. The bank's market value is $100-billion and, over five years, the shares have easily outperformed the Toronto exchange. "I hate the word 'legacy' but that feels like a pretty good legacy to me," he said a few hours after his retirement announcement.
Not bad, but could Mr. Nixon have done better?
While RBC is a profits juggernaut, it is not a global powerhouse or an international brand. Theoretically, it could have used its bullet-proof balance sheet, sheer size and fine reputation to become a Canadian version of, say, HSBC Holdings PLC. Certainly, there were enough banks and asset portfolios on the market at knockdown prices, ready for the picking. Is RBC, in spite of its success, another Canadian example of a global lost opportunity?
Making a big splash clearly wasn't Mr. Nixon's style, nor his objective. Banks have been shrinking since the crisis, not expanding. They have been going through regulatory hell and the pain of boosting their capital. "It would have been a disaster for us to buy a big bank after 2009," Mr. Nixon said, noting that even the stronger players, including HSBC, have shut down their M&A machines.
He did, however, turn RBC Capital Markets into one of the world's largest investment banks. That's some accomplishment, because the global capital markets business has been a graveyard for more than few big-name banks. And about 40 per cent of RBC's overall profits come from the non-Canadian bits, such as RBC Capital Markets in London and wealth management pretty much everywhere.
Mr. Nixon admits his first few years were rough because of internal management struggles over strategy. Two of the top executives, Peter Currie, the chief financial officer, and Jim Rager, the retail banking boss, wanted RBC to bulk up in the United States, where it had a smattering of capital markets businesses and banking assets under the Centura banner.
Mr. Nixon won the management war – Mr. Currie and Mr. Rager left in 2004 – and a new team was brought in that focused on the highest-return businesses and prevented the most volatile ones, notably capital markets, from taking more than a quarter of the bank's overall action.
He made one crucial mistake. Even though he knew RBC would never emerge as a banking force in the United States, he allowed the American businesses to plod on for years, possibly because he was among the senior executives who had approved their purchase in the first place. "The one thing I wish we had done differently was deal more quickly with the underperforming assets in the U.S.," he says. "We had second-tier franchise in a tough market – the U.S. southeast."
Centura wasn't unloaded until 2011, and went for less than book value. RBC might have made a good return if the American bank had been sold before the 2008 crash. Mr. Nixon did have the good sense to avoid a buying a U.S. bank at the height of the market. If he had – it was an open secret that RBC had looked at Lehman Brothers and Bear Stearns, which subsequently failed – his career probably would have ended in shame in 2008 or 2009.
To be sure, RBC did not go through the crisis unscathed. The capital markets division took $4-billion in crisis-related write-downs, but that was nothing compared to some of the big American and European banks.
When Mr. Nixon leaves next summer, he will have spent 13 years as CEO, longer than any other boss of a top Canadian bank. He will step down as one of the richest CEOs in Canada – his 2012 haul alone was $12.6-million. In a world that has lost all love for bankers and their excessive pay, his income is not resented by investors.