RBC exits wealth management in the Caribbean to focus on growth regions

TORONTO – The decision by Royal Bank (TSX:RY) to exit its wealth management business in the Caribbean may be another sign that Canadian banks are cutting their losses in the region and cleaning house, an analyst said Friday.

“What we’re seeing is the banks are doing a thorough evaluation of their business mix and figuring out what makes sense long term and what is probably best left in the hands of someone else,” said Craig Fehr, an analyst with Edward Jones in St. Louis, Mo.

Canada’s largest bank said the Caribbean move, which follows the sale of its Jamaican operations earlier this year at a loss, will affect international wealth management teams in Toronto, Montreal and the U.S., and result in an undetermined number of job losses.

One media report stated the restructuring would affect about 300 employees, a figure that RBC refused to confirm.

“While regrettably there will be some job losses, it would be premature at this stage to estimate the number of employees that will be impacted as we are currently considering a number of strategic options for these businesses,” RBC spokeswoman Claire Holland said in an email.

RBC said these efforts will help the bank focus on serving high net worth and ultra-high net worth clients in key areas for expansion, including Canada, the U.S., the British Isles and Asia.

Its RBC Suisse business in Europe will also undergo a strategic review.

This move by RBC follows a similar one announced earlier this month by Scotiabank (TSX:BNS), which is planning to cut 1,500 jobs — about two-thirds of them in Canada. None of its domestic branches is slated for closure but Scotiabank said its international banking arm will shut 120 of its foreign branches, including some in Mexico and the Caribbean region.

CIBC (TSX:CM), which has maintained a presence in the Caribbean since the 1920s, said in September that it planned to focus on managing expenses amid challenges in the region.

Fehr said Canadian banks are taking the prudent step of reorganizing their businesses, as the sector prepares for lower profitability.

“I think we’re moving into the next phase of the economic cycle — particularly domestically — where Canadian consumers will probably demand less of personal loans and certainly mortgages,” he said.

“So the bread and butter source of profitability for Canadian banks is perhaps losing some of its momentum, so they’re perhaps looking for different avenues for growth and employ capital to different areas going forward.”

The banks may also be reorganizing ahead of the likely possibility of higher interest rates coming from the Bank of Canada sometime in 2015. The central bank’s key short-term interest rate has been at one per cent since September 2010. As a result, it has been relatively inexpensive for bank customers to borrower for major purchases such as real estate and vehicles.

“We’re seeing all bank management take a look at their businesses. For the last several years, they learned how to operate in this low interest rate environment,” said Fehr. “I now think it’s a prudent move on behalf of the banks to try and identify how and where they can position their businesses in an environment where rates ultimately start to rise.”

Bank analyst Meny Grauman said it’s not a “boon time” for wealth or retail banking in the Caribbean, but he doesn’t think Canadian banks will pull out of the region completely.

“It’s definitely not as lucrative as it was years ago, the economic situation is continuing to deteriorate there,” said Grauman, who works for Cormark Securities.

“(But) I don’t think any one of them is going to totally divorce themselves from the region.”

He also added that RBC’s decision doesn’t necessarily mean it’s slimming down it’s overall wealth management division, but rather moving those investments elsewhere.

Like several other major Canadian banks, RBC is also undergoing a change in upper management after the retirement of its long-time chief executive. RBC’s newly appointed CEO, Dave McKay, took over in August from Gord Nixon. Scotiabank’s CEO Brian Porter took over the top job from Rick Waugh last November. CIBC’s Victor Dodig became CEO in September and TD’s Bharat Masrani officially became the bank’s chief executive on Nov. 1.

RBC’s pullout from the Caribbean international wealth management business follows this year’s sale of its Jamaican banking division, at a loss. Despite that, the bank had a profit of nearly $2.4 billion in the quarter ended July 31, including a record $285 million at wealth management, up 22 per cent from a year earlier.

The bank’s fourth-quarter and fiscal 2014 annual results will be issued Dec. 3. As of the end of July, it’s nine-month profit was $6.67 billion, including $100 million in losses related to the sale of RBC Jamaica and $32 million for post-employment benefits and restructuring in the Caribbean between Nov. 1 and July 31.

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Note to readers: This is a corrected story: Headlines in a previous version said the bank was pulling out of the Caribbean