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Royal Bank of Canada Looks to Expand Organically in U.S.
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Following the stock-cash merger deal worth $5 billion of Toronto-based Royal Bank of Canada (RY - Free Report) and U.S.-based City National Corporation in Nov 2015, Royal Bank of Canada’s Chief Executive Dave McKay intends further expansion in the United States. City National acquisition is a strategic fit for Royal Bank of Canada. The deal has opened up significant opportunities for Royal Bank of Canada to augment its top line by leveraging on City National’s high net worth and commercial clients’ network as well as expanding its franchise in the U.S.
Therefore, McKay is looking for further opportunities in US to expand its footprint and grow organically. "We would consider strategic options to make small acquisitions that could help accelerate growth in the United States and provide a good payback to shareholders in a reasonable period of time," he said.
Being a dominant player in Canada, Royal Bank of Canada now aims to expand in US to tap into the opportunities of wealth management and capital markets businesses which are growing much faster in US as compared to Canada.
"We have invested in the California economy, which is the size of the Canadian economy, so there's enormous opportunity to grow here and clearly organic opportunity to expand into other cities using RBC's wealth management and capital markets strength to take City National there," McKay added.
According to Royal Bank of Canada Chief Financial Officer Janice Fukakusa, City National is expected to more than double its pre-tax profit to over $1 billion by 2020. Moreover, total integration costs related to the merger is anticipated to be in the range of $130-$150 million, 25%-30% lower than previous expectations.
Bottom-Line
We believe a consistent improvement in the top line and diversified product mix will help Royal Bank of Canada grow organically. Further, the export-driven economy of Canada is expected to benefit from the gradual recovery of the U.S. economy.
However, a persistent low interest rate environment and overall sluggishness in the economy, coupled with stringent regulatory reforms, keep us skeptical about the company’s sustainable growth over the long term.
Royal Bank of Canada currently has a Zacks Rank #2 (Buy).
Other foreign stocks worth considering include Canadian Imperial Bank of Commerce (CM - Free Report) and Shinhan Financial Group Company Limited (SHG - Free Report) both of which sport a Zacks Rank #1 (Strong Buy), while Banco Bilbao Vizcaya Argentaria, S.A. (BBVA - Free Report) carries a Zacks Rank #2.
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Royal Bank of Canada Looks to Expand Organically in U.S.
Following the stock-cash merger deal worth $5 billion of Toronto-based Royal Bank of Canada (RY - Free Report) and U.S.-based City National Corporation in Nov 2015, Royal Bank of Canada’s Chief Executive Dave McKay intends further expansion in the United States. City National acquisition is a strategic fit for Royal Bank of Canada. The deal has opened up significant opportunities for Royal Bank of Canada to augment its top line by leveraging on City National’s high net worth and commercial clients’ network as well as expanding its franchise in the U.S.
Therefore, McKay is looking for further opportunities in US to expand its footprint and grow organically. "We would consider strategic options to make small acquisitions that could help accelerate growth in the United States and provide a good payback to shareholders in a reasonable period of time," he said.
Being a dominant player in Canada, Royal Bank of Canada now aims to expand in US to tap into the opportunities of wealth management and capital markets businesses which are growing much faster in US as compared to Canada.
"We have invested in the California economy, which is the size of the Canadian economy, so there's enormous opportunity to grow here and clearly organic opportunity to expand into other cities using RBC's wealth management and capital markets strength to take City National there," McKay added.
According to Royal Bank of Canada Chief Financial Officer Janice Fukakusa, City National is expected to more than double its pre-tax profit to over $1 billion by 2020. Moreover, total integration costs related to the merger is anticipated to be in the range of $130-$150 million, 25%-30% lower than previous expectations.
Bottom-Line
We believe a consistent improvement in the top line and diversified product mix will help Royal Bank of Canada grow organically. Further, the export-driven economy of Canada is expected to benefit from the gradual recovery of the U.S. economy.
However, a persistent low interest rate environment and overall sluggishness in the economy, coupled with stringent regulatory reforms, keep us skeptical about the company’s sustainable growth over the long term.
Royal Bank of Canada currently has a Zacks Rank #2 (Buy).
Other foreign stocks worth considering include Canadian Imperial Bank of Commerce (CM - Free Report) and Shinhan Financial Group Company Limited (SHG - Free Report) both of which sport a Zacks Rank #1 (Strong Buy), while Banco Bilbao Vizcaya Argentaria, S.A. (BBVA - Free Report) carries a Zacks Rank #2.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>