Canada's biggest banks eye organic growth instead of U.S. acquisitions
'Getting bigger for the sake of bigger is not the objective,' says RBC's McKay
The leaders of some of Canada’s largest banks are prioritizing organic growth over acquisitions in the U.S. amid ongoing economic uncertainty.
Rising credit losses in the U.S. recently caused several major Canadian banks to miss analysts' quarterly expectations. In contrast, banks that exceeded their targets were often focused on their Canadian operations, according to some analysts.
“Getting bigger for the sake of being bigger is not the goal,” said Dave McKay, CEO of Royal Bank of Canada (RBC), during a fireside chat at the annual Scotiabank Financials Summit on Wednesday. “It’s about delivering better returns for the shareholder.”
McKay emphasized that, before pursuing an acquisition, he asks key questions such as "why are they selling?" and considers what problems might come with the deal. “There’s a reason the management team is selling, and those issues aren’t minor,” he noted.
RBC recently completed its purchase of HSBC Holdings PLC’s Canadian division, which contributed $239 million to the bank’s net income in the third quarter. McKay said the HSBC acquisition was a solid fit, but many U.S. banks for sale are struggling to raise deposits—a critical issue for growth.
“If you can’t raise deposits, you can’t grow your balance sheet,” McKay explained. “You don’t want to take on someone else’s deposit challenges if you can’t solve them yourself.”
Another challenge facing some U.S. banks is a lack of operational scale, McKay said. He stressed the importance of analyzing all factors before considering a U.S. acquisition. “I’m not negative about it,” he clarified. “I love the U.S. market. It’s just difficult to find the right alignment with banks being sold.”
Victor Dodig, CEO of the Canadian Imperial Bank of Commerce (CIBC), echoed the focus on organic growth during the conference, calling it the “best use of our capital,” whether in the Canadian or U.S. markets. He mentioned CIBC might consider occasional smaller acquisitions but wouldn’t risk diluting its return on equity.
Bank of Montreal (BMO) CEO Darryl White added that investing in the U.S. remains a profitable long-term strategy. “The U.S. has a US$35-trillion GDP, compared to Canada’s $2.7 trillion,” White said. While U.S. investments might not be highly popular at the moment, he believes that, when done correctly, it’s a sound strategy.
