Jim Westlake, as a Royal Bank of Canada executive and the head of its U.S. unit, has an interesting vantage point from which to assess the U.S. and Canadian banking systems.
Canadian banking companies are emerging from the global economic crisis stronger than many U.S. counterparts. While the U.S. operations of many of those companies continue to struggle, Royal Bank of Canada, Bank of Montreal and Toronto-Dominion Bank are seen as likely buyers of that banks fail here.
Westlake, Royal Bank's head of international banking and insurance, also took over as chief executive of RBC Bank in October. The U.S. bank, once an active acquirer in the Southeast, has been relatively quiet for the past two years after being stung by bad loans to home builders. RBC Bank has been busy restructuring.
Speaking at a North Carolina Bankers Association conference in Greensboro this week, Westlake outlined how regulation and risk management practices helped Canadian banks weather the storm. He talked with American Banker afterward about the parent company's U.S. strategy, why foreign banks are missing out on most failed-bank deals with the Federal Deposit Insurance Corp. and whether conservative principles from Canada are applicable to banks here. A condensed version of the interview follows.
How do you view RBC Bank's relationship with regulators?
JIM WESTLAKE: Individually it is just fine … [but] we certainly don't like a lot of the rhetoric we hear, whether it is straight from [President] Obama or the Volcker plan, or one of the regional heads of the FDIC saying, 'Let's break up banks.' We're saying, 'Why should we break up when we learned how to manage it? So don't slam big banks who knew how to manage it.'
What we hope in the U.S. market is that cooler heads will prevail and realize we're in a global environment. There's no point in having regulation that stifles growth and opportunity here in this domestic market and gives those same growth opportunities to people in other markets.
In your speech you said Canadian banks are poised to take advantage of opportunities. Where are those opportunities in the U.S.?
WESTLAKE: We have hired hundreds of people and teams for our capital markets business. We have also been focused on wealth management. You'll see a lot more of that. We're still very concerned about making big bank acquisitions — or any acquisition — in an uncertain regulatory environment where you don't know what the cost of capital is. God forbid you buy something that you have to split up. So we're being conservative about what we look at. The businesses that have been quickest to show those opportunities have been capital markets and wealth management. Maybe it would be a different story if we were primarily a U.S. domestic bank. There has been little participation by foreign banks in the restructuring process on an assisted basis.
Have you been in talks about FDIC-assisted deals?
WESTLAKE: We've watched with some interest. It is safe to say there has not been a lot. … I will say that looking for very small banks in our market was not at the top of our list on an assisted basis. I am not critical, though, of the U.S. position, because at a time where there was a lot of [Troubled Asset Relief Program] money in assisted deals, it would be a tough position for a regulator to defend using good taxpayer money to subsidize Royal Bank of Canada to buy a bank in the United States. As the market starts to return to normal and we get a clearer picture, the Spanish banks and the Canadian and European banks will be right there.
What would get your attention?
WESTLAKE: If you take out Wachovia or Wamu … there have been very few substantial banks that would fit the type of risk profile that I think we would be interested in. There have been a lot of small ones. The one that would probably have fit is the one that had the highest multibank interest. That was Colonial. We placed a few calls, but it was not something that we took a lot of interest in.
Is that the size needed to get RBC off the sidelines?
WESTLAKE: That's the kind of thing that all of a sudden gives you a lift in your market. It would really do something for us. I saw [BB&T Corp. Chairman and CEO] Kelly King the other day and he seemed really happy [about buying Colonial Bank.]
Looking forward, what is the big strategy for RBC in the U.S.?
WESTLAKE: From the RBC perspective, our No. 1 priority is to be the leader in Canada and No. 2 is to build out our businesses in the U.S. That means growing across a range of businesses. We have a smaller insurance business here. Our retail commercial endeavor is focused on the Southeast. While we think it important to grow, we don't have this sense of urgency. We have 438 branches in six states. What we're going to do is very much focus our attention over the next year or two on creating a common operating environment for all of our banks. We've done a lot of acquisitions, so we're really focusing on rebranding. We've changed all of our signs. We're really developing a way of doing business as RBC Bank.
Along the way we picked up a small capital adviser business, a payroll business. So I have been shedding some of those to clean up and focus on a real commercial, retail, credit card bank in the Southeast. We are getting almost there and done a lot of that work. As we develop a better model, we'll be better poised to look at additional acquisitions in this market …
We certainly think that all of the reasons we like the Southeast will be there over the long term. Just because it has been hit by this little bump in 2009 and 2010 is not a good reason to change what is your long-term strategy. We're not going to bail and run. We think people will continue to want to come to where the sunshine is.
How far along is RBC Bank getting to the other side?
WESTLAKE: By the end of this year we will have a lot of the restructuring and common operating environment done. It is a continuous improvement after that. I feel good that by the end of 2010 we will have most that what we want to get done done.