Royal Bank of CanadaNATHAN DENETTE
Royal Bank of Canada has unveiled a key piece of its global expansion strategy with the $1.6-billion purchase of BlueBay Asset Management PLC, a London-based firm that will be used as a catalyst for growth in Europe.
Looking to expand its wealth management footprint around the world, Canada's largest bank began laying the groundwork for a deal early this year, talking to numerous potential targets, including BlueBay.
RBC wanted to move fast on an acquisition, believing rival banks in the U.S. and Europe would be too consumed with shoring up their balance sheets amid the global financial crisis to launch serious competing bids.
"Our view is that many of the competing organizations that would also be making acquisitions were more or less out of the market - because they were not as well capitalized," John Montalbano, chief executive officer of RBC's global asset management division, said in an interview.
"So this was our one opportunity to strike."
The move highlights the diverging international strategies of some of Canada's largest financial institutions.
While Toronto-Dominion Bank has been placing its bets on U.S. retail banking and Bank of Nova Scotia continues to focus on emerging markets, RBC sees wealth management as a priority in the next few years.
The business is expected to benefit greatly from changing demographics.
Aging baby boomers will increase demand for retirement planning, including the fixed-income assets that are BlueBay's specialty. Rising interest in personal investing throughout developing countries will also fuel growth of the business, bank executives say.
The deal is worth £963-million, or about $1.56-billion in cash, a 29-per-cent premium on BlueBay's closing share price on Friday. It has been approved by both boards and is expected to close by the end of the year.
The move makes RBC a top-10 player in global wealth management. The bank said this summer it expects to make several acquisitions in that area over the next few years. However, the Blue Bay deal is likely to be the biggest of those purchases.
"This is a very significant acquisition," said George Lewis, head of wealth management at RBC. "There may be [further]opportunities, perhaps smaller in nature."
BlueBay was founded in 2001 by Hugh Willis and Mark Poole, who ran the European credit arbitrage division of JP Morgan. The firm began as a hedge fund that invested in stressed assets such as power plants, but has transitioned over the years into a wealth management company that focuses on more conservative investments.
It is the largest acquisition for RBC since the bank spent $2.2-billion in 2007 to buy RBTT Financial Holdings Ltd. of Trinidad and Tobago. Its deal in 2008 to buy Vancouver-based money manager Phillips Hager & North Investment Management Ltd. for $1.36-billion set the stage for its international expansion in wealth management.
By acquiring BlueBay, RBC picks up a rapidly growing business that specializes in fixed-income products. Institutional clients account for the majority of BlueBay's clients and the firm has found success coming up with investment products that have provided decent returns in an otherwise low-rate environment.
The firm currently has $40-billion (U.S.) of assets under management, which will now combine with RBC's $200-billion (Canadian) under management.
RBC was particularly attracted by BlueBay's rapid pace of growth over the past few years. From its 2009 fiscal year to its 2010 fiscal year, BlueBay's assets under management grew to $34-billion (U.S.) from around $24-billion. In the current fiscal year, it has added another $6-billion.
Though analysts predict growth will slow at BlueBay, Mr. Montalbano figures RBC can boost the British business by giving it more access to the North American market.
Some analysts said RBC paid top dollar for the assets if growth at BlueBay does slow. The price was "not inexpensive," National Bank analyst Peter Routledge said in a research note. However, he added it "seems reasonable" if BlueBay delivers on its projections.