RBC makes inroads with digital ventures as investment banking dries up
Royal Bank of Canada has established ties with 3.2 million Canadians via the lender’s digital app-building efforts, according to its chief executive officer, who added that the bank will now try to more aggressively convert those users into banking clients.
RBC announced the launch of its RBC Ventures Inc. subsidiary in June 2018 with the goal of acquiring five million users of the various products and services in five years. RBC also said it intended to convert 10 per cent of those people, or 500,000, to customers of the bank itself.
During a conference call on Wednesday, RBC CEO Dave McKay said they have now made 3.2 million “connections” with Canadians across their ventures, including both those the bank has built and bought. McKay added later that he thought they had made more than 50,000 conversions “just in pilot phase, without any real marketing spend behind it.”
That spending is poised to rise as the bank ratchets up its conversion efforts through the 17 ventures it has rolled out, such as the Ampli loyalty program, the business-expense tracking app Sorted and the “personal moving concierge” MoveSnap. Another 14 ventures are under development, the CEO said.
RBC’s Venture strategy is partly aimed at the various technology companies that are sliding into the financial-services sector, squeezing the bank’s business. It also fits into a broader plan by Toronto-based RBC to add more than 2.5 million new Canadian banking customers by 2023.
McKay said the bank, Canada’s biggest, had added approximately 300,000 net new Canadian banking clients this year, in addition to 300,000 picked up in 2018.
“We’re a couple years into this now, and we’ve really focused on building those five million new connections that we would have had to buy in a social media or digital channel before,” McKay told analysts during the call. “So we’ve really made that the primary focus and we actually haven’t tried to convert them to RBC product-holders as yet. We’re trying to build deeper relationships, trying to get to know them, and that’s going to pay off over the long term. Having said that, 2020 is a big scaling year, where we are going to start the conversion process through a number of these ventures.”
There’s no sugar coating that this was a challenging end to 2019 for RBC
Eight Capital analyst Steve Theriault
RBC also reported Wednesday a profit of $3.2 billion for the three months ended Oct. 31, down one per cent from a year earlier, due to weaker results from its investor and treasury services, capital markets, insurance and corporate support divisions.
Adjusted earnings per share were $2.22 for the fourth quarter, down one per cent year-over-year and below the $2.28 analysts had been expecting.
“There’s no sugar coating that this was a challenging end to 2019 for RBC, with misses across most divisions,” wrote Eight Capital analyst Steve Theriault.
The latest earnings were weighed down by $113 million in pre-tax expenses tied to severance and related costs that were “associated with repositioning” of the bank’s investor and treasury services unit, which performs a variety of duties for institutional clients such as pensions, sovereign wealth funds and other banks.
It has been a “challenging environment” for the business, McKay said, and the bank took steps during the quarter to make changes, including deciding to cut jobs in Europe and to slim down its presence in Australia.
“Looking ahead, we remain focused on key markets where we can provide the most value to our clients, where returns are most attractive,” McKay said. “This includes Canada, which continues to provide a diversified source of deposits.”
RBC’s latest financial filings showed the workforce of its investor and treasury services unit was 111 jobs smaller for its fourth quarter compared to its third, shrinking the business to 4,684 full-time equivalent employees.
Overall, RBC reported it shed about 1,286 jobs, mostly in Canada, as the lender’s workforce shrank from 84,087 in the third quarter to 82,801 in its fourth quarter.
The severance costs were reported the day after rival Bank of Montreal announced a severance-related hit of its own to earnings.
RBC also recorded a $142-million pre-tax gain on the sale in the quarter of the private debt business of London-based asset manager BlueBay.
When RBC struck a $1.56-billion deal to buy BlueBay in 2010, the 220-person firm had US$40 billion in assets and was touted as one of Europe’s biggest independent managers of fixed-income debt funds and products.
For its fiscal 2019, which also ended Oct. 31, RBC reported record net income of nearly $12.9 billion, up four per cent from 2018.
“Almost similar to last quarter, Canadian Banking and Wealth Management delivered strong earnings, while market-sensitive businesses were soft (e.g. Capital Markets, Insurance, and Investor & Treasury Services),” wrote Canaccord Genuity analyst Scott Chan of RBC’s quarter. “The firm was impacted by higher credit provisions, but also benefited from a lower tax rate.”