Strategy Top bank exploiting misfortune of global rivals, strengthening operations

E1

Eoin Callan
Canwest News Service

Stumble Upon

del.icio.us

Digg

Facebook

Print

Email

Speak Up

TORONTO - Royal Bank of Canada has stepped up its corporate and investment banking operation in the United Kingdom by snapping up a team of traders and stock pickers from the wreckage of the collapsed Bear Stearns.

RBC Capital Markets has hired an entire equity sales and trading team from the failed Wall Street investment bank in a bid to increase its sales of U.S. equities to London-based hedge funds and European institutional investors.

The hirings underline the top Canadian bank's strategy of exploiting the misfortune of its global rivals and strengthening its international operations by poaching senior bankers with lucrative client portfolios and overseas experience.

The hiring spree provides a lower risk route for RBC to achieve growth abroad than acquiring the assets of faltering rivals outright along with potential credit liabilities and legal costs arising from the collapse of the subprime mortgage market that has shaken the global banking industry to its foundations, according to analysts.

But analysts cautioned that hiring self-contained teams from struggling competitors also carries some reputation risks for Canadian banks amid tighter regulatory scrutiny and decreased appetite for risk among investors.

"There is always is risk from a cultural and reputational perspective," said John Aiken, an analyst with Dundee Securites.

"That being said, I think that RBC has shown particular care among its peers and international rivals where risk management is concerned. I would be really surprised if they gave them too much rope to begin with to hang themselves," he added.

Brad Smith, an analyst with Blackmont Capital, said, "This is the cleanest way at this point to build your business."

"This comes with zero baggage at the end of the day in the sense that there is no existing credit exposures," he added. "Notwithstanding that you have to believe they are maintaining and enhancing their risk management."

Stephen Foss, head of equities at RBC, said: "The Bear Stearns team had a strong internal culture and wanted to stay together as a cohesive group. The dislocation at the U.S. bank presented an opportunity to hire a highly ranked team as hedge funds based in London are showing greater interest in investing in U.S. equities than one or two years ago."

The new hires will continue to be led by Tim Allen, who joins RBC Capital Markets as managing director and London head of U.S. institutional equity sales after 18 years at Bear Stearns.

He brings with him a 10-strong team that worked together in Europe for the U.S. bank and will boost the team by almost a half and focus on selling U.S. equities to institutional investors in Europe from offices in the U.K. and Switzerland

The focus on hedge funds follows fresh figures showing the increasing importance of institutional investors in U.S. equity markets as individual ownership of American stocks fell to a record low.

Figures released Tuesday showed retail investors owned 34 per cent of all shares by the end of 2006, down from 63 per cent in 1980.