As the liquidity crisis continues to whack U.S. banks, there is a substantial amount of market chatter about whether Royal Bank of Canada will do a deal south of the border.
One recent rumour is that RBC might be a potential suitor for Lehman Brothers Holdings Inc., speculation that appeared in The Wall Street Journal this week.
Lehman, the fourth-biggest securities firm in the U.S., just revealed its first quarterly loss since going public, prompting it to replace its president and chief financial officer.
But a look at RBC's strategic goals suggests it's unlikely Canada's largest bank would take a risk on an acquisition of Lehman, whose shareholder equity stood at about $26-billion (U.S.) at the end of last month.
The bank doesn't want more than one-third of its business to be from capital markets or investment banking.
"We would not make an investment that would take our corporate investment banking operations up to the level that something like that would have done," Mr. Nixon said of Bear Stearns.
More plausible are suggestions that RBC might be shopping around U.S. regional banks.
In a note to clients yesterday titled Fish or Cut Bait, Time to Start the U.S. Acquisition Machines, CIBC World Markets analyst Darko Mihelic argued that RBC, followed by Bank of Montreal, is best positioned to take advantage of opportunities cropping up in the U.S. and "perhaps now is the time to think big."
RBC has spent nearly $5-billion (U.S.) since 2001 to build up a presence of about 450 branches in six U.S. states, but its U.S. and international segment accounted for little more than 3 per cent of profits in the past year, Mr. Mihelic noted.
The bank signalled in April that it was increasingly looking for growth outside of Canada when it promoted Jim Westlake to run its international banking and insurance operations.
The bank wants half of its revenue to come from non-Canadian sources in the next five to 10 years, Mr. Westlake said in an interview at the time.
"Canada's a relatively small country in the global marketplace and we want to look at all opportunities." Currently, almost one third of the bank's revenue comes from non-domestic sources.
Mr. Mihelic cited Alabama-based Regions Financial Corp. and North Carolina-based BB&T Corp. among the banks that RBC could profitably swallow.
"We believe the next 12 to 18 months could provide a huge window of opportunity for BMO and [RBC] but in particular for [RBC]," Mr. Mihelic wrote.
The range of possibilities available to Canadian banks has widened during the recent liquidity crisis because many of their U.S. counterparts have been badly bruised, making small banks cheaper, and hampering many larger banks' ability to do deals.
"Although earnings of the major Canadian banks More From Globe Report on Business