The CEO of Canadian lender RBC said City National would be a ‘net contributor’. By Reuters

Written by: Nivedita Ballu

TORONTO (Reuters) – Royal Bank of Canada expects its struggling U.S. unit to become a “net contributor” to Canada’s largest lender and is optimistic about opportunities south of the border, CEO Dave McKay said. McKay told Reuters on Wednesday.

City National Bank, which was acquired by RBC under McKay’s watch in 2015, required a capital injection and saw a top management shake-up last year as America’s regional financial crisis wreaked havoc on smaller financial institutions.

“This is a good time for us to reset the foundations for our next phase of growth and we are very positive that City National will be a net contributor to the bank going forward,” McKay said in an interview after the interview. HSBC Canada buys over the weekend.

McKay said City National’s problem was that rapid growth had led to the bank tripling in size at the cost of falling profits. The bank is now focused on returning profitability to normal operating rates while addressing operational infrastructure and regulatory shortfalls.

“We are very positive that City National will be a net contributor to the bank going forward… The story in the United States is just as interesting.”

City National was distracted as RBC attempted to consolidate its C$13.5 billion ($10 billion) purchase of HSBC’s Canadian unit. The deal, announced in November 2022, further strengthens RBC’s dominance of the domestic banking market, adding C$120 billion to its nearly C$2 trillion assets.

The veteran banker, who has been president of the bank for 10 years, said Canada’s employment situation is good and mortgage risks are manageable.

Asked about the bank’s succession plan, he said: “There is a lot of work to do.”

The board gave McKay a pay increase for his role in the acquisition and gave head of personal and commercial banking Neil McLaughlin a one-time special cash award of up to C$1.25 million.

“Technical Achievement”

McKay said a team of 3,000 employees worked on the transition for more than 18 months and spent about C$1.3 billion to onboard HSBC’s Canadian customers who could access their renamed accounts and access the app.

“It was an unprecedented technological achievement,” he said.

As part of the conditions of approval, the federal government asked RBC to maintain and create new Canadian jobs and guarantee job security for at least six months after the transaction closes.

McKay said the bank had largely addressed its hiring issues during the pandemic through layoffs in preparation for the end of trading.

“There will be some role movement but we are doing our best to take the affected employees with us and find them other roles over the next six months,” he said.

McKay referred to consumer concerns about reduced competition in mortgage rates as “myths” and perceptions driven by advertising.

HSBC, generally known for advertising the lowest and most transparent uninsured mortgage rates in Canada, did not actually discount those rates, he said.

($1 = 1.3529 Canadian Dollars)