Yahoo Finance 'Read and react': How Dave McKay is gearing RBC up for a shallow recession
The head of the country’s biggest bank is cautiously optimistic that the Canadian economy will avoid a serious contraction this year and says the lender will wait until the severity of the downturn is known before making any major changes.
“We’re not going to overreact to this,” Royal Bank of Canada chief executive Dave McKay said in a recent interview, before borrowing a phrase from his basketball coaching days to describe his approach.
“It’s a read-and-react offense, and if we see something different as we run the playbook, we’ll adjust.”
McKay said RBC is currently projecting a shallow recession but that it is difficult to gauge for certain how intense a downturn might be, due to the unique forces currently at play.
While economists have often pointed to the labour market as the last domino to fall before the country hits a recession, McKay said there has never been a recession forecast with an unemployment rate as low as it is now — five per cent in January, after two blow-out jobs reports.
The volume of liquidity and debt in the market — and the risk that COVID-19 could to re-emerge — are also contributing to the unusual environment, he added.
Against that backdrop, McKay is confident that RBC and the economy can power through a few quarters of subdued growth. He also noted that Ottawa still has room to provide fiscal support if absolutely needed but hoped it wouldn’t be necessary.
Canada's Outstanding CEO of the Year: Royal Bank of Canada’s Dave McKay
Canada has $300-billion cash buffer to soften blow of coming recession, says RBC's CEO
RBC Dominion Securities faces class-action lawsuit alleging unpaid vacation
Late last year, at a time when recession concerns were particularly acute, RBC moved to expand its banking business by acquiring HSBC Holdings PLC’s Canadian business for $13.5 billion after the multinational financial services company decided it would exit the country. RBC emerged as the most likely choice to buy HSBC Canada because of its capital position, but analysts at the time said the risk of recession made the deal challenging.
McKay hasn’t been the only sanguine voice in recent months, as more and more economists and market watchers have started to downplay the potential severity of a recession, with talk of a “soft landing” even making a comeback.
“There’s lots of reasons to believe in a soft landing, and we’re kind of playing to that,” McKay said.
That includes resisting the urge the jump the gun on layoffs. McKay said that amid a talent shortage, the bank was more focussing on hiring to end 2022.
“We’ve been hiring a lot of people into the end of the year…. So, we’re walking the talk because it’s not just a bunch of words. And if we’re wrong, we’ll adjust.”
• Email: shughes@postmedia.com | Twitter: StephHughes95
