RBC to launch U.S. consumer bank betting on wealthy clients

By Nichola Saminather and C Nivedita

(Reuters) - Royal Bank of Canada plans to open a consumer bank in the United States early next year targeting wealthy clients, with the aim of expanding deposits, its chief financial officer told Reuters on Friday after the bank posted first-quarter profit that beat expectations.

"We want to broaden the product and service offering that we have (in the U.S.), similar to what we have in Canada," CFO Rod Bolger said. RBC's consumer bank would initially focus on high-net-worth clients in U.S. but eventually target the "mass affluent" as well, he said.

With this strategy, RBC is joining U.S. rivals including Bank of America, which are expanding their private banking arms.

RBC's U.S. business, including City National bank, which it acquired in 2015, accounts for 23% of total revenue.

Profit at RBC's overall wealth management business, which accounts for 20% of earnings, grew 4% from a year ago.

"The loan book has been growing faster than the deposit book, so growing our deposit strategy has become of paramount importance," Chief Executive David McKay said on an analyst call.

Rather than a "commercial-driven strategy" focusing on products to draw consumers and cross-selling to them, the new bank would take a client-centric approach, McKay said.

Bolger declined to provide details about costs and size of the new bank.

RBC's earnings surprise was driven by record profit in capital markets as revenue from bond trading and dealmaking rose. But executives said dealmaking could be hit if geopolitical concerns, including the coronavirus outbreak, linger.

Following the worst year for earnings growth since the financial crisis, senior RBC executives told analysts the bank could also see margin compression this year.

RBC shares rose 1% to C$109.07 in afternoon trade in Toronto, compared with a 0.6% drop in the Canadian stocks benchmark.

"While we thought we had modeled a surge in capital markets-related revenues, the actual results made our forecasts look more like a ripple in the pond," Robert Sedran, an analyst at CIBC Capital Markets, wrote in a note.

Strong loan growth, particularly in Canadian residential mortgages, bolstered the bank's personal and commercial banking business, which rose 7% from a year earlier.

Royal Bank's net income jumped 11% to C$3.51 billion.

(Reporting by C Nivedita in Bengaluru and Nichola Saminather in Toronto; Editing by Shinjini Ganguli, Chizu Nomiyama, Jonathan Oatis and Dan Grebler)