RBC poised to outperform rivals thanks to HSBC deal, say analysts
Exposure to more fee-based revenue from the acquisition of HSBC’s Canadian franchise is likely to boost Royal Bank of Canada’s performance relative to other domestic banks when they begin releasing second-quarter earnings next week, according to analysts at Jeffries Securities Inc.
“We believe that RY (Royal Bank)’s acquisition of HSBC provides significant growth and efficiency opportunities and, with no material disruptions emanating from the integration, there are few impediments to out-sized growth against its peers,” bank analyst John Aiken said in a note to clients Monday.
“Further, HSBC allows the largest platform in Canada to get larger, allowing incremental market share growth from RY’s ability to increase efficiencies and win incremental customers and share of wallet.”
Aiken’s report lays out two buckets for outperformance in an otherwise solid but “unspectacular” quarter: weighting towards fee-based revenue and ability to generate positive operating leverage despite muted top-line growth. RBC is the only Canadian bank in bothcategories. National Bank of Canada is also weighted towards fee-based revenue, while Bank of Montreal and Canadian Imperial Bank of Commerce both fall into the other bucket.
Aiken said synergies that Royal will derive from the HSBC acquisition on top of existing exposure to fee-based revenues in wealth management and capital markets will help the bank outpace its peers in organic growth. In the same report, he upgraded Royal Bank to a buy with a target price of $157, up from $136.
“A customer in Canada is exceptionally profitable for the banks,” Aiken wrote. “RY now has the opportunity to cross-sell an additional 70,000 retail customers and 12,000 commercial clients.”
As Canadian banks
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