19 December 2019: This is no time to beat around the bush. RBC’s investor services business has had a horrible 2019. Much as I admire the management team, it has not distinguished itself over the last twelve months. It ended its fiscal year with a kitchen-sink charge that will cover repositioning (primarily the exit from Australia) and severance costs. All this is known, and it’s no surprise that competitors are openly talking about the business being readied for sale. Doug Guzman, the new group executive in charge of RBC Investor & Treasury Services, is the undertaker, so they say.
Not so fast. Francis Jackson, the CEO of investor services, is determined to nurse the business back to rude health. For those of you who may not know much about Jackson, he is an industry maven who has done it all and has the T-shirt (and scars) to prove it. Chase, Bankers Trust, Citi, SEI, J.P. Morgan – you couldn’t ask for a better pedigree. Granted, he will need all of that experience, and the counsel of wise advisors, to pull this off, but no one is better qualified to do it. What’s the challenge?
First, costs. Even when the business has recorded strong revenue growth (2018 was up more than 10pct), it failed to manage costs effectively, wiping out almost all of its gains. RBC has been waiting a long time to reap the rewards of its investment in technology and efficiency initiatives, and it is still waiting. Jackson and his new team – he has moved to substantially shake up his direct reports – need to get to grips with this as a top priority.
But it isn’t just about managing costs for the sake of profitability. RBC has been hurt by what it describes as “secular industry trends”, which is a polite way of saying price cutting. This year it lost a major client in Luxembourg because it simply could not compete with the tariff offered by a competitor. RBC is in the process of implementing a social plan in Luxembourg, covering some 200 employees.
Second, technology. For all the hype around its RBC One client portal, it still has too many platforms. There is almost no synergy between Canada and Europe, and Jackson is already moving to implement a single cross-border solution. A botched technology transition in Australia had a major impact on the decision to withdraw from that market, although RBC says that pricing pressure was another significant factor.
Third, relevance. Again, there is no synergy between Canada and Europe in terms of client overlap or cross-selling. Jackson would like the business to be bigger in the U.S., driving offshore mandates to Dublin and Lux, but he is somewhat hamstrung by the priorities of the group. There may be opportunities to do deals with smaller U.S. players, but RBC certainly needs to come up with a stronger cross-border solution to generate mandates from North America. Without this, it’s difficult to see how the offshore centres can thrive.
Is there any good news? Yes. First, Jackson has identified these issues and has plans to fix them. He is decisive: having been in the job for less than a month, he concluded that Australia would never be sufficiently profitable to justify continuing investment, and pulled the plug. Second, clients are very loyal, and overwhelmingly love the service they receive. Third, the strategy is good: a focus on private capital, TA, data, middle office – all areas where it has real strengths and genuine USPs. Fourth, the team: Jackson inherits a great team of senior and middle managers, and he is adding to that bench strength.
It is not yet time to write off RBC. Jackson and his team can pull it back from the brink. But, as always, time is of the essence. Jackson has a limited window in which to devise a new strategy – and execute it. But, were I a betting man, I’d back the team to do it.