Canadian banks turn to wealth management operations for future growth plans
Bank of Montreal President and CEO Bill Downe addresses shareholders during the company's annual general meeting in Saskatoon, Sask., Wednesday, April 10, 2013. (Liam Richards / THE CANADIAN PRESS)
Published Wednesday, September 4, 2013 5:35PM EDT
TORONTO -- Canada's biggest banks are turning their focus to their wealth management operations, with several executives predicting that the lucrative and low-risk division will play an important role in future growth.
"The wealth business is emerging as a substantial contributor," Bank of Montreal chief executive Bill Downe told a group of analysts Wednesday at an annual conference hosted by Scotiabank (TSX:BNS).
"We expect this to be the fastest growing part of the bank with many opportunities to maintain the momentum."
Other bank CEOs chimed in with similarly optimistic predictions for their own wealth management divisions, which house financial planning operations and portfolios for both average investors and high-net worth individuals.
CIBC (TSX:CM) chief executive Gerry McCaughey said he aims to grow the bank's wealth management business to represent 15 per cent of its revenue.
It shouldn't come as much of a surprise that Canadian banks are taking a harder look at how to boost growth in the safest way possible, partly because their attention has been gradually shifting in that direction for several quarters.
"It's still part of the hangover of the financial crisis," said Ian Nakamoto, director of research at MacDougall, MacDougall & MacTier.
Unlike many other banking ventures, such as lending, wealth management is generally a low-risk operation that doesn't require a lot of capital to run, but can deliver solid fee-based returns on its trading services.
"Even though the stock market may go down, it's the client that suffers the losses," Nakamoto said.
"It's very different from loan losses where (the bank) has to try to get back the money by seizing assets, for example."
Last week, the Canadian banks posted relatively solid third-quarter earnings, with Royal Bank (TSX:RY) beating analyst expectations by the widest margin, helped particularly by growth in its wealth management operations.
"An aging population is driving demand for more retirement products, solutions and service," said Royal Bank (TSX:RY) chief executive Gord Nixon.
"Also, the number of high- and ultra-high network individuals globally is growing significantly."
National Bank (TSX:NA) has recently finished integrating two other wealth management acquisitions, Wellington West Holdings Inc. and HSBC Securities full-service investment advisory business, into its operations.
In April, CIBC signed a deal to buy Atlantic Trust Private Wealth Management for US$210 million in cash, as part of a plan to expand its wealth management operations in the United States. Atlantic Trust manages roughly US$20 billion in assets on behalf of high-net-worth individuals, families, foundations and endowments across the U.S.
In other countries, struggling banks may sell their wealth management operations as other parts of the business come under pressure.
However, an acquisition of foreign assets might not come so easily for the Canadian banks, said CIBC World Markets analyst Robert Sedran.
"While many global banks are shedding non-core assets, wealth is an area where many of even the hobbled players are looking to add instead of backing away," he wrote in a note.
"As such international wealth management deals remain elusive."
On the Toronto Stock Exchange, the financial sector climbed 0.20 per cent, with shares of BMO rising 20 cents to $66.80, Royal Bank shares climbed four cents to $65.48, while CIBC shares fell 16 cents to $81.94.