Royal Bank of Canada Doing Just Fine in U.S.

| About: Royal Bank (RY)

For an unsophisticated reader, reports that Royal Bank of Canada (NYSE:RY) is in discussions to part ways with its U.S. personal and commercial bank may have made it seem like RBC as a whole is suffering south of the border.

But that message is far from the truth, and Hamilton Capital, run by former bank analyst Rob Wessel and Jennifer Mersereau, is trying change public opinion.

Chiefly, Mr. Wessel argues that it’s "very unfortunate" that there’s so much negative attention on the U.S. personal commercial division because the bank has had a lot of success in investment banking and wealth management south of the border. Most notably, a major increase in investment banking profitability has more than offset losses from commercial banking.

Moreover, Mr. Wessel argues that the current management team has done the best it could with a weak asset that it inherited. (The current CEO and management team were put in place after Centura was acquired.)

"Regardless of how this gets resolved, the current management did what it could to cope with a strategic challenge that was destined for an almost binary outcome; spend tens of billions of dollars to gain scale, or sell. And management appears determined not to leave its successors with the same strategic challenges it inherited," he noted.

Mr. Wessel focuses on RBC’s fiscal restraint in the region and commends the bank for abstaining from a takeover in the range of $10-to-$20 billion, which would have been necessary to gain scale in such a concentrated banking market.

"Sometimes management teams should be commended for what they do not do," he noted.

Although RBC did do some bad buying, most notably Alabama National for about $2-billion, "in the grand scheme of things, these deals did not amount to much and, importantly, did not materially change the risk profile of the entire bank."