Top brass at Canadian companies may see some of their wealth chipped away, thanks to stock-option changes in the latest federal budget.
Canada is reining in a tax break on employee stock options by introducing a cap that it expects will impact executives of major, established companies. The moves aren’t retroactive, so the changes would only apply to future options awards. Key details are still to be worked out, but based on past payouts at Canadian companies, it’s clear who could be most affected.
The list includes Hudson’s Bay Co. Chairman Richard Baker, Canadian Pacific Railway Co. Chief Executive Officer Keith Creel and Great Canadian Gaming Corp. CEO Rod Baker, based on compensation packages compiled by Bloomberg.
Creel is American and hasn’t benefitted from Canadian stock-option tax advantages, a representative for CP said in an email. The company also said it released its latest proxy on Wednesday, listing Creel’s options at $2.5 million.
The government plans to release more details on the tax measures before the summer, according to budget documents published Tuesday.
“The government is concerned with the disproportionate benefit of the preferential tax regime accruing to high-income individuals who often receive large percentages of their compensation through stock option benefits,” Canadian law firm Stikeman Elliott said in a note on the budget. Currently with stock options, only half the benefit is taxed as income, similar to capital gains. The government will cap the annual use of that benefit at $200,000 (US$150,000) for employees of “large, long- established, mature firms,” according to budget documents.
The budget didn’t define a “mature firm.” The move will align Canada’s system with that in the U.S., the government said.
The stock option benefits “disproportionately accrue to a very small number of high-income individuals,” according to the budget. Canada had 2,330 people with total income above $1 million who claimed stock option deductions in 2017, and the average claim was $577,000, the government said. The cap wouldn’t apply to startups, where stock options are a key tool for cash-starved firms to attract talent.
–With assistance from Josh Wingrove and Danielle Bochove.
Canada Pension Plan Investment Board, which manages around $368.5 billion (US$277 billion), is considering opening its first office in China as it seeks greater exposure to the world’s second-largest economy.
Canada’s largest pension fund investor could open an office in Beijing as soon as next year, Hong Kong-based head of Asia Pacific Suyi Kim said in an interview this month. Staff there would then work closely with CPPIB’s 130 employees in Hong Kong, which have helped to invest $42 billion in Greater China so far, she said.
“As we’re also growing our portfolio in China, which is around 10 per cent of our total fund, it makes a lot of sense for us to consider expanding our footprint there,” said Kim, adding that one of the firm’s key investment themes is China’s rising middle class and its burgeoning consumer consumption story.
CPPIB has already invested US$4 billion in a China logistics venture with Australia’s Goodman Group as e-commerce rises, creating the need for more large-scale storage facilities. It also owns shares in Alibaba Group Holding Ltd., Meituan Dianping, Midea Group Co. and Tencent Holdings Ltd., plus it has invested in funds run by Citic Capital, FountainVest and Hillhouse Capital.
CPPIB can invest in those private-equity firms’ buyout funds, giving it the opportunity to look at deals alongside them, or make direct investments in its own right, Kim said. The pension fund expects its total net assets will grow to $800 billion by 2030.
Suyi Kim, head of Asia Pacific at Canada Pension Plan Investment Board (CPPIB), poses for a photograph in Hong Kong, China. CPPIB is considering opening its first office in China.
Kim, 46, who built CPPIB’s Hong Kong office from scratch, is “mindful” of the growing competition from buyout firms and deep-pocketed tech companies in pursuing deals. “Having a lot of capital isn’t our competitive advantage here, our competitive advantage is having high quality talent and strong partnerships,” she said.
The fund’s China push comes as CPPIB aims to improve its track record of gender diversity globally. It made a commitment to hire equally by gender by 2020 and 47 per cent of new hires last year were women, Kim said.
The Toronto-based company’s senior management team is currently 35 per cent female, while there are seven women on its 11-person board. That compares with a 16.4 per cent female board representation for companies listed on the Toronto Stock Exchange.
Prior to joining CPPIB in 2007, Kim worked at Ontario Teachers’ Pension Plan and Carlyle Group LP, where she never had a female boss. “When I started at Carlyle Asia buyout fund in 2002 at the Seoul office, I was the only female professional,” Kim said. “There was no other female working in private equity in the country at the time.”
While that’s changed in the years since, Kim says gender bias is still quite common in the region.
“When I go to a business presentation with my team, the counter party very often would look at another male, thinking he must be my boss,” the Stanford Business School graduate said. “As I start to introduce myself and talk about CPPIB’s expertise as well as what my team has done, their faces change.”
Manulife Financial Corp. and other Canadian life insurers won a legal battle against hedge funds that contended the insurers should be compelled to take unlimited deposits into high-yielding investment policies.
A Saskatchewan judge dismissed claims by Mosten Investment LP and other funds that there should be no caps on investments in life-insurance policies from the late 1990s with guaranteed rates of at least 4 per cent. Short-seller Carson Block, who runs investment firm Muddy Waters, said last October that he was shorting Manulife over the lawsuit, saying it could lead to billions in losses for Canada’s biggest life insurer. Bank of Montreal and Industrial Alliance Insurance and Financial Services Inc. faced similar legal challenges.
“This important ruling unequivocally supports what insurers, their customers and regulators already know to be true: the purpose of an insurance policy is to protect the lives of the insured and their families,” the Canadian Life and Health Insurance Association said Monday in a statement. “Insurance policies are not intended to offer an unlimited investment opportunity completely unrelated to insurance coverage.”
Justice B.J. Scherman said in the decision that the policy in question “does not provide for unlimited standalone investment opportunities within the carrier fund.” Manulife has long said it expected to win the case, with Chief Executive Officer Roy Gori calling Mosten’s claims “commercially absurd” in November.
The ruling is “consistent with our position that this case was legally unfounded,” Manulife said Monday in a statement. “We were always confident we would ultimately prevail in this matter and that it would not have any material impact on the company’s business.”
BERLIN/FRANKFURT — A merger of Deutsche Bank and its rival Commerzbank could result in as many as 30,000 job cuts over the long term, a representative of German union Verdi who is a Deutsche supervisory board member told n-tv broadcaster.
A top investor in Deutsche Bank also expressed doubts about a potential merger, according to a person close to the investor.
The fierce opposition from the union and shareholder reservations come after both banks on Sunday confirmed talks about a merger and underlines the obstacles to efforts to combine Germany’s two biggest banks.
Most of the 30,000 positions at risk are based in Germany, Verdi’s Jan Duscheck said, according to comments published by the TV station on Monday. Over the short term there are 10,000 jobs under threat, Duscheck added.
However, the initial market reaction was positive. Shares in Deutsche Bank were up 3.3 per cent at 0829 GMT while Commerzbank traded 4 per cent higher.
The supervisory boards of both banks meet on Thursday when the merger is likely to be discussed.
The German government has pushed for a combination given concerns about the health of Deutsche, which has struggled to generate sustainable profits since the 2008 financial crisis.
The government, which holds a stake of more than 15 per cent in Commerzbank following a bailout, wants a national banking champion to support its export-led economy, best known for cars and machine tools.
However, the jobs impact will be a big issue.
“In our opinion a possible merger would not result in a business model that is sustainable in the long term,” Verdi’s Duscheck said.
A major Deutsche shareholder is not fundamentally opposed to a merger, said a person close to the unnamed shareholder, but wants to hear a compelling case for a deal.
“We have considerable doubts about the logic and the timing and want to be convinced,” the person said.
A merged bank would have one fifth of the German retail banking market. Together the two banks currently employ 140,000 people worldwide – 91,700 at Deutsche and 49,000 in Commerzbank.
There was a time when the Canada Pension Plan Investment Board didn’t even make “alternative” investments. Now, Canada’s biggest pension fund says it is sifting through “alternative” forms of data to try to improve its investment decisions.
CPPIB has assembled what it calls a “data-driven edge” team, a small group of investors and data scientists that are experimenting with different kinds of information in making longer-term investment decisions, says Deborah Orida, senior managing director and global head of active equities at CPPIB.
“As we look to enhance that decision-making, one of the things that we’ve been focused on for the last couple of years is being able to use not only the traditional financial data that we get from the traditional sources like Bloomberg in making our investment decisions, but also the increasing volume of alternative data that is available,” Orida told the Financial Post in a phone interview from Hong Kong.
There has been much made of hedge funds and other investors trying to gain an edge with alternative data, such as information gleaned from satellite imagery of store parking lots.
CPPIB began assembling its own team, which currently has fewer than 10 full-time members, last summer.
One example of how it is already putting alternative data to use that Orida provided was the fund’s recent analysis of a pair of real-estate companies, one public and one private, for which CPPIB used a public registry of realtors in the U.S. to study their movements between firms. The data would be one piece of a bigger puzzle that the fund would be trying to solve in order to make its investment decisions.
“But by looking at this additional source of data, and being able to analyze that trend, we could gain insights about what was attracting agents to different companies,” Orida said.
It’s unlikely CPPIB is the only Canadian pension fund tapping into emerging forms of data either.
The Ontario Teachers’ Pension Plan recently posted a job opening for a director of analytics platforms, the duties for which include maintaining “industry knowledge on data science, machine learning, data engineering, alternative data, data visualization and other relevant Advanced Analytics topics.”
Ontario Teachers’ Pension Plan CEO Ron Mock. Teachers’ also appears to be tapping into new data sources.
Teachers’ posting said the director would be leading a team of five to 15 employees.
CPPIB, which invests the funds of the Canada Pension Plan, is also diving deeper into new innovation-related ideas and technologies.
The fund recently advertised that it was looking to hire a director of innovation to help test out “emerging concepts and ideas” and expand CPPIB’s advanced analytics capabilities.
Along the same lines, CPPIB said recently that it was seeking a head of data and advanced analytics, billed as “a transformative role.”
CPPIB says the two jobs are new ones, as the fund tries to ensure that its talent and technology keep pace with its growth.
The price for all this remains to be seen; CPPIB will reveal its costs in an upcoming annual report.
But while CPPIB already has certain advantages over other investors — such as the steady flow of contributions and a much longer-term outlook — it’s always looking to make decisions on the basis of the best-available information, Orida said.
Reams of data can also be used to feed various artificial intelligence technologies, and Orida said that CPPIB does employ machine-learning in its research. The example she gave for this was their thematic investing group researching automobility, such as trends around consumers moving from buying cars to buying rides off an app instead, or the evolution towards electric and autonomous vehicles.
Orida said the existing research had taken a more regional approach, but CPPIB, a global investor, had wondered if it made more sense to analyze the adoption trends based on certain characteristics, such as density or wealth. The fund used a machine-learning algorithm to group cities around the various attributes, which is insight it could also apply across its portfolio.
“So for example,” Orida said, “when you think about that evolution of moving from buying a car as a capital investment to consuming rides as a service, that’s going to impact how we think about long-term projections for toll roads, for airports that make a lot of their money from parking revenue, in our infrastructure team.”
Again, however, alternative data is not the be-all-end-all for CPPIB, as Orida noted when it came to their research of real-estate companies. The fund was not using the analysis alone to make an investment decision; rather, it was trying to respond to a question humans were asking and supplementing its other work.
“Ultimately, our investment decisions are still captured in making a financial forecast about a company and then discounting the cash flows back to figure out what price we would pay for it,” Orida said. “But when you’re forecasting those cash flows, the more information you could have about the industry trends and how they might impact the future of that company, my own view is that the better investment decision that you’ll make.”
There would be no corruption in a perfect world. The global economy would be a clean zone, free of crooked politicians, bribing corporations, sleazy grifters and sophisticated influence peddlers trolling through the underworld economy, skimming cash from taxpayers, citizens and shareholders.
The opening words of the Organisation for Economic Co-operation and Development (OECD) anti-bribery convention, ratified by Canada in 1999, describe bribery as “a widespread phenomenon in international business transactions, including trade and investment, which raises serious moral and political concerns, undermines good governance and economic development, and distorts international competitive conditions.”
It’s a watery description of purpose that could encompass most routine government policy-making. But the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions was portrayed in 1997 as the cornerstone of a new global effort to rid the world of corporate bribery and corruption.
Fritz Heimann, legal counsel to General Electric Co. and a prime corporate lobbyist for the convention, even called it the “most significant achievement to date” in the move to reform international business.
But after more than two decades in operation, the convention has left a trail of dubious results and negligible achievement. Its major impact internationally has been to install a prosecution regime that shakes down international companies for billions of dollars in penalties, as if corporations were the cause of the corruption that engulfs most of the world’s nations.
Government enforcers in the United States have nailed 170 companies with US$9 billion in settlements over the past decade. In Canada, the OECD convention threatens to bring down engineering giant SNC-Lavalin Group Inc. — and Justin Trudeau’s Liberal government to boot.
Adding to the perception that the Government of Canada may be guilty of wrongdoing, the OECD on Monday issued a condescending statement, saying it was “concerned” and will “closely monitor” future developments in the SNC-Lavalin case.
Unfortunately, nobody seems to be closely monitoring “with concern” the OECD’s anti-bribery regime. The 36-member organization’s massive and escalating enforcement efforts against western corporations have done little, perhaps even nothing, to reduce bribery and corruption where it matters: the real world, where most nations are in various stages of corrupt disrepair.
Rather than receding, national corruption levels remain unchanged since 1997 and may even be increasing, according to Transparency International’s annual corruption index. Indeed, most of the world is beset by corruption, aside from Canada, the U.S., the United Kingdom, Australia and a few European countries.
But Canada’s recent arrival in the global corruption spotlight is mainly a product of the OECD convention and its bungled adoption by Ottawa under lobbying pressure from activists and some U.S. corporations. The first major bungle was by the Stephen Harper Conservatives in 2013/14, followed by the Trudeau Liberals in 2017/18.
Its deeper origins, however, can be found in the bowels of Washington politics in the post-Watergate era. The OECD convention was concocted after U.S. politicians discovered their anti-corruption crusade of the 1970s — which led to the creation of the Foreign Corrupt Practices Act in 1977 — left U.S. corporations out of the running for international business deals.
It’s useful to recall that corruption has a rich history around the world, including in the U.S. In light of this week’s college bribery scandal, it also exists in surprising forms.
In his 1984 book Bribes: The Intellectual History of a Moral Idea, the late John Noonan sifted through thousands of years of history to document bribery as a legal and routine practice dating back to at least 1500 BC.
Among the anecdotes in his 700-page work, Noonan describes the plight of Francis Bacon, the 16th-century father of the scientific method, who fell from political grace after his conviction for having enhanced his 3,000-pound income as England’s Lord High Chancellor with a bribing system that bought in 12,000 to 16,000 pounds a year from litigants.
Samuel Pepys, the famous 17th-century diarist and reputed founder of the British civil service, was a “bribe-taker on a grand scale,” Noonan writes. Despite a salary of only 350 pounds, Pepys managed to accumulate a stash worth 7,000 pounds in only seven years.
Through the 19th century, U.S. politics was rife with corruption. “Bribery was a way of life in this country,” Noonan states. A serious crackdown on bribery in the U.S. only began in the 20th century after a series of scandals, including the 1939 conviction of Martin Manton, a New York judge, for accepting US$186,000 from various corporations, including American Tobacco Co.
The U.S. anti-corruption crusade that launched a chain of events leading to Canada’s current SNC-Lavalin crisis was triggered by the Lockheed Aircraft Corp. bribery scandal of the 1970s. Unlike previous bribery cases that involved only local officials, Lockheed had paid foreign politicians and other international fixers and greasers to secure sales of its aircraft.
Other companies, including Gulf Oil, Northrop Corp. and Exxon Mobil, were also subject to high-profile congressional badgering for paying large sums to foreign politicians and officials.
These U.S. multinational corporations allegedly roamed the world sowing corruption. Among the recipients were officials in West Germany, Japan, Italy, Holland, Honduras and Saudi Arabia. The key Saudi cash collector was arms dealer Adnan Khashoggi, who received more than US$100 million from Lockheed during the 1970s.
Saudi arms dealer Adnan Khashoggi in 1990. Khashoggi received more than US$100 million from Lockheed during the 1970s.
During the congressional hearings, which became classic anti-corporate circuses, chief executives from scores of U.S. corporations were subject to grandstanding inquisition from politicians. New companies and foreign countries were added to the headlines: United Brands Co., Ashland Oil Co., Venezuela, Ecuador, Bolivia and Peru, among others.
Throughout hearings in 1975 and 1976, the message was clear: “Corruption is the dry rot of the capitalist system,” said New York Senator Clarence Percy. Senator Frank Church, who headed what became known as the Church Committee, also saw corruption narrowly as a U.S. corporate problem.
At the end of the congressional parade, the U.S. produced the Foreign Corrupt Practices Act. Signed into law by then president Jimmy Carter, the FCPA set a global precedent.
“The FCPA was a pioneering statute and the first law in the world governing domestic business conduct with foreign government officials in foreign market,” Southern Illinois University (SIU) law professor Mike Koehler wrote in an Ohio State Law Journal article in 2012.
A less charitable description is that the FCPA is an attempt by the U.S. to impose its laws extraterritorially and an attempt to criminally punish bribery that fails to go after the real source of the problem — a problem identified at the time by numerous government officials.
A state department legal adviser, Mark Feldman, told the politicians that it would “not be advisable” to adopt an FCPA that essentially required the U.S. to hold corporations responsible for practices that were normal abroad.
“That kind of legislation we would oppose,” the adviser testified, “not because we differ with the moral imperatives involved but we feel that the enforcement of such legislation would involve us in the surveillance of activities taking place in foreign countries, including the behaviour of foreign officials, and would fundamentally intrude our moral views into foreign societies which may have different conditions.”
There were alternatives to the FCPA, Feldman said, such as leaving the main responsibility for enacting and enforcing criminal laws against corruption with the foreign state. The U.S. has an important role to play cooperating with other countries, but it should not be acting alone, he added.
Another state department official said there were many advantages to a “multi-lateral approach” based on international agreements rather than U.S. unilateralism.
But congressional leaders had little patience with an international initiative that could take years, even decades. They wanted action in 1977. The U.S., Senator William Proxmire said, has “a very, very serious corruption problem” that needed immediate attention. Whether they would succeed was not the issue.
As a result, by 1997 — 20 years after adopting the FCPA — not much had changed internationally, except that major U.S. corporations began to complain they were losing out in international competitions to corporations from other countries — France, Germany and elsewhere — that seemed to turn a blind eye to corporate misbehaviour abroad.
In other words, global corruption continued without the participation of U.S. corporations, which were losing business adhering to U.S. law.
Enter the OECD, backed by some key U.S. corporations such as GE, as well as World Bank chief James Wolfensohn and the anti-corporate NGO Transparency International (TI).
TI co-founder Frank Vogl, in Waging War on Corruption: Inside the Movement Fighting the Abuse of Power, describes some of the lobbying campaign that led to the 1997 OECD anti-bribery convention.
The campaign landed in Ottawa, where Vogl and Wesley Cragg, TI Canada president and a York University professor, met with senior Canadian government officials “to encourage them to take an active lead in securing an OECD agreement and become the first government to pass a national law to ratify. Top Canadian businessmen from mining company Placer Dome, GE Canada and Bell Telephone Canada joined our presentation to senior Canadian politicians and officials. One official encouraged us hugely: then Canadian aid agency head Huguette Labelle.”
Huguette Labelle in 2012.
Labelle, who headed the now-defunct Canadian International Development Agency, went on to become a chair of Transparency International and an active campaigner for the OECD convention.
Canada ratified the anti-bribery convention in 1999 by passing the Corruption of Foreign Public Officials Act. Since then, the OECD’s Working Group on Bribery has ritually hounded Canadian officials for failing to live up to the convention.
In 2011, the working group delivered a 70-page critique of Ottawa’s anti-corruption activity that said a lack of resources was preventing Canada from prosecuting cases, pointing out that only one company had been pursued. The critique also noted Canada told the working group that “it is willing to consider providing for automatic debarment in the case of foreign bribery.”
Therein lies the first OECD trap that ensnared SNC-Lavalin.
Over the next few years, the Department of Public Works and Government Services adopted a series of administrative integrity provisions that penalized companies prosecuted for foreign corruption. Companies would be “debarred” from government contracts for 10 years if charged, let alone convicted.
Debarment, in effect, became an administered double-jeopardy penalty imposed above and beyond any legal penalties set by a criminal court at the end of a trial. Corporate law firms called such moves a “game changer” in the world of corporate law.
Michael Osborne at Toronto-based law firm Cassels Brock & Blackwell LLP said the debarment policy is fundamentally flawed because it makes no allowance for corporate reform and contrition. SIU professor Mike Koehler agrees. “I’ve long felt that Canada has a debarment issue … that should be addressed,” he said in an email.
Despite legal criticisms that the integrity regime measures were, among other things, retroactive and possibly unconstitutional, the OECD-led changes to Canada’s corporate prosecution regime were enthusiastically adopted by the Harper Conservatives.
As the rules were brought in, and before SNC-Lavalin was charged in 2015, nobody appears to have noticed that Ottawa had set in motion a process that could destroy companies. It was also a penalty other countries did not impose.
But an RCMP commissioner outlined the seriousness of the allegations against SNC-Lavalin later that year: “Corruption of foreign officials undermines good governance and sustainable economic development.” One suspects OECD tentacles may have reached a little too deep into the Canadian legal fabric when the RCMP announces that laying charges to protect “sustainable economic development” is a criminal priority.
After the SNC charges were disclosed, a slow political panic set in. Canada had apparently buckled under OECD pressure for tougher enforcement and debarments, even though other countries, including the U.S. and Britain, did not install debarment under their foreign corruption rules.
Instead, the U.S. and Britain had established Deferred Prosecution Agreement (DPA) regimes that allowed companies to settle corruption charges without trial and the risk of debarment. DPAs would allow companies such as SNC-Lavalin to negotiate their way out of a foreign corruption prosecution.
To fix this gap in the Canadian anti-bribery regime, Ottawa held consultations and, contrary to some commentary, the final move was not buried in a federal budget bill. The changes to the criminal code were based on dozens of intervenor comments in a report supporting made-in-Canada DPAs. It seemed like a way out for Trudeau.
Unfortunately for the Liberals and SNC-Lavalin, the new DPAs were mostly constructed along guidelines set out by the OECD’s anti-bribery regime. Under Article 5 of the OECD convention, DPAs cannot be granted if the objective is to protect “the national economic interest.”
In its nagging note to Canada on Monday, the OECD warned Ottawa against breaching Article 5, even though both the U.S. and Britain appear to do so without reprisal.
For example, Koehler believes the US$800-million DPA settlement Britain extracted from Rolls-Royce PLC in 2017 violated the OECD national economic interest rule. More recently, Koehler said the U.S. violated the rule when it launched an action against Chinese companies that “compete with American businesses.”
By erratically following the OECD’s flawed, ineffective and ultimately troublesome attempt to rid the world of bribery and corruption, successive Canadian governments have bungled Ottawa into a needless scandal and a political crisis. And the world is no closer to corruption-free perfection than it was 40 years ago.
The numbers in the CVCA report offer a glimpse into the shape of startup funding across Canada, especially in the information and communication technology sector which accounted for more than two thirds of VC dollars and deals.
Toronto is far and away the centre of gravity, with 197 venture capital deals happening in the city, and more than $1.5 billion invested in 2018. Montreal was the second busiest spot in Canada for startup investment, with 119 deals totalling $901 million, and Vancouver was third, with 71 deals totalling $400 million.
The CVCA report also makes it clear that governments are a big part of venture capital funding in Canada. Scanning down the list of the top 10 most active venture capital firms, the federal Business Development Corporation appears twice on the list — both as an overall funder, and separately as an investor through several sector-specific funds — and government entities like the New Brunswick Innovation Foundation and the MaRS Innovation Accelerator Fund appear on the list.
The venture capital sector has also received help from government through programs like the federal Venture Capital Action Plan and the Venture Capital Catalyst Initiative — each worth $400 million.
Rick Nathan, who leads the venture capital program at Kensington Capital Partners — one of the recipients of VCCI investment — said the government money has leveraged a lot more private capital.
“They’re important from a stimulative impact on the market as a whole,” he said.
“Every government in the world where there is a technology industry has a very active role — including the United States which has more government support for its venture capital industry than any other country in the world. But if you look at Israel, if you look at Europe, if you look across Asia, it is an important feature of any market where there is a budding tech sector.”
The biggest publicly disclosed venture capital deal of the year was $161 million in late-stage funding which went to Assent Compliance Inc, a supply chain data management company based in Ottawa.
Quebec-based Hopper Inc. and Milestone Pharmaceuticals Inc. also scored late-stage investment rounds valued at more than $100 million.
But according to the CVCA data, 70 per cent of venture capital deals in 2018 were much smaller, valued at less than $5 million.
In aggregate, Nathan said the numbers reflect investor confidence in Canada’s startup sector. He pointed to the initial public offering by Montreal-based Lightspeed POS as the latest example of a successful startup exit.
“We had the Lightspeed IPO a week ago, which is a great story. It’s a fabulous company. But it’s just kind of the next one on the list,” Nathan said.
“We probably have about 20 companies across the country that are in the half a billion to one billion valuation range.”
After shuffling its top investment-banking brass and adding more than a dozen senior bankers in recent months, Royal Bank of Canada is looking to advise its U.S. corporate clients on bigger deals.
The strategy is already starting to bear fruit. Royal Bank of Canada was the sole adviser to BB&T Corp. in its planned US$28 billion acquisition of SunTrust Banks Inc., the world’s largest bank merger in more than a decade. The firm also advised Melrose Industries Plc on its US$11-billion takeover of GKN Ltd. and it helped arrange the financing for mega-deals involving Walt Disney Co. and T-Mobile US Inc.
“As our platform and relationships have grown, we expect we’ll start to work on larger, more strategic transactions,” Derek Neldner, Royal Bank of Canada’s global head of investment banking, said in an interview at the RBC Financial Institutions Conference, held this week in New York.
Royal Bank of Canada began adding to its capital markets team in the aftermath of the financial crisis, when other large banks were pulling back. That allowed it to pick up market share and smaller clients.
“This is not an overnight success. We’ve been working at this for 10 years,” Chief Executive Officer David McKay said in an interview with Bloomberg Television. “When you’re with a client and with a strategy for the better part of a decade, clients reward you for that loyalty and being there.”
The bank has found particular success in its financial institutions group practice, which helped host the annual conference, drawing a record 80 companies and more than 600 investors.
“We’re not really a competitor to many of our clients in the U.S.,” which helps RBC win advisory business with U.S. banks, Neldner said.
He took over global investment banking at RBC last June, when Jim Wolfe and Matthew Stopnik were picked to jointly run the firm’s U.S. investment bank. The three have overseen RBC’s more recent efforts to add to its New York-based investment-banking platform, which has about 500 such professionals, more than double the size of its Canadian operation.
In January, the firm hired Bank of America Corp.’s Andrew “Cal” Callaway to run U.S. heath-care investment banking. Last year, it hired UBS Group AG banker Asad Kazim to help lead the firm’s U.S. real estate investment-banking business and BlackRock Inc.’s Eric Steifman to co-head its banks and specialty-finance practice.
“We’d like to grow, but we’d like to grow in a measured way with one client at a time,” Vinnie Badinehal, head of the bank’s U.S. financial-institutions group, said in an interview. “There are areas where we have a natural competitive advantage, but across all sectors we’re investing in talent.”