February 24, 2017 / 9:21 AM / 2 years ago

Exclusive: RBC reviews Asia wealth business for possible sale - sources

HONG KONG/TORONTO (Reuters) - Royal Bank of Canada, the country’s biggest lender, has put its Asian wealth management business under review, which could lead to its sale, four people familiar with the matter told Reuters.

A Royal Bank of Canada (RBC) logo is seen on Bay Street in the heart of the financial district in Toronto, January 22, 2015. REUTERS/Mark Blinch/File Photo

The Canadian bank’s move comes after several Western firms have withdrawn from private banking in Asia, hit by increasing pressure to reduce costs at home, slowing growth in the region and rising compliance costs.

Most recently, Dutch lender ABN Amro Group agreed in December to sell its private banking operations in Asia and the Middle East, which has $20 billion in assets, to LGT, a business run by the Princely Family of Liechtenstein.

The RBC review was prompted because the bank’s global head of wealth management feels the Asian business, with less than $10 billion in assets, lacks the scale to generate adequate profit, the people added.

There is, however, no certainty that the review will result in a sale, one of the people said. RBC’s main wealth management markets in Asia are Hong Kong and Singapore, the region’s two biggest wealth hubs.

“There will definitely be a question mark over profitability of this kind of a business that lacks scale,” said a person with knowledge of the development. “Is it a core business for RBC in Asia? The answer is, probably not.”

All the people Reuters spoke to declined to be named as the review is confidential.

RBC Chief Executive Dave McKay confirmed the business was under strategic review but said no decision had yet been made about a sale.

“We go through periodic strategic reviews. It’s a normal cycle of strategy,” McKay said in an interview with Reuters.

In fiscal year 2016, RBC’s revenue from international wealth management, including Asia, was C$430 million ($330 million), down from C$639 million in 2015 and C$722 million in 2014. The bank does not separately disclose the figures for Asia.

That compares with C$2.45 billion in revenue from its wealth management business in Canada and C$4.12 billion from the United States.

While some smaller Western wealth managers have left the region, Asia is emerging as a key battleground for global heavyweights such as UBS and Credit Suisse as their traditional markets show slower growth and as countries like China and India produce more millionaires.

With nearly 5 million individuals with $1 million in liquid assets, Asia Pacific is the fastest growing wealth region in the world.

Last year, Barclays agreed to sell its wealth and investment management business in Hong Kong and Singapore to a unit of Singapore’s Oversea-Chinese Banking Corp (OCBC).

A crackdown on money laundering by Asia’s main private banking centres is forcing wealth managers to spend more on compliance procedures, which industry executives say may prove too onerous for smaller players.

For smaller wealth managers, the extra spending on technology and compliance can erode profit margins and distract attention from the core business of growing assets. Wealth managers with assets under management of less than $25 billion will struggle to invest in systems and people necessary to stop the flow of bad money at private banks, private bankers have said.

While a valuation for RBC’s Asian wealth management business was not immediately clear, similar deals in the last couple of years in the region have been pegged at 1.5 percent to 2 percent of assets under management.

A sale of RBC’s wealth management business in Asia, if launched, could draw interest mainly from regional players including Singapore-based lenders DBS Group Holding and OCBC, which have been looking to bulk up their wealth management business, two M&A bankers said.

DBS acquired the Asian private bank of Societe Generale in 2014. DBS had also bid for the Barclays assets.

DBS and OCBC did not immediately respond to requests for comment.

Reporting by Sumeet Chatterjee in Hong Kong, John Tilak and Matt Scuffham in Toronto; Additional reporting by Denny Thomas in Toronto; editing by Will Waterman and Meredith Mazzilli

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