The financial engineering and complex financing feats by BNP Paribas will come in handy if U.S. companies crank up their use of such services. “You can’t just decide one day that you’re going to be strong in derivatives,” Steinberg says. “The risk-management systems take a long time to build.”
RBC Capital Markets: Middle March
Buying, not building, has characterized Royal Bank of Canada’s march into the United States. But while the bank’s RBC Centura consumer retail arm proclaims “Let’s do something giant,” RBC Capital Markets is trying to quietly stake a presence among U.S. midsize companies.
“There are close to 12 investment banks trying to focus on the Fortune 500; we felt there was a vacuum in the middle,” says Peter de Vos, RBC Capital Markets’s head of investment banking.
To fill that vacuum, RBC has performed seven rollups in the past 15 months, including buying Daniels & Associates, a top adviser to cable and telecom. In midmarket M&A, “the difficulty is that you have to have full product capability — you have to be able to loan money,” says de Vos. That’s where the bank’s syndicated and leveraged finance department, which is expanding distribution staff and hiring coverage bankers in the States, comes in.
The improvements have panned out nicely. In 2006, RBC Capital Markets advised on 28 M&A transactions in the United States worth $4.4 billion, boosting it to 19th place in the league tables from 31st the year before. Underwriting for non-investment-grade companies is RBC’s fastest-growing business.
For one client, Denver-based MarkWest Energy Partners LP, a $786 million (in revenue) master limited partnership in the energy industry, RBC managed the company’s $200 million high-yield debt offering in 2006 and led the credit facility to finance a 2005 acquisition with $500 million in loans. “I communicate with them frequently,” says Nancy Buese, senior vice president and CFO. “We have frequent conversations about modeling, credit enhancements, and financing for deals.”
RBC stands out from other banks because of its internal coordination and communication internally, especially between the debt and equity teams, Buese says. “If I tell the high-yield guy something, he communicates it to everyone else,” she says.
Not surprisingly, the credit crunch could dampen RBC’s leveraged-loan and high-yield dealmaking. And RBC is going to encounter some much larger players in midmarket M&A, including Deutsche Bank, Lazard Ltd., and Banc of America Securities (see “No Big Deal“). Nonetheless, RBC’s own takeover machine is still humming. In mid-August, says de Vos, RBC was actively looking at investments in three boutique M&A firms.
While corporate customers like Buese make little distinction between U.S.-based and foreign-based banks, U.S. regulators do.
Despite talk of the decline of Wall Street as the epicenter of global financial services, “there are still a number of regulatory and tax issues that retard expansion [of international banks] in the U.S.,” says Larry Uhlick, CEO of the Institute of International Bankers.
Among them are a Securities and Exchange Commission rule that lets broker-dealer operations of some U.S.-headquartered investment banks hold less capital in reserve than the U.S. broker-dealer operations of internationally based banks; a proposed IRS law that would prevent international banks from combining the profit and loss of their branches with those of their nonblank affiliates, for tax purposes; and a “safe harbor” rule on the fair-market valuing of securities and derivatives that is unavailable to banks not preparing financials in accordance with GAAP.
For the most part, however, these regulatory issues are surmountable. With their well-designed strategies and customer focus opening more doors than ever, foreign banks are likely to take such minor hurdles in stride.
Vincent Ryan is a senior editor at CFO.