(October 12 – 09:30 ET) – Merrill Lynch sees the retail brokerage industry in the United States as a growth opportunity for Canadian banks.
Last week it was reported that CIBC may be shopping its U.S. retail brokerage division, acquired when the bank purchased Oppenheimer & Co. a couple of years ago. Merrill doesn’t like that idea, but it’s not ruling it out. “To our mind, the logic of selling the bank’s U.S. retail brokerage operation would seem counter-intuitive to the bank’s wealth management operative, and its cross-border capital markets distribution goal,” says Merrill’s senior financial services analyst Jamie Keating in a report issued yesterday.
It suggests that if CIBC could get a good price for the division in a mergers and acquisitions frenzy, it may take the money and run. “We are reminded of the bank’s ‘no sacred cows’ policy in pursuing shareholder value. Opportunism could perhaps foster a deal.”
Merrill notes that the strategy of pursuing retail brokerage business in the U.S. was validated by Royal Bank’s recent purchase of Dain Rauscher, which almost doubles Royal’s retail sales force with a firm that is grounded on its retail arm.
It also lauds RBC’s recent success in the retail business, comparing it to Citigroup. It notes that Citigroup’s private client business is showing 47% earnings growth and a 25% pretax margin. By comparison, Royal Investment Services boasts year-to-date earnings growth of 61%, with a 27% after-tax margin.
-IE Staff