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Acquisitions Challenging

Royal Bank’s McKay, 54, said acquisitions are challenging given assets are “very expensive” and options within Canada are “limited.” Still, he’s interested in building on the 2015 takeover of City National, Hollywood’s “bank to the stars,” to further U.S. expansion in commercial and private banking.

Scotiabank has already taken advantage of its strength by pursuing three acquisitions since November, including its February agreement to buy Canadian money manager Jarislowsky Fraser Ltd. for $950 million and its deal to buy Banco Bilbao Vizcaya Argentaria SA’s 68 per cent stake in a Chilean lender for $2.2 billion.

“We like the optionality of a higher capital level,” CEO Brian Porter, 60, said April 10, adding that acquisitions are “part of our strategy, and always have been.”

The heads of Bank of Montreal and CIBC, the country’s fourth and fifth biggest banks respectively, are putting spending on internal initiatives ahead of acquisitions. CIBC last year bought Chicago-based PrivateBank for $5 billion, the largest takeover in CIBC’s 150-year history.

Share Buybacks

Bank of Montreal, which also operates in the U.S. Midwest with its Chicago-based BMO Harris Bank, isn’t interested in going “geographically far afield,” CEO Darryl White 46, said at the bank’s April 5 annual meeting. “But anything within those business lines and those geographies is interesting to us.”

More share buybacks by the banks may also be on the horizon — and could be a sop for investors who’ve seen Canadian bank shares trail their U.S. counterparts. The eight-company S&P/TSX Commercial Banks Index has risen 1 per cent in the past 12 months compared with an 18 per cent advance for the 24-company KBW Bank Index of U.S. lenders.

Royal Bank used excess capital to buy back 30 million shares, or 2.1 per cent of its outstanding stock in the past year. The Toronto-based lender said in February it may repurchase another 30 million shares within the year, calling such buybacks “a useful tool” to deploy excess capital.

“A strong capital position provides the banks with options,” Malhotra said. “Whether you use it to buy back stock, grow your business or to make acquisitions, it certainly gives management deployment flexibility.”

Bloomberg.com