How RBC pulled off its highly-coveted $13.5-billion deal for HSBC Canada — with some unintended help from Ottawa | Canada News Media
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How RBC pulled off its highly-coveted $13.5-billion deal for HSBC Canada — with some unintended help from Ottawa

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A combination of external and internal factors made RBC’s HSBC deal a reality.Duane Cole/The Globe and Mail

He’ll never want to admit it, but Royal Bank of Canada RY-T chief executive Dave McKay can thank Prime Minister Justin Trudeau, at least in part, for landing Canada’s most coveted bank deal in decades.

Like many of his industry peers, Mr. McKay has been frustrated with Ottawa for slapping an additional, permanent tax on bank and life insurance company profits in the most recent federal budget, something Ottawa has attributed to clawing back some of the financial relief it provided during the COVID-19 pandemic.

While the federal government can taketh away, it can also provide, and seven months later, another pandemic financial policy has proven to be quite helpful to RBC – even if the assistance is unintended.

Because there was so much economic uncertainty when Canada entered its first COVID-19 lockdowns in March, 2020, the federal government and the country’s banking regulator wanted banks to preserve cash as a buffer against any shocks. To enforce this, they prevented the lenders from hiking their dividends, something they often did annually.

There was no way to know it then, but Canada’s banks kept churning out profits, even through multiple lockdowns. That meant all the cash they would have normally put toward dividend hikes piled up on their balance sheets.

RBC wasn’t the only lender that saw its coffers swell, but because it is Canada’s largest bank by profit, it was able to hoard large amounts each quarter. Ultimately, that money was deployed to win the HSBC Canada auction, in the form of a $13.5-billion, all-cash bid.

At the same time, HSBC Canada’s parent, London-based HSBC Holdings PLC, must have seen all that money piling up. So, even though HSBC’s global management team had long said it was committed to Canada, if there was any time to sell, this was it. All that excess cash gave HSBC a greater chance of selling for top dollar – and, crucially, an exit before any potential recession.

The second element of RBC’s winning strategy, and arguably the most important, is an internal one, and it is rooted in something so often overlooked in business: discipline.

Ever since Mr. McKay acquired California-based City National Corp., which specializes in banking for high-net-worth clients, for US$5.4-billion in 2015, just five months into his tenure, there have been endless questions from investors and analysts about what RBC would do next. Often, they centred on growth in the United States.

Mr. McKay has been batting these away for years, suggesting RBC isn’t all that interested in establishing a large retail banking footprint in the U.S. Doing so requires scale, which means it would take one or two large deals to make an impact. To his mind, it just isn’t worth it, considering where RBC is starting from, and because retail banking isn’t as profitable in the U.S. as it is in Canada.

But the questions kept coming, especially as the Big Six banks started accumulated gobs of cash during the pandemic. Then two of RBC’s Canadian rivals, Toronto-Dominion Bank and Bank of Montreal, splurged on deals of their own. Late last year, BMO bought California-based Bank of the West for $17.1-billion, the largest U.S. deal in Canadian banking history, and early this year TD bought First Horizon for US$13.4-billion.

Standing pat is incredibly tough when rivals are writing big cheques. The fear of missing out is real, and investors tend to be myopic, too, so they have a habit of rewarding short-term revenue growth.

RBC, though, never wavered. “Patience is really important,” Mr. McKay said on a conference call with reporters Tuesday.

Royal Bank wasn’t necessarily waiting for this precise opportunity. “We didn’t know [the HSBC Canada sale] was going to happen, or the timing,” he said. But sometimes executives get lucky. And having all that excess capital allowed RBC to splurge on what Mr. McKay called a “more sure-footed transaction” relative to rivals’ deals.

He didn’t go into specifics, but based on its financials, Bank of the West is a fixer-upper for BMO. It is also based in a state where BMO has almost no footprint. First Horizon, meanwhile, may not have even been TD CEO’s first choice for its most recent U.S. retail banking deal, after TD was reported to be in the auction for Bank of the West just a few months prior. HSBC, by contrast, is a very profitable bank, with a 14-per-cent return on equity over the past 12 months, rather healthy by global standards.

What RBC will have to prove now is that it hasn’t overpaid. Just because it had the cash to burn doesn’t mean it needs to use it all.

The bank’s executives are stressing that after making some adjustments, it’s paying about nine times HSBC Canada’s forward earnings, which is below the long-term average trading multiple for Canadian lenders. However, bank deals are also priced off of a multiple of the target’s book value, and at 2.5 times HSBC Canada’s, RBC is paying a healthy premium.

That isn’t necessarily a bad thing. In fact, during Mr. McKay’s tenure, it’s become a bit of a standard. When RBC bought City National, it paid 2.6 times book value, and at the time, almost everyone on Bay Street wondered if the bank overpaid. All those fears have subsided over the past seven years.

What’s become clear is that RBC is willing to pay up for quality. Some bankers chase cheap assets, and may get lucky and find a diamond in the rough. RBC, though, has tried that before, and it resulted in a disastrous acquisition of North Carolina-based Centura Banks Inc. in 2001. Unwinding the deal took a decade, and when RBC ultimately sold the division in 2012, it took a $1.5-billion charge in the process.

“We bought a franchise that had to be transformed and changed – it wasn’t the ‘Tier 1′ franchise,” Mr. McKay said about Centura in a 2015 interview with The Globe and Mail. “Our biggest [lesson] from that failed venture was that you have to buy the highest-quality franchise and build on it.” Sound familiar?

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What Difference Will You Make to an Employer?

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October 21, 2024

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It’s common knowledge that companies don’t hire the most qualified candidates. Employers hire the person they believe will deliver the best value in exchange for their payroll cost.

Since most job seekers know the above, I’m surprised that so few mention their Employee Value Proposition (EVP). Most job seekers list their education, skills, and experience without substantiating them and expect employers to determine whether they can benefit their company; hence, most resumes and LinkedIn profiles are just a list of opinions—borderline platitudes—that are meaningless and, therefore, have no value. Job seekers need to better explain, along with providing evidence, how they’ll contribute to an employer’s success.

Employers don’t hire opinions (read: talk is cheap); they hire results.

You’re not offering anything tangible when you claim:

 

  • I’m a great communicator.
  • I’m detail oriented.
  • I’m a team player.

 

Tangible:

 

  • “At Global Dynamics, I held quarterly town hall meetings with my 22 sales reps, highlighting our accomplishments, identifying opportunity areas, and recognizing outstanding performers.”
  • “For eight years, I managed Vandelay Industries IT department, overseeing a staff of 18 and a 12-million-dollar budget while coordinating cross-specialty projects. My strong attention to detail is why I never exceeded budget.”
  • “While working at Cyberdyne Systems, I was part of the customer service team, consisting of nine of us, striving to improve our response time. Through collaboration and sharing of best practices, we reduced our average response time from 48 to 12 business hours, resulting in a 35% improvement in customer feedback ratings.”

 

These examples of tangible answers provide employers with what they most want to hear from candidates but rarely do; what value the candidate will bring to the company. Typically, job seekers present their skills, experience, and unsubstantiated opinions and expect recruiters and employers to figure out their value, which is a lazy practice.

Getting hired isn’t based on “I have an MBA in Marketing and Sales,” “I’ve been a web designer for over 15 years,” “I’m young, beautiful and energetic,” blah, blah, blah. Likewise, being rejected isn’t based on “I’m overqualified,” “I’m too old,” “I don’t have enough education,” blah, blah, blah. Getting hired depends entirely on showing employers that you can add value and substance to their company; that you’ll serve a purpose.

When you articulate a solid value offer, the “blah, blah, blah” doesn’t matter. Job seekers focus too much on the “blah, blah, blah,” and when not hired, they say, “It’s not me, it’s…” The biggest mistake I see job seekers make is focusing on the “blah, blah, blah”—their experience and education—believing this is what interests employers. Hiring managers are more interested in whether you can solve the problems the position exists to solve than in your education and experience.

 

Not impressive: Education

Impressive: A track record of achieving tangible results.

 

You aren’t who you say you are; you are what you do.

 

If you want to be somebody who works hard, you have to actually work hard. If you want to be somebody who goes to the gym, you actually have to go to the gym. If you want to be a good friend, spouse, or colleague, you have to actually be a good friend, spouse, or colleague. Actions build reputations, not words.

The biggest challenge job seekers face today is differentiating themselves. To stand out and be memorable, don’t be like most job seekers, someone who’s all talk and no action. Any recruiter or hiring manager will tell you that the job market is heavily populated with job seekers who talk themselves up, talk a “good game” about everything they can “supposedly” do, drop names, etc., but have nothing to show for it.

More than ever, employers want to hear candidates offer a value proposition summarizing what value they bring. If you’re looking for a low-hanging fruit method to differentiate yourself, do what job seekers hardly ever do and make a hard-to-ignore value proposition.

  1. Increase sales: “Based on my experience managing Regina and Saskatoon for PharmaKorp, I’m confident that I can increase BioGen’s sales by no less than 25% in Winnipeg and the surrounding area by the end of 2025.”
  2. Reduce cost: “During my 12 years as Taco Town’s head of purchasing, I renegotiated contracts with key suppliers, resulting in 15% cost savings, saving the company over $450,000 annually. I know I can do the same for The Pasta House.”
  3. Increase customer satisfaction:“During my time at Globex Corporation, I established a systematic feedback mechanism that enabled customers to share their experiences. This led to targeted improvements, increasing our Net Promoter Score by 15 points. I can increase Dunder Mifflin’s net promoter score.”
  4. Save time: “As Zap Delivery’s dispatcher, I implemented advanced routing software that analyzed traffic patterns, reducing average delivery times by 20%. My implementation of this software at Froggy’s Delivery can reduce your delivery times by at least 20%, if not more.”

 

If you want to achieve job search success as soon as possible, structure your job search with a single thread that’s evident and consistent throughout your résumé, LinkedIn profile, cover letters and especially during interviews; clearly convey what difference you’ll make to the employer.

_____________________________________________________________________

 

Nick Kossovan, a well-seasoned veteran of the corporate landscape, offers “unsweetened” job search advice. You can send Nick your questions to artoffindingwork@gmail.com.

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Netflix’s subscriber growth slows as gains from password-sharing crackdown subside

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October 17, 2024

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Netflix on Thursday reported that its subscriber growth slowed dramatically during the summer, a sign the huge gains from the video-streaming service’s crackdown on freeloading viewers is tapering off.

The 5.1 million subscribers that Netflix added during the July-September period represented a 42% decline from the total gained during the same time last year. Even so, the company’s revenue and profit rose at a faster pace than analysts had projected, according to FactSet Research.

Netflix ended September with 282.7 million worldwide subscribers — far more than any other streaming service.

The Los Gatos, California, company earned $2.36 billion, or $5.40 per share, a 41% increase from the same time last year. Revenue climbed 15% from a year ago to $9.82 billion. Netflix management predicted the company’s revenue will rise at the same 15% year-over-year pace during the October-December period, slightly than better than analysts have been expecting.

The strong financial performance in the past quarter coupled with the upbeat forecast eclipsed any worries about slowing subscriber growth. Netflix’s stock price surged nearly 4% in extended trading after the numbers came out, building upon a more than 40% increase in the company’s shares so far this year.

The past quarter’s subscriber gains were the lowest posted in any three-month period since the beginning of last year. That drop-off indicates Netflix is shifting to a new phase after reaping the benefits from a ban on the once-rampant practice of sharing account passwords that enabled an estimated 100 million people watch its popular service without paying for it.

The crackdown, triggered by a rare loss of subscribers coming out of the pandemic in 2022, helped Netflix add 57 million subscribers from June 2022 through this June — an average of more than 7 million per quarter, while many of its industry rivals have been struggling as households curbed their discretionary spending.

Netflix’s gains also were propelled by a low-priced version of its service that included commercials for the first time in its history. The company still is only getting a small fraction of its revenue from the 2-year-old advertising push, but Netflix is intensifying its focus on that segment of its business to help boost its profits.

In a letter to shareholder, Netflix reiterated previous cautionary notes about its expansion into advertising, though the low-priced option including commercials has become its fastest growing segment.

“We have much more work to do improving our offering for advertisers, which will be a priority over the next few years,” Netflix management wrote in the letter.

As part of its evolution, Netflix has been increasingly supplementing its lineup of scripted TV series and movies with live programming, such as a Labor Day spectacle featuring renowned glutton Joey Chestnut setting a world record for gorging on hot dogs in a showdown with his longtime nemesis Takeru Kobayashi.

Netflix will be trying to attract more viewer during the current quarter with a Nov. 15 fight pitting former heavyweight champion Mike Tyson against Jake Paul, a YouTube sensation turned boxer, and two National Football League games on Christmas Day.

The Canadian Press. All rights reserved.

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All Magic Spells (TM) : Top Converting Magic Spell eCommerce Store

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October 17, 2024

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