RBC & RBTT: Bank on a bigger future

The regional financial giant RBTT merged with the Royal Bank of Canada a year ago. James Fuller checks on their progress so far

“It’s been a wonderful journey, and I’m a better banker now, as a result of the experiences of the last year,” says Suresh Sookoo, CEO of the RBTT Financial Group, of his bank’s US$2.2 billion takeover by the Royal Bank of Canada (RBC) in June 2008.

“The other side of that, though, is that, as a leadership team, we will sit down and say, ‘Boy, we still have a lot of slogging to go,’” he adds, laughing.

Before the deal, RBC and RBTT both had substantial Caribbean presences, in predominantly different territories. The merged RBTT/RBC group now operates 128 regional branches, serving 1.6 million customers through 7,000 employees. Sookoo says the move was well received.

“I would say [it was] generally positive, but I think customers expected to see a flick of a switch and for RBTT to offer everything RBC had. That simply wasn’t possible. In that sense, I think there was a degree of disappointment.

“But you could take a different view and say there’s a degree of anticipation. Business banking in Canada, for example, is light years ahead of the Caribbean, so, in short time, what we’re trying to do is have RBTT catch up. Our customers will benefit from that and there are a lot of great things to come.”

Regional banking expert Victor Mouttet, who has been an executive director of five banks, agrees that the reaction to the merger was essentially upbeat.

“I think it was generally well received, except that no sooner had the merger taken place at a certain price than the price of RBC shares fell, so a lot of people had that to face.

“There was also the odd man that said we should keep RBTT as a local bank, but that’s old-fashioned thinking. Scotiabank is here, it’s a foreign bank and it’s accepted, so I don’t see that as an issue.”
Sookoo, who has more than 30 years’ banking and finance experience, explains the huge logistical task of merging two financial heavyweights.

“We’re moving forward in three main areas, the first of which is the company’s organisational restructuring. There has been a fundamental shift. Under the RBTT model we basically ran a federated ship: each subsidiary had its own independent board and management, with group oversight out of Trinidad.”

Sookoo is based at RBTT’s new St Clair Place headquarters in Trinidad, which will become the nerve centre of the RBC Caribbean network.

“Now there is an operating committee in Trinidad, led by senior management and chaired by myself. All the functional units in the territories now report directly in to those functional heads, who in turn are plugged into RBC Toronto, so we get immediate access to Canadian best practices. The concept allows more time to be spent with the customer in the branches.”

Significant structural changes are being implemented in the branches as well.

“We are redesigning and reconfiguring our branches. We’re trying to take away a lot of the middle- and back-office work and, as a result, the customer will have more direct staff interaction and greater access to management.”

The second key area is the juggernaut of combining and aligning the two entities’ separate systems.

“Our technology project, Recast, is concerned with changing our whole front, middle and back-office technology system so that we have a homogenous approach. RBC and RBTT were on different operating systems, and added to that, RBTT acquired several banks leading up to the acquisition. Each of those was operating on a different platform and process as well. It’s a hugely complex logistical exercise, because we are spread across 18 Caribbean countries and territories in which you have different regulators, different Central Bank rules, different currencies and in some cases different languages.

“What it will give us, when it’s all over, is a common, consistent way of engaging our customer… so that you can walk into a bank in Suriname and get the same service as in Barbados.”

The third area is “integrating RBTT into the RBC way of doing business, adopting RBC best practices.”
The affable Sookoo is adamant that these fundamental changes will not cost jobs.

“No job losses due to the merger. That was our mantra, and it still holds, though we’ll have to be very careful in the overlap countries. When we do overlap, say in Antigua, where RBTT and RBC both have branches in downtown St John’s, what we might do is relocate one branch.”

And the timeline for this change?

“The integration we always said would take 12 – 18 months, and we are well within that timeframe.”

Mouttet thinks five years is more realistic, and it could be longer.

“In any merger there are very big hurdles to get over, and one of the biggest of those is the question of different cultures. I’m saying that from my own experience. I was involved with Barclays/Republic Bank for 40-odd years and we took over the Bank of Commerce, another Canadian bank, in Trinidad in 1994. Ten years later, we were still trying to come to terms with the difference in cultures.”
Economically, the merger couldn’t have come at a more testing time, with the global financial downturn affecting all areas of the regional economy.

“RBC has a big presence in the Bahamas, and their business, because it is so close to Florida and the related tourist industry, was hit with a category three or four hurricane,” says Sookoo. RBTT’s business, however, has seen a decrease in consumer loan demand.

“Caribbean people are generally conservative in terms of their debt profile, and a lot of individuals have delayed home renovations, new car purchases, or travel plans. Businesses as well are being cautious about building new plants, extending premises, opening new stores, etc.

“The other side of loan demand and revenue being down is that you have to be frugal with your cost management. And of course you will pay close attention to your net interest margin, which is managing your deposit liability if your asset growth is not happening at the same rate. If your loans and revenue are down, what you then get is a position where each bank wants to take market share from their rivals.

“Traditionally what you also find in times like these is an increase in delinquency: people lose their jobs and can’t repay their loans. So your provisions for credit loss have to go up.

Sookoo admits the global economic situation is beginning to affect the Caribbean in a bigger way, and that these remain uncertain times.

“Some pundits are talking about green shoots, but I have a more pragmatic view. There was a lag effect to the Caribbean of the impact, because people had already committed to travel in the first winter of the recession, and therefore, even if everything picks up (and the probability is that it will be a gradual recovery), I think the region will feel a corresponding positive lag effect as well. I believe our 2010 will be challenged, but hopefully by 2011 we will be seeing the tail end of it.”
RBC’s conservative business approach, disparaged by some in the boom years, has emerged as a major plus point.

“RBC’s risk management is a little more conservative,” says Sookoo, “and we have had many people externally asking whether we’re going to be doing the same sort of business we were before. What we’re finding is that RBC will look at those same opportunities, but with a more rigid credit process. We have looked to remodel our capital markets business, doing a lot more due diligence up front.”

Mouttet agrees that RBC’s more cautious approach is a plus for RBTT.

“RBTT had spread their wings too wide and far and had got into some trouble with ventures such as in Belize, where they went into the real-estate market and did very badly.”

But Mouttet adds that he is concerned over some high-level resignations from RBTT.

“These are not people who are near retirement, they still have a fair number of years left in their banking careers, so that’s not good. It could take something away from corporate customer relationships because, in Trinidad especially, those relationships are very personal.

“I have confidence in Mr Sookoo, though. I think in time he will sort out whatever needs to be sorted out.”

Sookoo sums up: “RBC has proved a great partner. This venture is about growth, growth in the Caribbean, in the Spanish-speaking Caribbean and then onwards from there to Central and South America. What we are building now is a foundation for that expansion.”

And what about expansion in the short term?

“You never know when an opportunity will come knocking, but I think if you asked the management team now, they would say: ‘Please leave us alone!’” laughs Sookoo.

 

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