Royal Bank of Canada CEO to step down after 13 years

Reuters

* CEO Nixon to be replaced by executive Dave McKay

* Timing a surprise, but successor expected

By Cameron French

TORONTO, Dec 5 (Reuters) - Royal Bank of Canada Chief Executive Gordon Nixon will step down next summer after 13years at the helm of Canada's largest bank, handing the reins tothe RBC's retail banking head, Dave McKay, the bank said onThursday.

Nixon is the longest-serving of Canada's current crop ofbank CEOs, but at 56, by no means the oldest. McKay, 50, hadbeen widely expected to be Nixon's heir apparent, though notquite so soon.

"The timing was a surprise, but the appointment was not,"said CIBC World Markets analyst Rob Sedran. "Dave has done avery good job running the bank's largest businesses. I wasexpecting him to get the job, just not this year.

Nixon's announcement, which came as RBC, Toronto-DominionBank and Canadian Imperial Bank of Commerce allreported fiscal year-end results, caps off a changing of theguard at Canada's top three banks.

Rick Waugh, who became CEO of No. 3 lender Bank of NovaScotia shortly after Nixon took the top job at RBC,stepped down in November in favor of Brian Porter.

TD Bank CEO Ed Clark said earlier this year he will retirein 2014 after 12 years on the job. He will be replaced by TDexecutive Bharat Masrani.

The three form a cohort that has led the country's largestbanks through aggressive international expansion, particularlyin the wake of the 2008 financial crisis.

Canada's big banks emerged from the crisis with little harmdone, partly due to the industry's conservative culture andlending practices. They also benefited from a post-crisishousing boom that some critics warn could turn bust.

But for now, the banks have become larger players on theglobal stage as international rivals shrank around them.

WEALTH MANAGEMENT, CAPITAL MARKETS GROWTH

RBC in particular has pushed hard to grow its global wealthmanagement footprint, buying UK wealth manager BlueBay AssetManagement in 2010 for $1.5 billion. It has also investedheavily in its capital markets business, especially in theUnited States.

That capital markets exposure has at times worriedshareholders, but it has also led to strong profits, such asduring the fourth quarter, where the unit boasted income ofC$462 million, up 15 percent from the previous year,outperforming its Canadian rivals.

However, Nixon's legacy has hardly been spotless. When hetook over as CEO in 2001, the bank had just completed a $2.2billion purchase of North Carolina-based Centura bank.

That investment - which RBC built upon under Nixon - turnedinto a cash sinkhole for the bank as it first struggled to turna profit and then was hit by the worst of the U.S. real estatecrash.

"He's done a pretty good job, but he's dropped the ball onsome occasions," said John Kinsey, a portfolio manager atCaldwell Securities in Toronto.

The unit was a drag on RBC's earnings and raised uncertaintyabout its U.S. strategy right up until Nixon finally agreed tosell it to PNC Financial Services in 2011 for $3.6 billion,taking a $1.6 billion write-down in the process.

"It clearly was an underperforming asset" Nixon said in aninterview. "I certainty wish we had made the decision (to sellit) two or three years earlier because it would have been betterfor our shareholders."

Over the course of his time as CEO, however, RBC shares haverisen 168 percent - second-best among Canada's five-biggestbanks, trailing only the 180 percent gain by Scotiabank.

Nixon said he believed the time was right for a transition.

"It sounds trite, but it did just feel like the right time(to step down)," he said.

"I could have stayed an extra year, but I think it wouldhave been an extra year rather than driving the long-term plansfor the bank."

McKay, who will take over on Aug. 1, 2014, has been at thebank for 25 years. He ran RBC's Canadian retail bank businessfrom 2008 to 2012, and last year he added responsibility forRBC's retail banking operations in the United States and theCaribbean, as well as its cards business.

Interestingly, both Nixon and McKay have mentioned over thepast year that RBC might re-enter U.S. retail banking,particularly in the areas of internet banking and paymentsystems, though they have played down the idea of a largepurchase in the space.

In an interview, McKay would not rule out an acquisition inthe U.S. retail space.

"We would never say never," he said.

"It would have to make long-term sense. We recognize thatwe've stumbled in the past running in the past running thoseretail franchises in the U.S. for a lot of reasons."

Paul Gardner, partner and portfolio manager at AvenueInvestment Management, which owns shares of RBC and TD, said hedidn't expect any sort of a strategic shift for RBC under McKay.

"It's all about Canadian retail banking, and the continuedgrowth of wealth management, which gives you stable earnings,"he said. "(Nixon's) selling at the top in a sense. He's handingit off in fantastic shape."

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