Royal now dwarfs most U.S. banks

Could the Royal Bank of Canada soon become the largest bank on the continent? Even a year ago, to suggest such a prospect would have gotten you laughed off of Bay Street. But with the value of some of the world’s biggest banks in free fall, RBC is looking remarkably hefty these days. The bank’s market capitalization is now about $40 billion, making RBC worth as much as Citibank, Royal Bank of Scotland, Deutsche Bank and Barclays combined. Only a few U.S. banks, such as Bank of America, Wells Fargo and JPMorgan Chase, are larger.

Granted, RBC only looks so big because many former giants are now puny, victims of bad loans and dodgy investments. Citigroup, which was a $255-billion behemoth in mid-2007, is now worth only $19 billion. In comparison, RBC lost only half its value—a staggering hit, but much better than most.

The greater question is, what will RBC and Canada’s other banks do with their new-found clout? Many have said they won’t use their larger market caps to go shopping. Even so, earlier last year Scotiabank kicked the tires of National City, a big Ohio bank laid low by mortgage troubles. If stability returns to the economy, this could be a huge opportunity for our banks to become global players.

Unfortunately, few see that taking place. “It would be nice to look at this and say, ‘Wow, why doesn’t the Royal Bank buy Citibank?’ ” says Laurence Booth, a finance professor at the University of Toronto. “The fact is: mergers won’t happen.”

For one thing, no one really knows how many bad assets are lurking on bank balance sheets, says Booth. And since Washington has forked over billions to prop up the banking sector, there’s little chance a foreign takeover would be allowed. “If the U.S. government socializes all the bank losses, they’re not going to look kindly on any Canadian bank coming in to do a takeover.”