CFO of Canada’s largest bank exits at crucial time

TORONTO: The sudden exit of Royal Bank of Canada’s chief financial officer (CFO) comes at a “critical juncture” for the lender as it tries to absorb the biggest acquisition in its history, a leading Wall Street analyst says.

Canada’s largest bank fired CFO Nadine Ahn last Friday and said she’d violated its code of conduct by having an undisclosed “close personal relationship” with a colleague who was given preferential treatment, including promotion and pay increases.

The news landed barely a week after Royal Bank closed its C$13.5bil purchase of HSBC Holdings Plc’s Canadian assets, including its portfolio of commercial loans, mortgages, and more than 100 branches. On top of the “ambitious integration” of those two entities, Royal Bank has been trying to rein in costs and improve risk controls at its Los Angeles-based City National subsidiary, Jefferies Financial analyst John Aiken said.

“Given the importance of the CFO role in managing operational efficiency, we believe that there will be an even greater investor focus on the HSBC integration and improvements in City National’s operations,” Aiken said in a note to clients published last Sunday.

“We maintain that the following several months are a critical juncture for the bank, and the loss of a key senior executive team member at this time is a material loss, regardless of the pedigree of her successor.”

Royal Bank said it sacked Ahn and the other employee, whom it didn’t name, after an internal review and an investigation by outside legal counsel.

Other market watchers said the departure may dent Royal Bank’s reputation but is unlikely to drag the lender down in a major way. The shares closed up 0.6% on Monday at C$139.95 in Toronto, better than the 0.3% gain for the S&P/TSX Composite Commercial Banks index.

“It sounds like a messy departure and certainly not something that investors would be happy about – abruptly losing your CFO is never a good thing,” said Mike Rizvanovic, an analyst with Keefe Bruyette & Woods, noting that he was surprised by the level of detail the bank shared in its press release about the reasons for Ahn’s departure.

There shouldn’t be any major disruption in the bank’s day-to-day operations, but employee morale could be damaged, he said, adding that Ahn was respected as a woman in finance in a very senior role. She was named CFO in 2021.

“I do think it’s a bit of a hit to Royal’s reputation in terms of the management team,” said Rizvanovic, who has an “outperform” rating on the bank’s shares. “But it’s not like my view of Royal has changed significantly.”

The CFO’s departure is a surprising and “completely unnecessary blemish” for Royal Bank, said Dan Rohinton, a portfolio manager at iA Global Asset Management Inc.

But the bank still has a strong business with a diversified earnings stream, he said.

“In the grand scheme of banking, this barely registers.”

Katherine Gibson is filling in as CFO on an interim basis, and there are numerous internal candidates who could succeed Ahn, Rohinton said.

While CFOs are sometimes considered to be candidates to become chief executive officers, Rohinton said he “didn’t have a strong view” on whether Ahn was in the race to replace current CEO Dave McKay. — Bloomberg