CANADA FINANCE-RBC CEO says buying in banking doesn't make sense

(This story is part of a special Reuters News package highlighting Canada's financial sector. For a complete listing of stories, click on [ID:nN19445229].) (Repeats Reuters interview from June 2)

* Financial markets have turned corner, economy lagging

* Sees trading revs leveling, ambitious profit targets

* Sees U.S. builder loan business recover first in upturn

* Hired 200 brokers in US wealth management in first half

By Jack Reerink and Andrea Hopkins

TORONTO, June 2 (Reuters) - Gordon Nixon is the dealmaker who never did the big deal -- and is darn proud of it.

The chief executive of Royal Bank of Canada (RY.TO), the country's largest bank, credits a focus on internal growth, an adversity to risk, and a diversity of businesses as reasons why the bank escaped the maelstrom that has taken down the world's biggest financial institutions.

Buying often doesn't make sense in banking, says the former investment banker, not even when prices look cheap.

"I don't believe that there is any rush to deploy capital given what has occurred in the marketplace," Nixon, 52, said in an interview at the bank's headquarters in Toronto on Tuesday.

"You may pay more a year from now than you will today for a particular asset, but if you can buy it with a much higher degree of certainty, then that makes a lot more sense than trying to catch a falling knife today and cutting yourself."

Sure, Nixon, who in 2001 at age 44 became the youngest chief executive of a Canadian bank, acknowledges the bank has made plenty of mistakes. Most prominent: the U.S. purchases that put it in the red in the second quarter -- for its first quarterly loss since 1993.

Provisions for loan losses went up the third quarter in a row to C$974 million ($902 million), more than half of that for the U.S. market.

Nixon is not about to do an encore.

"Why would you pay a big price today? Even though values have come down dramatically, the risk-reward of buying a big balance sheet in the United States in today's economic environment, with the high degree of uncertainty and the very uneven and uncertain regulatory environment" isn't there, Nixon said.

Even so, Nixon is seeing rays of light in RBC's big U.S. exposure -- described by one Bay Street analyst as the albatross around the bank's neck. The bank's loans to builders in the U.S. South should turn the corner first when the economy recovers.

"It's hard to say where the trend is. Ultimately you'll see a change, you'll see a recovery," Nixon said. "Our credit losses were hit early and were impacted by ... our overweight in U.S. builders and real estate. And in theory that sector should be the first to come out."

A harbinger of such a scenario: The recovery in financial markets, Nixon says.

"There's no question that in the financial sector the turnaround is for real," Nixon said. "The real economy is well behind the financial markets in terms of a turnaround. Is the market ahead of itself right now? It's very hard to say."

For now, the financial markets recovery and weakness of erstwhile rivals is boosting RBC in two key businesses: capital markets and wealth management.

For example, trading revenues spiraled to C$2 billion in the first half, an eightfold increase from the year-before period, mostly on the back of fixed income trading. But revenues are bound to level off, Nixon said.

"There is no question that revenue growth is not sustainable," he said.

But profits in the capital markets group, which also includes investment banking, have room to grow because they have been hit by writedowns for credit losses, Nixon said, adding he has set "aggressive profit targets".

So far this year, RBC has grabbed the top spot in M&A and secondary share offerings, up from No. 4 a year ago, according to ThomsonReuters data.

One area of expansion is primary dealing in U.S. Treasuries, where RBC aims to muscle in like it did in British bond trading. Another is wealth management, particularly in the United States.

The industry's shake-up, which include Merrill Lynch's sale to Bank of America (BAC.N), the tie-up between Morgan Stanley (MS.N) and Citigroup's (C.N) Smith Barney, and UBS's (UBSN.VX) (UBS.N) offshore banking troubles, has created a big opportunity.

In fact, RBC Wealth Management, formerly known as RBC Dain Rauscher, has hired about 200 brokers so far this year, lifting the total to about 2,100, Nixon said. RBC is still hiring but the pace is slowing.

"It gets harder when things stabilize," Nixon said.

So slowly, but surely, RBC is building a big business, much like its domestic rivals Bank of Nova Scotia (BNS.TO) and Toronto-Dominion Bank (TD.TO).

"What you'll see is Canadians continue to grow and expand in a world where large global banks will not be as large and dominant on a relative basis as they might have been over the last number of years," Nixon said. "A lot of the European banks are going to become domestic banks -- the UK government hasn't put all this money into the banking system so they can lend money in Alberta." ($1=$1.08 Canadian) (Additional reporting by Pav Jordan; editing by Peter Galloway)