Big bank cleans its dirty laundry

Big bank cleans its dirty laundry

Big bank cleans its dirty laundry Money laundering rears its ugly head once more. Should advisors be concerned about their clients’ Latin American holdings?

The surface story is the Wall Street Journal’s article from earlier this week about the Royal Bank closing most of its wealth management offices in Latin America and the Caribbean.

The paper speculates that the bank’s retreat from these markets has to do with a 2013 order from the U.S. Office of the Comptroller of the Currency to clean up its anti-money laundering controls.

You might wonder why a U.S. agency is ordering a Canadian bank to do anything but the OCC oversees U.S. lenders; RBC falls under their purview given its U.S. operations.

RBCs acquisition of City National for $5.4 billion suggests the bank wants to focus on its wealth management businesses in North America, U.K. and Asia while putting some distance between itself and its Latin American business.

Several global banks are struggling with money-laundering issues. RBCs definitely not alone.

That’s the news story.

However, if advisors look beyond the surface, you could come to the conclusion that this affects all of your Latin American holdings and not just a Canadian bank or two.

The biggest Canadian bank operating in Latin America is BNS whose operations there focus on four countries: Mexico, Uruguay, Peru and Chile. Although Mexico will get the most attention, BNS has three deals valued at $600 million currently nearing completion in those other countries.

It’s not going anywhere despite recent moves by its competitors.

For advisors holding ETFs, mutual funds or individual stocks, the idea that money laundering could affect companies operating outside financial services might seem remote, but healthy banks are the linchpin of any sound economy. Money laundering definitely puts this in doubt.

Beyond money laundering concerns, the economy in 2015 for most of Latin America is moving along at a snail’s pace due to lower commodity prices. Marcos Buscaglia, head of Latin American economic research for Bank of America-Merrill Lynch, states, “It is a ‘nano’ recovery. We will see very modest growth everywhere.”

The investment story is something completely different.