Since embarking on our U.S. expansion strategy in April 2000, we
have made 12 U.S. acquisitions for approximately US$5.5 billion.
The acquisitions of Centura Banks, Inc., Liberty Life Insurance Company
and Dain Rauscher formed the base of our U.S. banking, insurance
and brokerage platforms, respectively. We made subsequent acquisitions
in banking and brokerage that have diversified our operations,
increased our customer base, enhanced our geographic presence and
created opportunities for greater synergies.
Our U.S. acquisitions have diversified
our revenue stream, and resulted in an increase in the proportion
of U.S. revenues from 7 per cent in 2000 to 27 per cent in 2003.
These acquisitions have also increased our total customer base
by approximately 2.4 million or 24 per cent. Net income from our
U.S. acquisitions made since April 2000 was C$251 million in 2003
versus C$232 million in 2002, while net income from all of our
U.S. operations was C$382 million in 2003, up from C$210 million
RBC Centura forms the foundation from which we are
growing our personal and commercial banking business
in the Southeastern U.S., an attractive market
given its growth profile and opportunities for
further consolidation. Currently, RBC Centura has
approximately 800,000 personal and commercial clients,
242 retail and business branches in five Southeastern
states, and national mortgage origination and builder
finance businesses in RBC Mortgage and RBC Builder
Finance. RBC Mortgage has the capability to do business in all
50 states and RBC Builder Finance has 33 offices in 26 U.S. states.
In 2002, RBC Centura finalized its acquisition of Eagle Bancshares
for US$149 million.
RBC Centura branch network in the Southeast U.S. (1)
(1) Excludes branch locations for RBC Mortgage and RBC Builder Finance
which are located throughout the United States.
The 14 branches acquired provide a valuable
footprint in the attractive and high-growth metropolitan Atlanta
market. In January 2003, RBC Centura completed its acquisition
of Admiralty Bancorp for US$153 million. This acquisition secured
a footprint in the lucrative and fast-growing Southern and Central
Florida markets. In addition to geographic expansion, RBC Centura
has also grown organically in the U.S. through product innovation,
enhanced sales techniques and improved service through technology
investments. In the last year, new mortgage, savings account,
small business and professional service programs were launched.
RBC Centura has also made significant efforts to strengthen its
sales culture, and has been proactive in contacting clients and
offering them incentives for referring new business.
Building a sizable U.S. platform
U.S. acquisitions since April 2000
Proportion of U.S.
RBC Dain Rauscher
RBC Dain Rauscher, our U.S. full-service brokerage operation, acquired
Tucker Anthony Sutro in 2001, and the acquisition and integration
have been very successful. The combination of these two companies
virtually doubled the size of our U.S. wealth
management platform. RBC Dain Rauscher is now the eighth-largest
full-service brokerage firm in the U.S., based on financial
consultants (approximately 1,750), and it has a national network
of 140 brokerage offices in 39 states and US$97 billion in
assets under administration. We believe the long-term prospects
for the wealth management business are solid given demographic
trends and the significant intergenerational wealth transfer
expected over the next few decades. In 2003, RBC Dain Rauscher
focused on improving customer service, containing costs, growing
fee-based products, and recruiting and retaining high-performing
financial consultants. To date, approximately 860 financial consultants
have taken the wealth management program that was designed to help
them broaden and deepen relationships with clients. The top 25
per cent of financial consultants who took the course saw their
business increase 24 per cent on average, while the firm’s
average financial consultant saw their revenues decline by
17 per cent during the same period. Moreover, with the pickup in
fixed income production in 2003, the financial consultants were
a key distribution arm for fixed income products.
In 2003, RBC Insurance expanded into the variable insurance business
via the acquisition of Business Men’s Assurance Company of
America (BMA). In a related transaction, RBC Dain Rauscher acquired
Jones & Babson Inc., BMA’s mutual fund company with US$1.1
billion in assets under management. This purchase provides us with
the infrastructure to offer wealth management oriented insurance
products. Building on the strength of our leading position in the
Canadian travel insurance market, we launched travel insurance
in the United States in September. We are distributing our travel
insurance products through travel agents in 34 states, with plans
to expand nationwide by the end of calendar 2003.
Net income from U.S operations (1)
(1) In C$ millions, based on U.S. GAAP.
(2) Included U.S. retail banking restructuring charge of $57 million
A disciplined approach to acquisitions
We continued to expand in the U.S. in 2003, in a very disciplined
and focused manner. In addition to the purchase of Admiralty Bancorp
discussed on page 13, RBC Centura acquired the Florida operations
of Provident Financial Group in November 2003, for a premium of
approximately US$80 million. We expect the transaction to be accretive
to earnings by fiscal 2005. This acquisition will add 13 branches
to RBC Centura’s existing 10 Florida branches acquired
through Admiralty Bancorp.
In September 2003, RBC Mortgage Company
completed its acquisition of Sterling Capital Mortgage Company
(SCMC) for approximately US$100 million. This purchase is expected
to be accretive to earnings in fiscal 2004 and places RBC Mortgage
among the top 10 retail mortgage originators in the U.S., as
measured by the volume of mortgage originations. The deal provides
a valuable footprint into the high-growth California and Texas
markets, and includes SCMC’s
110 branch locations in 16 states, and 16 Affiliated Business
Arrangement joint ventures, co-owned in partnership with residential
home builders. Most of SCMC’s loans come from retail sources – that
is, new home purchases and home builder originations, which are
less sensitive to interest rate changes than mortgage refinancings.
RBC Mortgage Company also acquired Bank One’s wholesale first
mortgage and broker home-equity origination capabilities in August
2003. Terms of the agreement were not disclosed. These two acquisitions
are consistent with the bank’s strategy of growing national
niche lines of business. RBC Mortgage expects to leverage its relationship
with RBC Builder Finance to grow new home builder business and
provide financing to existing builders.
RBC Dain Rauscher acquired 600 institutional
and 4,000 high net worth clients and expanded its private client
and institutional fixed income business through its acquisition
of New Jersey–based First Institutional Securities in March
Future U.S. expansion
Our near-term priority for the U.S. continues to be on meeting
our operating targets and adopting best practices to enhance
revenues, efficiency and profitability. We want to grow in
a disciplined fashion and are investing in markets with good
growth prospects and potential for solid shareholder returns.
We also want to grow by acquisition, but only if our financial
(accretive to earnings per share in two to three years),
strategic (presence in businesses or regions we have targeted
for expansion), and cultural (similar values and future plans)
criteria are met. Our focus will be on continuing to grow
our U.S. personal and commercial banking operations, with
an emphasis on targeted acquisitions and de
in the Southeast U.S. A total of 25 to 30 branches are expected
to be added organically in four states (North Carolina, South
Carolina, Georgia and Florida) in 2004, with another 20 to
30 new branch openings slated for 2005. RBC Dain Rauscher also
plans to grow by expansion of the branch office network,
recruiting top financial consultants (our objective is to
increase the number of financial consultants from 1,750 to
2,500 in three years), and making small opportunistic acquisitions
of existing brokerage operations or assets.
Expansion outside North America
Outside North America, we have successful niche businesses such
as global custody, trading and private banking.
In terms of our global custody operations,
we have been
successful in growing our business internationally; we have
won large mandates in 2003 with assets under administration
totalling approximately $18 billion and expanded our service
proposition to include performance analytics.
Much of the growth in RBC Capital
Markets outside North America has been organic rather than by
acquisition. We continue to be the Canadian leader in foreign
exchange, with global trading volumes exceeding $35 billion daily
through trading rooms in Toronto, New York, London, Sydney and
Tokyo. Our international bond business continues to grow quickly.
In the United Kingdom, our infrastructure finance team is the
leading arranger and underwriter of bond finance to the housing
sector and the primary innovator of structures used by social
housing providers. This group is also active in rail, road, school
and hospital financing in the U.K.
Royal Bank of Canada Global Private
Banking has been successful in recruiting teams of professionals
from Latin America, the British Isles, Switzerland and throughout
Asia, bringing in more than $2 billion of client assets in 2003.
Our growth strategy continues to include strategic niche acquisitions
and hiring of specialists or teams of private bankers with an
aggressive sales and marketing focus.