We are committed to generating top quartile
financial performance by successfully executing our strategic priorities.
We are creating a more efficient organization that can move quickly
to identify and act on opportunities to deliver creative solutions
that increase client satisfaction.
The title of this report, First
for you, reflects
our approach to all our clients, shareholders, employees and communities.
We want to continually earn their respect by acting responsibly.
I believe our Client First Initiative will be
very beneficial for each of these stakeholders. By reorganizing
our business segments along client and geographic lines, we expect
to be more responsive to client needs and to have simpler processes,
faster decision-making and quicker implementation, all leading
to higher employee and client satisfaction and better revenue growth.
This business realignment, combined with integrated
operations and technology capabilities and restructured functional
groups, should lead to higher efficiency. We expect to be able
to channel some of the resulting savings to provide more resources
to our client facing employees, which should enhance their success
and, in turn, their own satisfaction. Our shareholders should benefit
from improved financial performance and higher share valuation,
our communities from our continued support as
As a result of the realignment, we now have
three major business segments focused on our
vision of “Always earning the right to be our clients’ first
Our Canadian personal and
business segment now
combines our Canadian banking, investments and global insurance
businesses, including Canadian, U.S. and international insurance
operations. Within Canada our goal is very straightforward – to lead in all areas of financial
services. We believe we can further grow by focusing on specific
high-potential personal and business segments, by offering products
and services that attract new clients to RBC and by increasing the
number of products and services used by our existing clients.
Our domestic banking, investments and insurance
groups have been partnering for some time now
in a number of areas, including client segmentation, and that teamwork
is accelerating under our new structure. By bringing management
of these groups together, we are improving our prospects for attracting
more of our clients’ business as we gain a holistic understanding
of their financial needs, to the extent allowed by current regulations.
of our sales and distribution networks, client segmentation strategies
and product innovation should lead to higher revenue growth and
market share gains. In 2004, we increased market share in key areas
such as credit cards, personal loans, residential mortgages and
mutual funds in Canada.
Our U.S. and international
banking and investments in the U.S., banking and brokerage in the
Caribbean, and Global Private Banking internationally.
Led by a new management team focused on strengthening
financial performance, this group approaches the business on a
geographic basis, recognizing that market dynamics in the U.S.
are different to those in Canada. Our new structure will allow
us to better leverage our capabilities and work together to maximize
returns. It will also increase accountability for performance and
promote the flexibility necessary to manage our various businesses.
In the U.S., we will focus on growing banking
and brokerage services. We recognize that our ability to bring
our U.S. banking business to an acceptable level of profitability
will be critical to re-establishing our valuation leadership among
our peers. In that regard, we are seeking ways to grow U.S. revenues,
including opening new branches selectively in high-growth markets
and by enhancing loan and deposit volumes and mix. Concurrently,
we are cutting costs in a number of areas – for example, by closing low-return branches in 2005.
As a result of these actions, we are targeting improved profitability
of our U.S. banking operations in 2005. The performance of RBC Dain
Rauscher over the past year has been solid and we will continue to
capitalize on its strengths.
In Global Private Banking, we will continue
exploring growth opportunities in the Americas, Europe and Asia,
with increasingly aggressive sales and marketing programs.
Our global capital markets
segment also includes
corporate banking, which serves corporate and
larger commercial clients. Our strategy in Canada is to deepen
relationships with top-tier corporate, institutional and government
clients, and to penetrate the Canadian mid market. We will also
grow our mid-market investment banking and equity businesses in
the U.S., and will expand our specialized global businesses such
as fixed income, credit products, equity derivatives and foreign
These business groups are supported by an efficient
operational and functional structure that is designed to increase
innovation, speed of decision-making and lower costs of delivering
products and services. Our global technology and operations group
is responsible for the infrastructure behind all of our activities.
We are also realigning our businesses’ functional support to be more efficient, flexible
and attentive to facilitating business growth.
The changes described are also intended to address
the fact that our costs have been growing faster than our revenues.
This imbalance has kept us from making larger investments in customer
service and business growth initiatives. Some of the savings generated
from our realignment are expected to be redeployed to areas that
make us more responsive to clients’ needs, which should generate higher
revenue growth and value for our shareholders.
2004 performance review
Our performance in 2004, compared to our objectives for the year,
is shown on page 7. We performed well
in the areas of portfolio quality and capital ratios and met our
dividend payout ratio objective. However,
our revenue, expense, earnings growth and return
on equity (ROE) objectives were not met. Revenue grew 2 per cent
(despite a stronger Canadian dollar relative to the U.S. dollar,
which reduced revenues by $500 million or 3 per cent) primarily
reflecting weaker results from our U.S. banking operations. The
8 per cent expense increase for the year, which occurred despite
a reduction in expenses of $345 million due to the stronger Canadian
dollar, largely reflected higher benefit costs and higher variable
compensation costs (driven by an increase in revenues), and costs
of the Rabobank settlement in the first quarter. The above-mentioned
factors, together with the fourth quarter’s business realignment charges and goodwill
impairment charge, led to far lower earnings growth and ROE than
we had targeted for this year. Also, our valuation as measured by
our share price performance did not meet our objectives.
2005 objectives and medium-term goals
Our new approach, founded on our corporate vision, gives us great
confidence that we can regain a
leading position in financial performance. Our solid operational
foundation combined with the efficiencies and opportunities for
revenue growth that we expect to arise from our business realignment
have prompted us to set more aggressive financial objectives for
2005 in the areas of revenue growth, expense control, earnings
growth and ROE. We have also established specific capital ratio
objectives for 2005, similar to our medium-term goals. These objectives
are outlined in the table on page 7.
We have made three changes to our medium-term
goals this year. We have raised the earnings per share growth goal
to 15+ per cent from 10 to 15 per cent, introduced a new goal for
expense control, which is to grow expenses at no more than half
the rate of revenue growth, and raised the portfolio quality goal
in light of a more meaningful method of measuring it.
Top priorities for 2005
Our top priorities for 2005 are to achieve these strong financial
objectives, continue to successfully roll out the various initiatives
that are a part of our business realignment and significantly
re-profile our U.S. operations and increase their returns.
By doing so, we seek to achieve superior financial
performance and returns for our shareholders.
Corporate responsibility and governance
At RBC, success is founded on ethical leadership, teamwork and
a commitment to providing value for all stakeholders. Corporate
governance at RBC starts at the top, with a non-executive Chairman
board composed of experienced and well-informed directors, whose
major concerns include strategic planning, ensuring that group-wide
standards exist to promote ethical behaviour and seeking constant
improvement in board practices. I am the only member of management
who sits on our board.
Our system of governance is described in
detail on pages 124 to 125. Our ongoing objective
is to ensure that our proactive governance culture is evident
throughout the organization, and throughout each business platform
and subsidiary of our global network. Our employees understand
that the integrity of our organization and the trust of our stakeholders
are cornerstones of our ongoing success.
I would like to acknowledge the contribution of our people throughout
the past year and their dedication to serving our clients to
the best of their abilities, making us one of North America’s
Gordon M. Nixon
President and Chief Executive Officer
December 20, 2004