Address to Shareholders
President & Chief Executive Officer
RBC Financial Group
134th Annual Meeting of
Royal Bank of Canada
February 28, 2003
Mesdames et Messieurs, bonjour. Bienvenue
à notre assemblée annuelle.
I'd like to speak today about our company's
recent performance and our future prospects as one of North
America's premier financial institutions.
RBC Financial Group's vision is to be a
leading North American financial services organization, pre-eminent
in Canada, with specialized global businesses in areas where
we have a strong competitive position.
To achieve this vision, we have established
The first is to be recognized as the undisputed
lead provider of integrated financial services in Canada.
We already have the number one or two market
position in this country in most of our businesses, and we
are committed to retaining our domestic leadership. We plan
to do this by increasing our emphasis on the integrated delivery
of services, and by strengthening our relationship with each
In particular, we are moving aggressively
in our retail business to increase the number of client-contact
staff in branches, and enhance our distribution channels.
Given our broad range of financial services,
we have a unique opportunity to provide financial advice and
products that meet our clients' entire financial needs, and
in a manner that provides superior value. We are continuing
to invest in customer relationship management tools and client
segmentation strategies to provide better service, better
value and tailor-made solutions.
The success of our business in Canada is
critical to our financial performance and provides the equity,
market value and franchise strength necessary to successfully
This brings us to our second goal: to be
recognized as a best in class provider of select financial
services in the United States.
Our strategy is to focus U.S. investment
on businesses where we have exportable competency and competitive
In 2000 and 2001, we made three significant acquisitions in
the United States in order to establish a strategic foothold
in our priority consumer businesses. Since then, we have focused
on enhancing the performance of these companies by integrating
their activities, and investing in organic growth and small
Over the past three years, we have added
2.3 million clients in the U.S., and grown our revenues significantly.
In 2002, U.S. revenues accounted for 28 per cent of total
revenues, up from 7 per cent in 2000. We expect U.S. revenues
will continue to rise and, over time, a greater portion will
fall to our bottom line as the costs of acquisitions decline
and we continue to improve revenues and operational efficiency.
While we will invest in each of our five
business platforms, the focus of future growth in the United
States will likely be a combination of branch expansion and
targeted retail bank acquisitions. We have been pleased with
the performance of our personal and commercial banking franchise
in the United States, and would like to increase the relative
size of RBC Banking in that market.
Our third goal is to be recognized as a
premier provider of specialized global financial services.
Outside North America, we will focus on
those businesses where we are strong globally, have a competitive
advantage and can generate attractive returns. Examples of
businesses that meet these criteria are global custody, global
private banking and global trading.
Our custody business is the 12th largest
in the world with assets under administration of 1.4 trillion
dollars, and we are the clear leader in Canada with over 40
per cent market share. In foreign exchange and other trading
businesses, we rank among the top global banks, with strong
operations in Toronto, London and New York. In Global Private
Banking, we have clients in more than 100 countries, and we
have been selectively growing this business through niche
acquisitions, including the recent purchase of the Americas
private banking business of Barclays Bank. These are examples
of businesses where we are focused, have competitive strength,
global standing, and earn solid returns.
In summary, our goals are to maintain Canadian
leadership in all areas, to develop our U.S. consumer franchise,
and to continue to build our strong international niche businesses.
To accomplish our goals, we have four strategic
of high-return businesses; and,
With respect to strong fundamentals,
despite operating in a tough environment marked by concerns
over global economic growth, financial market uncertainty
and geopolitical tensions, we reported record net income
of 2.9 billion dollars in fiscal 2002. We also performed
well against last year's objectives.
We grew both revenues and earnings per
share in double-digits; maintained our focus on cost containment
and asset quality; enhanced our capital ratios; and delivered
top quartile valuation.
Over the last fiscal year, our common
share price rose 16 per cent, compared to a return of
minus 9 per cent for the Toronto Stock Exchange, and plus
one per cent for the Banks and Trusts Index. We raised
our common share dividend by 10 per cent during the year
and are now targeting a dividend payout ratio of 35 to
45 per cent. Our strong financial performance has resulted
in solid internal capital generation, and we are trying
to maintain the right balance between rewarding shareholders
through dividends, buying back shares, and investing in
North American expansion is a key priority
relating to growth. While we have always had significant
wholesale operations in the U.S., the focus of our recent
investment has been on retail businesses that we know
well and where we can leverage our Canadian expertise
and technology to build a North American franchise.
RBC Centura is our personal and commercial
bank in the United States. With about 800,000 clients,
246 consumer and business branches in the Southeast and
national mortgage and builder finance businesses, it provides
a solid foundation for growth. Eagle Bancshares, acquired
last July, and Admiralty Bancorp, acquired this past January,
are small but important footprints in two of America's
highest growth regions - Atlanta and Florida.
RBC Dain Rauscher, our wealth management
business in the United States, is well positioned as a
high-quality, mid-sized, full-service investment advisor.
With the acquisition of Tucker Anthony Sutro in 2001,
we now have approximately 2,000 financial consultants
in 142 branches and 39 states. RBC Dain Rauscher has 133
billion dollars of assets under administration and is
the 9th largest full-service brokerage in the United States.
Combined with our 1,400 advisors in Canada, we now have
a North American franchise of 3,400 full-service wealth
management advisors. We believe we are well positioned
to take advantage of favourable operating leverage and
a strong distribution network when capital markets recover.
RBC Liberty Insurance provides life and health insurance
in the United States through a sales force of over 600
agents, and direct channels. It has more than two million
life policies in force and 367 million dollars of assets
under management. Our objective is to grow our life business
by capitalizing on our personal and commercial banking
and wealth management distribution networks.
Our third priority is to grow high return
and high-P/E multiple businesses.
We will invest only in those areas of
our core platforms where we see profitable opportunities
for growth, and reasonable returns on capital. Personal
& Commercial Banking and Wealth Management have been
targeted for the greatest long-term expansion, although
we have other businesses with selected segments for priority
Our domestic banking business has a
long history of generating solid, consistent returns and
we believe we can export the principles that underpin
this business to the United States. While the performance
of our wealth management business has been dampened by
the weakness in capital markets, the returns of this business
in normal market conditions are strong. We are confident
in its long-term prospects, particularly given demographic
shifts and the expected intergenerational wealth transfer.
As we have expanded our high-return
businesses, we have continued to shrink low-return and
capital-intensive operations such as corporate lending.
This contributed to a 5.1 billion dollar reduction in
total corporate and government loans last year. Since
1998, we have reduced our risk-adjusted assets in our
corporate loan book by approximately 30 per cent, mostly
outside Canada. While this has a negative impact on top
line growth, we believe it is the right thing to do with
respect to shareholder value. Our objective is to offset
this reduction with growth in commercial and small business
lending, where we can generate better returns.
Our five business platforms, RBC Banking,
RBC Investments, RBC Capital Markets, RBC Insurance and
RBC Global Services provide diversification of earnings
and geography, and this diversity was a key factor in
last year's performance. Despite continued economic uncertainty,
four of our five business platforms produced record double-digit
core earnings growth.
In the past, our ability to capitalize
on the individual strengths of each of these business
platforms has fuelled much of our growth. However, if
we are going to achieve our aggressive growth targets,
we must also look at ways to leverage our collective strengths
by driving greater efficiency and more business across
our strong client base.
This brings us to our fourth priority:
cross-platform leverage. This priority recognizes that
as an integrated financial institution, the whole can
be greater than the sum of its parts.
Cross-platform leverage is about working
across businesses and functions to grow revenue by sharing
best practices and offering our clients a broad array
of services. It is also about eliminating duplication
from autonomous businesses and using technology to build
common and scalable systems.
We have a history of strong cross-selling
results in Canada. Over the past six years, we referred
9.3 billion dollars of business between platforms, which
generated an incremental 17 billion dollars of new business.
That means for every dollar of business referred, we generated
almost two dollars of new business.
We believe we can expand this capability across the organization,
and have recently rolled out a more robust version of
our referral program. We expect this will generate additional
revenue growth and profitability, as well as increased
We are well positioned to take advantage of cross-platform
leverage in Canada, with a broad and complementary range
of product and service offerings, sizeable client base,
strength in customer relationship management, and a philosophy
of building long-term, full-service relationships with
We have begun to leverage our Canadian
expertise in the United States in a number of areas including
sales practices, performance management, client segmentation,
and product management -- and we've seen some early gains.
For example, last year at RBC Centura our consumer loans
were up seven per cent, small business loans were up 18
per cent, and commercial loans grew by 21 per cent --
strong results during a year with modest economic growth.
RBC Centura has also been collaborating
with its Canadian colleagues to build its customer relationship
management systems and sales automation tools. The fact
that it will take them less than two years to build what
took five years to develop in Canada underscores the benefit
of sharing best practices.
Within the United States, our companies
have also instituted programs to increase sales revenues
by cross-selling products and services. RBC Liberty Insurance
and RBC Mortgage are now selling selected products to
clients of RBC Centura. One example is an adjustable rate
mortgage, which has generated more than 1 billion dollars
in new originations since the beginning of fiscal 2002.
RBC Dain Rauscher is leveraging the wealth management
activities of RBC Centura as a platform to expand in the
We have also focused on a number of
potential areas for operational efficiency across the
entire organization. A senior management committee representing
all businesses and functions meets regularly to breakdown
barriers, eliminate duplication and identify centers of
expertise that can be leveraged to enhance efficiency
and revenues. They initiate and oversee cross-platform
projects, and we now have over 50 in progress.
Our three goals and four strategic priorities
form the basis for our business and investment decisions.
They are what we measure ourselves against, and we will
continue to report on our progress.
I would like to conclude with some comments
about our employees and the governance of our organization.
One of our objectives is to build greater
awareness among employees of the role that values play
in powering high-performance organizations. Over the past
two years, we've invested a great deal of time and effort
re-affirming and communicating with employees our five
service to clients and each other;
Working together to succeed;
Personal responsibility for high performance;
Diversity for growth and innovation; and,
Trust through integrity in everything we do.
We believe that adhering to these principles
will result in better value creation for our clients and
In fiscal 2002, we embedded these values
in the annual performance appraisal process for executives,
and we are rolling it out this year to other employees.
This will allow us to measure and hold people accountable
for our values across the organization. We have also made
it mandatory for employees to pass a test demonstrating
their understanding of RBC's Employee Code of Conduct.
We communicate regularly with our employees
about good news and bad, and we engage them in dialogue
about ways to strengthen our organization. As a matter
of interest, we have just completed a survey of our 60,000
employees, with a response rate of over 80 per cent. While
I am pleased to say that the results are quite favourable,
it is the level of engagement of our people that is most
I believe our employees represent our
most important asset. We're making significant investments
in their development, and we are building on the core
values that we believe are essential in a diverse organization
We also have a strong commitment to
be a socially responsible and well-governed company.
Although we are one of Canada's largest
corporate donors, we believe that corporate responsibility
is about more than contributing to community causes. It
also involves corporate governance, ethical business practices,
stewarding the environment, protecting the privacy of
clients, and respecting diversity. Many of our policies
and activities in these areas are outlined in our 2002
Corporate Responsibility Report, which is in the package
you received today.
At RBC, we take great pride in our hard-earned
reputation for the integrity of our people, processes
and practices. In a national survey by Ipsos-Reid, we
were recently named "Canada's Most Respected Corporation",
and for the seventh year in a row, Canada's best company
for social responsibility. Our Board of Directors has
been chosen "Best Board in Canada" for the last
two years by Canadian Business magazine. We have been
frequently recognized by the investment community as having
the best financial reporting in the country. We were selected
this year as Canada's best company for people management.
And we were recently identified by Reader's Digest magazine
as one of Canada's most trusted brands.
Despite this recognition of our leading-edge
practices, your board and management will remain vigilant
in fostering and reinforcing a culture of continuous improvement
in all areas -- particularly in customer relationship
management and corporate governance. Notwithstanding our
success, we are not satisfied with our client service
levels, and we will continue to invest in ways to improve
We have also invested significant resources
to ensure that our risk management, compliance and internal
audit standards represent best practices. Our standards
and processes have evolved tremendously and are leading
edge; however, we are not taking anything for granted.
We operate in a world where there is increased operating
risk, including dishonest and unethical behaviour. Our
best line of defence is to set high standards, employ
the very best practices, and be vigilant and intolerant
of any inappropriate activity.
We will also continue to keep a close
watch on changes in the business and regulatory environment.
We will monitor governance initiatives in Canada and elsewhere,
assessing our practices against them and adapting as appropriate.
Over the past year, we have made a number
of refinements to our governance policies. These include
changes relating to senior management and director compensation;
stock option grants and senior management exercise rights;
share ownership requirements; and independence rules for
board committees. We have also been reviewing our governance
practices in response to the "Sarbanes-Oxley Act",
as well as proposals from the New York Stock Exchange.
On the issue of corporate governance, I believe Canadian
companies have significantly benefited from the activities
of their more active shareholders, who have been raising
issues of good governance for some time. However, I would
caution against tying the hands of boards of directors
and management with rigid guidelines as a result of well-meaning
shareholder proposals. We are beginning to hear this concern
from a growing number of investors. It is the primary
reason why we and a number of major shareholders are reluctant
to support proposals even though we agree with many of
the principles behind them. It is important that we not
add unnecessary levels of expense and bureaucracy, nor
remove the flexibility that management and boards need
to do their jobs effectively, particularly in a rapidly
changing and dynamic marketplace.
In closing, I would like to recognize
the dedication, commitment and hard work of our people
in producing solid results during a challenging year.
On behalf of our Board of Directors and my partners on
Group Management Committee, I would like to thank our
employees for their tremendous contribution to our company.
In an industry where products can be copied and rates
matched in short order, we believe the quality of our
employees is truly a differentiating factor.
Ladies and gentlemen, your company is
united in its efforts to grow our business in a disciplined
manner that reflects positively on our bottom line as
well as our corporate reputation. We are well positioned
to seize opportunities in Canada, the United States and
elsewhere, and to succeed in today's challenging economic
environment. By developing and building on our considerable
strengths, we believe we can continue to generate value
for our shareholders, our clients, our employees and our