Address to Shareholders
President & Chief Executive Officer
RBC Financial Group
135th Annual Meeting
Royal Bank of Canada
February 27, 2004
Good morning ladies and gentlemen, and welcome
to your Annual General Meeting.
like to speak today about your company's recent performance
and future prospects in the context of our new corporate vision:
"Always Earning the Right to be Our Clients' First Choice."
In a year
that marks our 135th anniversary as a chartered bank, I think
it is appropriate that we are borrowing from our past in implementing
this bold new vision for the future. After all, it was by
putting our clients first that the Merchants Bank grew from
a single branch on the Halifax waterfront in 1869, to Canada's
largest and most respected financial institution.
have seen in our annual report and the video we just watched,
our vision is more than just words. It's a commitment to meeting
and exceeding client expectations at every opportunity and
through every service channel. It guides our business activities,
and reflects our belief that we can give clients an integrated
offering of financial services that uniquely addresses their
this vision, we have established four key priorities:
- Strong fundamentals;
- Superior client experience;
- Cross-enterprise leverage; and,
start with "Strong Fundamentals". In 2003, despite
ongoing economic weakness in North America and difficult capital
markets during the first half of the year, we reported record
net income of over three billion dollars. To put this number
in perspective, we have tripled our earnings since reaching
the one billion dollar mark in 1994, and grown by 50 per cent
since crossing the two billion dollar mark just three years
2003, about half our earnings came from our personal and commercial
banking business, which generated a strong Return On Equity
of 20.8 per cent. A further 14 per cent of earnings were produced
by our insurance and transaction processing businesses, which
generated returns of 26 and 28 per cent respectively. Our
two market-sensitive businesses accounted for 30 per cent
of earnings, with RBC Capital Markets achieving a return of
13 per cent, and RBC Investments 15 per cent. We are confident
these businesses can provide an additional lift to earnings
as markets continue to strengthen.
our diversified business mix provides a competitive advantage
for RBC. It reduces earnings volatility and produces more
consistent performance. This was quite apparent during the
last business cycle when RBC was able to deliver much more
stable earnings than our Canadian competition.
Over the last fiscal year, dividends per common share rose
by 13 per cent, and our common share price increased by 17
per cent. Over the past 10 years, a one thousand dollar investment
in the common shares of RBC has grown to over six thousand
dollars, for a compound annual return of 20.3 per cent. This
rate of return places us third among the 15 leading North
American financial services companies to which we compare
and consistent financial performance continues to result in
solid internal capital generation. Our philosophy on capital
deployment is to maintain a good balance between dividend
payout, share repurchase, and reinvestment for growth. In
fiscal 2003, about two-thirds of our 3 billion dollars of
profit was repatriated to shareholders through dividends and
share repurchases, while 665 million dollars was invested
in acquisitions. This balanced approach allows us to reward
shareholders in the short term, while continuing to invest
in our future.
Superior client experience
we added "Superior Client Experience" as a new priority.
This supports our vision, and reinforces our commitment to
customer satisfaction, retention and earning more of our clients'
business. Our objective is to provide clients with a truly
superior experience whether they deal with us through a branch,
over the telephone or via the Internet. We want to provide
this superior experience in a consistent, proactive and value-added
to deliver on this priority, we have been investing in people,
branches and technology. Last year, we added 450 new personal
bankers in our branches, and we are investing 35 million dollars
over the next two years to further upgrade our physical network.
In addition, we will be opening approximately 20 new branches
in Canada over the next few years.
also transforming our processes to be more flexible, simple
and efficient. We are using technology in ways that better
serve our clients. And we are combining the strengths of our
total organization to create integrated financial solutions.
that we have a very diverse client base, we have put tremendous
focus on delivering superior value for our priority client
segments. For instance, we recently launched a series of cash
flow portfolios for a group of clients who are retired and
want more income than short-term GICs or Money Market Funds
provide in the current low interest-rate environment. Our
new offer, developed by our Global Asset Management group,
is being delivered through more than twenty-six hundred financial
planners and account managers across our Canadian network.
This targeted value proposition has been well received by
clients, and has generated more than 450 million dollars in
net sales of mutual funds used in the portfolios.
we introduced the RBC Snowbird Package, which addresses the
needs of another group of clients - the 1.5 million Canadians
who vacation and live in the southern United States during
the winter months. This package, which includes banking and
insurance products, leverages our growing branch network in
the southeast United States to provide our Canadian clients
with the same high quality service and advice they expect
at home. Once again, clients are rewarding us with increased
business, with approximately 4,000 Snowbird accounts sold
rolling out a number of other value propositions, including
recent initiatives that address the special needs of medical
professionals and high-growth small business clients.
also combining the strengths of our organization to deliver
integrated solutions. Last year, we enhanced the RBC Referrals
program to bring our clients a wider range of products and
services from across the organization. This increased the
number of referrals by 52 per cent, moved 1.1 billion dollars
of existing business to a more suitable place within RBC and
earned us 2.8 billion dollars of new business from these clients.
That's more than two dollars and fifty cents of new business
for every dollar referred internally. This is a good example
of how doing the right thing for clients can produce great
institutional side, RBC Capital Markets recently introduced
two online trading systems that enable clients to more efficiently
execute currency and bond trades directly with the market.
And at RBC Global Services we have been developing a number
of electronic-based solutions including RBC Express, which
provides a suite of cash management products from a single
to improve both efficiency and client satisfaction, we are
developing ways to build a competitive advantage through eBusiness
Architecture. This is an ambitious program that will in short,
"web-ize" our infrastructure.
we recently introduced digital imaging in service centres
and branches in order to improve our efficiency and response
time in tracing cheques and other items. We are asked to trace
about 1.2 million items per year, and that used to take both
time and manual intervention. Today, we can respond immediately.
also introduced a new web-based service platform to provide
clients with simplified and virtually error-free transaction
processing in the branch. This technology provides relevant
data so that staff can do a better job of anticipating the
financial needs of their clients.
we are also making a major investment in straight-through
processing, which uses a series of web-based tools to streamline
all aspects of a product's life cycle from origination to
fulfilment. This will create a vastly improved client experience
through increased speed, a significant reduction in errors,
less manual intervention, and a consistent "look and
feel" across service channels and products.
strategic priority, "Cross-Enterprise Leverage,"
was introduced to encourage greater teamwork and collaboration
across the organization. Our objective is to enhance efficiency
by eliminating duplication, and increase the number of products
and services that we provide to our clients. As our relationship
with clients expands across the organization, not only does
customer satisfaction and loyalty increase, but the profitability
of the relationship grows exponentially.
Snowbird Package I mentioned earlier is a good example of
cross-enterprise leverage. This unique package draws on the
products and services of several RBC businesses to address
the specific needs of Canadian Snowbirds. On average, the
number of products per Snowbird client has grown from 5 to
also worked together on a number of initiatives to expand
our product offering to American clients. Last year, RBC Centura
Bank launched an insurance specialist program in collaboration
with RBC Insurance. The results have been encouraging with
over 2,000 referrals in 2003. RBC Centura is also working
to cross-sell the wealth management services of RBC Dain Rauscher
and the home financing capabilities of RBC Mortgage.
we combined our insurance and credit underwriting expertise
at RBC Insurance and RBC Royal Bank to create the Investment
Credit Facility. This product allows high net worth policyholders
to borrow up to 5 million dollars against the collateral in
their universal life insurance policies. Since the launch,
we have approved credit facilities worth more than 121 million
our institutional businesses, RBC Global Services and RBC
Capital Markets have worked together to create the Hedge Funds
Service Group, which offers clients a wider range of products
and services from a single source.
examples illustrate, we believe the whole is greater than
the sum of the parts when we leverage our full capability
as an integrated financial services provider. Our ability
to develop higher value propositions, combined with our sophisticated
sales and marketing capabilities, position us to grow revenues
by doing a better job of serving and attracting clients.
does remain, however, one area where we cannot provide our
clients with the same benefit they are entitled to in almost
every industrialized nation in the world - the choice of buying
insurance from a bank branch.
are quite unique in being prohibited from purchasing all the
financial products they want from their bank branch. For example,
annuities, life policies and auto insurance are not available
through our branches even though it would result in wider
availability and better value for consumers.
view, Canada should be developing policy based on the new
market realities of how customers want to be served, and on
how all providers can best meet their needs. Restricting competition
is not the way to build a 21st century economy that promotes
growth, innovation and prosperity.
North American expansion
strategic priority is "North American Expansion."
In 2000 and 2001, we invested more than 5 billion dollars
to acquire Centura Banks, Liberty Life Insurance, and Dain
Rauscher, which established a base for our personal and commercial
businesses in the United States. Since that time, we have
made a number of small, add-on investments to expand our product
line, increase our client base, and create opportunities for
strategy has increased our 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 two and
a half million or 25 per cent.
despite the strengthening Canadian dollar, net income from
U.S. operations increased from 210 million dollars to 382
million. This reflects higher earnings in the Capital Markets
and Investments divisions, largely due to much stronger performance
in full-service brokerage and fixed-income, as well as to
sound credit risk management.
we continued to grow our U.S. operations in a focused manner.
We added 23 new bank branches in Florida through two small
acquisitions, and expanded our home financing business with
the acquisition of Sterling Capital Mortgage. In addition,
we purchased a small insurance and mutual fund company, and
announced our intention to acquire a small, full-service investment
firm in Florida.
committed to the U.S. market and remain confident that we
can continue to build on our solid base. Our near-term priority
for the U.S. continues to be meeting our operating targets,
which frankly have fallen short in some areas. However, we
believe we can grow in a disciplined fashion if we invest
in markets with good growth prospects and potential for solid
returns. We will complement organic growth with acquisitions,
but only if they are a good financial, strategic and cultural
Importance of RBC's vision to our stakeholders
Our four strategic priorities provide the foundation for achieving
our corporate vision of "Always Earning the Right to
be Our Clients' First Choice." As I said earlier, it
is a bold vision, but one we feel is critically important
in an industry where rates can be matched in a minute and
products copied overnight.
"Earning the Right" is primarily about clients, but it also involves
Our vision starts with our culture and employees, whose commitment is
key to earning the loyalty of our clients. Our employees represent
our most important resource, and it is only through them that
we can succeed.
In 2003, we continued to make significant investments in the development
of our employees, and engaging them in delivering a superior
client experience. Around the globe, employees were asked
for their opinions on how our vision could best be implemented,
and they provided us with many good ideas on how to improve
service levels, processes, sales techniques and product design.
We will continue to tap the creativity and commitment of our
employees in implementing our vision.
"Earning the Right" also involves the communities in which we
operate. As Arthur Page, the leading corporate communicator
of his time once said: "All business in a democratic
society begins with public permission and exists by public
approval." In an era where fraud, lapses of integrity
and disregard for the law by some have created high levels
of mistrust in business, we must earn the respect of our communities
every single day by demonstrating high levels of ethical behaviour,
social responsibility, and good governance.
I wish I could stand here and tell you that we have not had any issues
to deal with at RBC - but I cannot. Large organizations are
comprised of human beings with all their frailties, and unfortunately
almost every company is eventually faced with the consequences
of inappropriate activity. However, as a company, I believe
we deal with our problems head on, take decisive action, and
act in the best interests of our stakeholders.
We have and will continue to invest in ways to reduce the potential
for issues to arise in future. We have been committed to good
corporate governance and compliance for a long time, and we
have made major investments in these areas over the years.
For example, we now have more than 500 people with direct
compliance responsibilities across our organization. Our management
team spends a great deal of time talking to employees about
the importance of our corporate values and our ethics. And
we have made it mandatory for all employees, including management,
to pass a test demonstrating their understanding of RBC's
Code of Conduct.
These initiatives continue to pay dividends. We are pleased that,
for the second year in a row, RBC was named Canada's Most
Respected Corporation in a survey sponsored by KPMG. The same
survey ranked us first in several sub-categories, including
best for human resources, corporate social responsibility
and good governance.
Last year, the Globe and Mail newspaper rated RBC "Number One"
in corporate governance, and Canadian Business Magazine ranked
our board of directors as among the best in the country. We
were also singled out by the Canadian Institute of Chartered
Accountants as having the best corporate reporting in Canada,
and by a survey of investment analysts as having the best
We are proud of this recognition, but I can assure you that we do
not intend to rest on our laurels. The increased complexity
of global markets, the changing nature of regulation, accounting
and governance, the growing sophistication of organized crime,
and the increased transparency under which we operate have
made the issues faced by our management team even more challenging.
We already have a number of policies and processes in place to govern
our activities, including a risk management framework with
a reputational risk component, and an employee ombudsman that
facilitates confidential communication and whistle blower
protection. We have a number of committees in place to review
new products, complex credits and structured transactions.
We continue to enhance these to respond to both market and
Regardless of the governance challenges we face in the future, our objective
is to have the best policies and structures in place to maximize
prevention, minimize impact, and ensure our businesses have
the highest standards of operation. While this involves a
lot of process and supervision, it begins and ends with promoting
a corporate culture based on integrity and trust.
I would like to conclude my remarks by recognizing the contribution
of our employees, and by sharing my sense of optimism for
The past year was a challenging one for our employees, and not just
from an economic perspective. The conflict in Iraq, SARS in
Toronto, forest fires on the west coast, Mad Cow on the Prairies,
hurricanes on the east coast, and power blackouts in the Northeast
affected our employees, their families and our clients. I
believe that during these times of crisis, our employees have
risen above and beyond the call of duty to make our services
available, to help clients through tough situations, and to
clearly distinguish RBC as an organization that sincerely
cares about people and communities.
I've heard many inspiring stories about the wonderful initiative and
extraordinary compassion demonstrated by our employees that
make me extremely proud. On behalf of our Board of Directors
and my colleagues on Group Management Committee, I would like
to thank our 70,000 employees around the world for their dedication
As we enter our 135th year of operation, we do so with many challenges
ahead of us. But as Duncan McDowell wrote in his award-winning
book Quick to the Frontier, RBC has always pushed the
consensus of Canadian banking to its greatest potential and
has been quick to advocate progressive change. RBC has always
succeeded, he said, because we have been a "first mover,"
the first to capture new ideas and new methods for the benefit
of our clients, our employees, our shareholders and our communities.
Ladies and gentlemen, this is a legacy that we are united in growing.
And it is one that we intend to build upon in "Always
Earning the Right to be Our Clients' First Choice."