Address to Shareholders
President & Chief Executive Officer
Royal Bank of Canada
138th Annual Meeting of Royal Bank of Canada
March 2, 2007
Good morning ladies and gentlemen, and welcome to your Annual
It is a privilege for me to report on our 2006 performance
as well as our plans for 2007 and beyond.
I'd like to begin by thanking and congratulating our employees
for the progress they made last year in building a more client-focused
organization, growing our business in a profitable manner,
and producing record financial results. From every employee,
in all of our businesses, in 34 countries, it has been a collective
effort and a shared accomplishment.
Our corporate vision of "Always earning the right to
be our client's first choice" is taking root in everything
we do. From our processes to our products, from our service
to our technology, we are building a bank that delivers a
better experience in the eyes of the people who matter the
most - our customers.
Whether a new immigrant, an entrepreneur, a large corporation
or a private banking client, our customers have plenty of
financial providers to choose from. But we are earning their
business through our relentless focus on providing innovative
solutions, exceptional service, and advice that meets their
While there is still much work to be done, stories like those
in the video and our own client satisfaction surveys show
that we're heading in the right direction. Our client first
approach is reflected in our strong financial performance
and superior shareholder returns.
In 2006, our employees delivered net income of more than
4.7 billion dollars, an increase of 40 per cent from the previous
year. For the first time, your company earned more than one
billion dollars in each quarter, fueled by strong growth in
each of our business segments. One-third of our net income
- 1.6 billion dollars - came from outside Canada, a milestone
that reflects our growing ability to compete internationally.
We generated record revenue, carefully managed our expenses,
and strategically invested in our future. And we exceeded
six of our seven performance objectives for the year.
I believe one of RBC's strengths is the diversity of our
earnings, and I am pleased to report that each of our business
segments met or exceeded expectations this past year. In our
Canadian Personal and Business segment, net income increased
by 21 per cent from a year ago, due to strong revenue growth
in each line of business. Notwithstanding a weak U.S. dollar,
our U.S. and International Personal and Business segment recorded
a 15 per cent increase in net income, reflecting strong growth
in both wealth management and banking. And earnings at RBC
Capital Markets were extremely strong across the board, and
exceeded one billion dollars for the first time.
This performance translated into top quartile returns for
our shareholders. In 2006, we generated a total shareholder
return of 23 per cent, raised dividends by 22 per cent, and
repurchased approximately 14 million common shares.
Both our five and 10 year total returns to shareholders have
averaged in excess of 20 per cent per year, ahead of virtually
every major bank in the world. In fact, Bloomberg recently
ranked RBC as the best investment of all North American banks
based on five-year returns. RBC was also named by Global Finance
Magazine as the safest bank in Canada, a reflection of the
consistency and stability of our earnings.
Our Strategic Goals
Our overall performance is a direct result of our focus on
three strategic goals that are both aggressive and ambitious.
These goals are:
- to be the undisputed leader in financial services in
- to build on our strengths in banking, wealth management
and capital markets in the United States; and,
- to be a premier provider of selected global financial
Let's start with our first goal of leadership in Canada.
Last year, we invested heavily in opening branches, leveraging
our distribution channels, developing people and technology,
launching new products, and entering new markets.
In our Canadian Personal and Business segment, we helped
more Canadians with their banking, borrowing and investing
needs than any other provider. We extended our leadership
in most major bank product categories. In addition, strong
product offerings combined with the diversity and reach of
our distribution network have given RBC a leadership position
in all areas of wealth management, including mutual funds
where we have led the industry in net long-term sales for
the last three years.
We also enhanced our products and services, and customized
them for different market segments. One example is new immigrants,
for whom navigating a new financial system and gaining access
to credit can be a challenge. That's why we established our
"Welcome to Canada" program, which introduces newcomers
to Canadian banking via the web. We have also changed the
way credit applications are assessed, and developed new products
that are focused on the needs of immigrants, such as our secured
Visa card and Equity Mortgage Program.
Our online banking service is now used by more than three
million clients to process almost 160 million transactions
annually, and we continue to develop new and innovative ways
for them to take advantage of it. One example is our virtual
agent named "May," who we recently added to our
web site to interact with clients and help them find the services
they are looking for.
We're also trying to attract more young people, because as
anyone with a teenager knows, they interact with the world
differently than previous generations. This is one of the
reasons we launched the "RBC Next Great Innovator Challenge,"
a contest where university students tell us what types of
innovations they would like to see take place in financial
institutions. We plan to keep looking for ways to improve
our appeal and relevance to the net generation and the rest
of our clients in this era of online and global connectivity.
In Capital Markets, our Canadian trading, investment banking
and corporate lending businesses led the industry in almost
every category, and our success was recognized by many national
and international sources. In addition, we were the leader
in the Maple Bond market, and just recently announced the
successful completion of the largest bond transaction in the
history of Canadian financial markets. We have continued to
invest not only in our Canadian infrastructure, but in ways
to better serve our Canadian clients in foreign markets.
With respect to our second goal, we continued to grow our
banking, wealth management and capital markets capabilities
in the U.S. during 2006.
Our banking operations delivered solid results based on a
clear strategy of serving small businesses, business owners,
and professionals, while investing in infrastructure to support
future growth. Last fall, we announced agreements to complete
two acquisitions that are excellent strategic, economic and
cultural fits with our banking operations in the U.S. Southeast.
The acquisition of Flag Financial Corporation, the largest
community bank headquartered in Atlanta, increased our client
reach in a key growth market. In addition, we announced plans
to acquire 39 branches in Alabama owned by AmSouth Bancorporation.
This acquisition is expected to close on March 9th, and will
make us the seventh largest financial institution in the state
as measured by deposits.
In our U.S. wealth management business, we continued to build
scale and capability during 2006. We opened 10 new wealth
management offices in high-growth cities and recruited high-performing
and successful financial consultants. We leveraged our U.S.
capital markets capabilities to provide retail investors with
greater access to global debt issues and structured products.
And our October acquisition of the American Guaranty &
Trust Company allowed us to be more effective when offering
U.S. trust solutions to high-net worth clients.
Our U.S. investment banking and fixed income capabilities
also expanded through a combination of organic growth and
acquisitions. We've built a full- service investment banking
platform focused on meeting the needs of U.S. mid-market companies.
Our municipal finance business is a leader, ranking eighth
in the U.S. last year. In January, we acquired Carlin Financial
to help us establish a best-in-class North American electronic
execution platform. And that same month, we acquired Daniels
& Associates, a mergers and acquisitions advisor to the
U.S. cable, telecom and broadcast industries. These are just
a few of the steps that are bringing us closer to our objective
of being a top-tier provider to U.S. mid-market companies.
With respect to our third goal of being a premier provider
of selected global financial services, we continued to invest
in areas where we can leverage our competitive strengths.
For example, we expanded our infrastructure finance capabilities
and now have a successful global infrastructure platform with
offices in North America, Europe and Australia. We strengthened
our ability to serve wealth management clients when we acquired
Abacus Financial Services Group, a transaction that made RBC
the top provider of international trust services in the United
Kingdom. In addition, we successfully completed the first
year of integration of our custody business into the RBC Dexia
joint venture, which now has more than two trillion dollars
of assets under administration.
Finally, we made a number of targeted investments in Asia
and the Middle East. We expanded our private banking, full
service brokerage and capital markets activities in selected
locations including Brunei, Dubai, Hong Kong, Sydney and Tokyo.
We upgraded our representative banking office in Beijing to
branch status in order to provide a greater range of services
to our institutional and individual clients, and we earned
a co-lead manager role in the Industrial and Commercial Bank
of China's groundbreaking initial public offering. We also
invested in a new joint venture in Shanghai with China Minsheng
Bank to launch a new Chinese mutual fund management company.
2006 was a good year of solid progress; however, we know
we can and must do better, and our efforts will be dedicated
to that end in 2007 and beyond.
Looking to 2007 and beyond
No business exists in a vacuum, so in setting our future
strategy it is important to look at the economic and regulatory
developments affecting all of our operations, especially those
in our domestic market. The future prosperity of Canada's
key industries, including financial services, are directly
linked to the success of our country.
By most economic and social measures, Canada appears to be
in good shape and we do have much to be proud of. But there
are areas of concern such as the accelerating growth in public
spending, a tax structure that is biased against investment,
a fragmented and expensive regulatory structure, and deterioration
in our relative competitive position. While economic growth
has been strong, our productivity is lagging most industrialized
countries, and we have witnessed a significant number of foreign
acquisitions of our major companies, both issues that are
concerning with respect to Canada's future performance.
Over the past year, 116 Canadian public companies were acquired
by foreign interests, more than any other major country including
much bigger economies such as the United States, the United
Kingdom, France and all the Nordic Countries combined. We
have not only seen the disappearance of major Canadian household
names, but the loss of Canadian presence in industries where
we have long had traditional strengths.
With respect to Canada's productivity, our output per hour
worked in the manufacturing sector has grown at the fourth
slowest rate among fourteen major industrialized countries,
while at the same time intense competition from China and
other emerging economic powerhouses is posing a severe challenge
to the future of our manufacturing base.
Against this backdrop, there is a need for focused leadership
and strategic policy-making. If Canada is to continue to succeed,
it is essential that our politicians look beyond reactionary
policies and short-term politics, to the challenges facing
our country's future. It is time to develop a renewed, long-term
sense of national direction to ensure the sustainable prosperity
of our country.
Government and industry must work more closely together for
the benefit of all Canadians. We should be enhancing the ability
of Canadian companies - including our financial sector - to
compete effectively in the global marketplace. It should be
a common goal to shape a domestic policy environment that
gives primacy, competitive advantage and sound economics to
companies that operate in Canada. Is business accountable
for its own success and failure? Absolutely! But we should
be creating an environment that helps foster their success.
We need to develop a clear vision of what Canada can achieve
over the next five to 10 years and a bold strategy for realizing
this vision in ways that will mobilize public support across
all sectors and regions. Together, we have to decide which
industries are key to our future and ensure they can compete
globally on a level playing field.
There are many areas that must be addressed to deal with
the issue of Canada's competitiveness including tax policy,
regulation, immigration, research, education and infrastructure.
Frankly, I don't believe that there is significant disagreement
in most quarters with respect to the blueprint needed to move
our economic agenda forward, but we must shake off our complacency
as a nation, squarely face up to our collective challenges,
and take some action.
It is time to put aside short-term differences and think
about what our country should look like in a changing global
landscape. Canada cannot afford to stand still while its major
trading partners improve their productive capacity, economic
performance and competitive position in today's global environment.
We have some great competitive advantages such as our twin
surpluses, abundance of resources, an open society and a well-educated
workforce. But as the rest of the world changes, we must adapt.
Business leaders must do our part by improving productivity
and seizing the opportunities of a global marketplace and
governments should support industry by creating an environment
that encourages investment, growth and Canadian leadership.
RBC 2007 and Beyond
This productivity and growth challenge is one we grapple
with in the financial services industry, so I would like to
spend a few minutes talking about the plans we have to grow
your company in a sustainable manner. As a Canadian-based
global company, our goal at RBC is to keep generating top
quartile shareholder returns in relation to our North American
peer group, while expanding our business in Canada and abroad.
To accomplish this we must:
- continue to achieve strong top line growth while containing
non-interest expenses and thereby enhance our productivity;
- identify and allocate resources and capital to sources
of future growth; and,
- make tough decisions about which businesses we want to
invest in, particularly outside of Canada.
So far, our results have been strong. Our employees have
demonstrated that they understand our strategy and are accountable
for execution. While Barbara Stymiest will provide a detailed
review of our first quarter results that were released earlier
this morning, I am pleased to report record earnings for the
quarter with net income of almost 1.5 billion dollars, up
28 per cent from a year ago. In addition we announced a dividend
increase of 6 cents or 15 per cent.
These results continue to reflect our effort to abide by
a rigorous cost discipline that creates the savings necessary
to invest in future initiatives. For example, over the past
two years we have taken 860 million dollars in costs out of
our system, or eight per cent of our non-interest expense
base. This has improved our efficiency ratio by 520 basis
More importantly, we have reinvested these cost savings in
new initiatives that have generated profitable revenue growth.
By eliminating 1,600 positions in non-client facing roles
since 2004, we have been able to add significantly more people
in sales and service positions. So while our overall staff
costs are up by nine and one-half per cent, we have increased
revenues by almost 16 per cent, or nearly three billion dollars.
To support further growth, we recently changed our corporate
structure and moved from three business segments to four,
with three of them clearly focused on growing global businesses
where last year we earned one-third of our net income. Global
financial assets are expected to almost quadruple by 2020,
and we want to be in a position to benefit from this growth.
Our four business segments are Canadian Banking, U.S. and
International Banking, Wealth Management, and Capital Markets.
Canadian Banking, which represents about 50 per cent of our
earnings, consists of domestic personal and business financial
services, cards and payment solutions, and our global insurance
operations. These businesses have leading market share positions
in almost every retail product, and experienced solid volume
growth over the past year.
U.S. and International Banking consists of our banking businesses
outside Canada, including RBC Centura in the U.S., and our
banking operations in the Caribbean. It also includes our
50 per cent interest in RBC Dexia, our joint venture that
supplies custody and investor services to institutional and
individual clients on a global basis.
Our new business segment, Wealth Management, is being built
on the foundations of our existing full-service brokerage
businesses in Canada and the U.S.; our Canadian asset management,
trust and discretionary investment management operations;
and our global private banking business which operates in
21 countries. At the end of fiscal 2006, this business had
approximately 475 billion dollars of client assets under administration,
140 billion dollars of assets under management, and over 3,500
And finally, our Capital Markets segment consists of a wide
range of corporate and investment banking, sales and trading,
research and related products and services provided to corporate,
public sector and institutional clients around the globe.
Not only does our capital markets business enjoy a leading
position in Canada, it is a global platform that generates
more than 60 per cent of its revenue from outside Canada.
We feel this new structure is a natural evolution and will
enable us to be more focused with respect to growth and investments
in each of our businesses. All four segments have critical
mass, strong leadership, and clear mandates for performance
I would like to conclude with a few words about the vital
role our employees play in bringing to life our client first
approach, and in generating the achievements that I have discussed
The cover of our annual report reads Where our vision leads
us, which reflects our vision of "Always earning the
right to be our clients' first choice." Pursuing this
vision begins and ends with our employees.
I am well aware that my job is made easier because of the
unflagging commitment to customer service and innovation that
our 70,000 employees bring to the workplace everyday.
To support that commitment, we have encouraged a more collaborative
and accountable culture where employees are empowered to create
a superior client experience. We have re-engineered our processes
so that they have the tools to do a better job for their clients.
And we have been refining our reward and recognition programs
to promote behaviours that help us do a better job for our
clients, while enabling our employees to build successful
We believe that corporate responsibility and good governance
are important to our vision, and we have dedicated a great
deal of management time promoting a culture of integrity and
sustainability. The cover of this year's Corporate Responsibility
report, which can be found outside the meeting room, reads
Where our values lead us. This reflects that our client-centric
vision is underpinned by our core values of service, teamwork,
responsibility, diversity and integrity.
The concept of sustainability is very much in vogue, but
I hope that when you look at RBC and our activities over the
last year, and indeed, over the last century-and-a-quarter,
you will agree that we have helped create sustainable prosperity
for our clients, employees, shareholders, and communities.
Economic, social and environmental sustainability are lofty,
but achievable goals for all corporations. We believe companies
that demonstrate sustainability in their business practices
and provide leadership in social and environmental sustainability,
will become increasingly popular choices for investors and
A company's reputation is earned by consistently doing the
right things over a long period of time, and we are pleased
that our programs and initiatives continued to earn recognition
during the past year. RBC's brand is trusted by Canadians,
and has been rated as the most valuable in the country for
the past three years. We have made major investments in our
corporate governance and compliance capabilities and, in 2006,
were proud to be named Canada's best company for corporate
governance by Investor Relations Magazine, and fourth best
by the Globe and Mail. Our corporate culture was ranked the
second most admired in Canada in a study that appeared in
Canadian Business Magazine. For the third year in a row, RBC
was the only Canadian bank named as one of the world's top
100 companies for sustainable development, and we continue
to be part of a select group of companies listed on the Dow
Jones Sustainability Index, the FTSE4Good Index and the Jantzi
The various accomplishments I have mentioned this morning
are a reflection of an organization made up of outstanding
people, who are committed to representing our company with
great integrity, professionalism, and energy.
On behalf of our Board of Directors and my colleagues on
Group Executive, I would like to thank all of our employees
worldwide for their strong performance in 2006. I would also
like to thank our Chairman, David O'Brien, and the board of
directors for their guidance, and, in particular, my management
team for their support. I work with an incredible team of
executives, and I would ask Peter Armenio, Janice Fukakusa,
George Lewis, Marty Lippert, Barb Stymiest, Jim Westlake,
Chuck Winograd and the recently retired Elisabetta Bigsby
to stand and be recognized. And most of all, I would like
to thank our 14 million clients for placing their confidence
in our people and for trusting us with their business.
As we look to the future, we will continue to see trends
that have the potential to transform our industry including
demographic shifts, changing customer preferences, new delivery
models, and globalization. But financial services has always
been a dynamic industry, and one need only look at the make-up
of our balance sheet and income statement today to recognize
how much we have changed over the years. I have no doubt that
we will continue to transform our company to take advantage
of emerging trends, and that we will continue to enjoy the
overall growth that the financial services sector is expected
And while much has changed over the decades, there is one
common factor that dates back to our company's humble beginnings
on the Halifax waterfront 138 years ago. The business of tomorrow
will be built in the same way as the business of yesterday
- one client at a time, one great experience after another.
Ladies and gentlemen, this is where our vision is leading
us, and I have every confidence that the road ahead will lead
to further success for our clients and our shareholders.