Address to Shareholders
President & Chief Executive Officer
Royal Bank of Canada
140th Annual Meeting of
Royal Bank of Canada
February 26, 2009
Vancouver, British Columbia
Good morning ladies and gentlemen, and welcome to your Annual
When we planned to bring our annual meeting to Vancouver,
it was because we knew that the city would be bursting with
excitement for the 2010 Olympic Winter Games. As the spotlight
of the world swings around to this city, all of us at RBC
are proud of our involvement with Canada's Olympic movement,
the athletes aspiring for greatness and the Olympic Torch
Relay that will connect everyone across the country to the
excitement of the Games themselves. We are proud to have Vancouver
represent all of Canada, and to our athletes, we wish you
I want to begin my formal remarks by thanking our 80,000
employees. There's little doubt that our business environment
will continue to be challenging in the coming year, but there's
also little doubt that the strength of our people will help
ensure the success of our clients and our organization.
2008 was the most challenging year for the financial services
industry since the Great Depression, and yet RBC was not only
the most profitable bank in Canada but one of the most profitable
banks in the world. While there are some things we would like
to have done differently, I am proud of what my associates
around the world accomplished under these difficult circumstances.
Since my address to our annual meeting a year ago, market
and economic conditions have worsened, revealing a global
financial system that's faced with capital problems, liquidity
concerns, and confidence issues.
As a result, markets have fallen dramatically. Few in the
world have been spared major losses to their portfolios and
our clients have concerns and questions about the future.
At RBC, we are providing our clients with knowledgeable advice
and guidance to help them create a path forward.
In many areas of our lives, be they personal or business,
the short-term understandably gets a lot of attention. But
I believe that important decisions are better made with attention
to the long-term perspective as well. The headlines and data
might be gloomy for some time, but the aggressive moves by
the world's major governments and regulators suggest that
the economic crisis will turn - and we want to ensure that
we are well positioned to benefit from the recovery.
RBC has grown and thrived by focusing on our core strength:
serving clients well and wisely with the best financial advice
and products. Serving clients well means that we put
our clients first. Serving our clients wisely means
ensuring that we provide service without jeopardizing our
long-held strength and stability.
RBC has managed through every cyclical market swing and economic
downturn since we received our federal charter in 1869. Our
franchise has been built on a foundation of sound business
principles: diversification, comprehensive risk management,
a clear strategy, and a strong balance sheet.
And so, despite the problems of our current environment and
the challenges before all of us in this recessionary time,
I know that we have the resources and experience for our organization
and our clients to succeed.
Reflecting on the market dislocation over the past year,
it is clear that there is no singular failure that led our
system to this point.
At the heart of the problem was a massive failure in the
structure, policies and regulation of the U.S. mortgage market,
which led to a significant increase in U.S. household debt
with little regard to risk standards. Overly ambitious banks,
investment firms, and investors -- more focussed on return
than risk -- found ways to exploit a loosely regulated market
that was fuelled by an environment of accommodative monetary
The world was flush with liquidity which resulted in excessive
leverage and dramatic growth in hedge funds, private equity
and financial assets of all kind. And when the asset bubble
burst, it put the integrity of world markets at risk and unravelled
what had been a period of robust economic growth.
We went from a world of excess liquidity to one in which
liquidity across the system virtually disappeared.
A world with excessive debt moved to massive deleveraging
across all sectors. And compounding the problems were new
accounting rules that - while good in theory - did not anticipate
inefficient and illiquid markets resulting in a spiralling
down of asset values regardless of quality.
The collapse and nationalization of many of the world's largest
financial firms, the disappearance of the Wall Street bulge
bracket investment banks, TARP, economic stimulus packages
-- the list goes on: 2008 was a year that will, for decades,
transform our industry.
Today, we truly understand how small our world is, as problems
in the United States spread and caused collateral damage to
many countries, exposing weaknesses across the global financial
system which have subsequently overburdened all economies.
There will be finger pointing for years as to the cause of
and attribution of blame for the current crisis -- and believe
me, there is plenty to go around. But the fact of the matter
is that we are expected to get on with finding solutions and,
in the case of RBC, creating value for our shareholders and
successfully operating within this new paradigm.
The Case for Canada
As a Canadian bank with global operations, RBC does have
a competitive advantage relative to many of our global peers.
The fundamentals of our domestic economy, while stressed,
appear stronger than in Europe and the United States, having
benefited from a public policy agenda that for many years
valued prudent fiscal management.
Our interest rates are at historically low levels and our
employment picture, though weakening, is still much stronger
than in prior recessions.
Also, through the market turmoil, the Canadian regulatory
and financial systems have stood out as being well-structured
and well-managed. The Canadian government has worked to establish
appropriate programs to support the system but has not needed
to bail out the Canadian banks.
The World Economic Forum has ranked Canada's banking system
as the soundest in the world and Canadian banks accounted
for a very small percentage of the more than one trillion
dollars of write-offs by global financial institutions last
The financial position of Canadian consumers is also relatively
stronger than those in the U.S. and other economies, with
lower net debt levels and significant amounts of equity in
their homes. And finally, Canadian businesses are generally
entering this difficult cycle with higher liquidity and less
leverage than in prior downturns.
While many of our current difficulties can be traced back
to the U.S. mortgage market, Canada's mortgage market is fundamentally
different and sounder, which partially explains why we did
not experience the same housing bubble as in the U.S. and
parts of Europe.
For the large part, our mortgages remain on bank balance
sheets so our credit standards are higher. In addition, clients
of our Canadian banking business are more likely to pay down
their mortgages since mortgage interest is not tax-deductible,
and Canadian mortgages are recourse loans, unlike those in
the United States.
I do not want to underplay the challenges in our economy,
the tremendous stress that so many Canadians feel, or the
impact of job losses and the complications of declining net
worth. But in today's world where it is much safer to be negative,
one must keep the facts in perspective. We will not reverse
today's trends until we begin to restore trust and confidence
back into the system and until people move on from the current
state of fear that is so dominant in today's environment.
The Case for RBC
While developments during 2008 toppled some of our mightiest
competitors, RBC did generate more than 4.5 billion dollars
of earnings and a return on equity of 18 per cent.
Our performance in the first quarter of 2009 was also solid.
Notwithstanding significant market related charges, we earned
over one billion dollars, led by the strength of our Canadian
Our capital ratios remained among the world's strongest with
our Tier 1 capital at 10.6 per cent and tangible common equity
to risk adjusted assets at 6.8 per cent. This reflects capital
issuance in the first quarter, our continued focus on managing
our risk adjusted assets, and the earnings contribution from
our diversified businesses.
Our strong operating earnings and solid financial profile
should provide our shareholders and clients with additional
confidence in the strength and stability of our organization,
and supports the continued growth of our businesses.
I think it is also important to comment on the roughly 1.3
billion dollars of charges we have taken this quarter related
to valuing illiquid securities which are discussed in detail
in our quarterly Report to Shareholders.
I do want to assure all shareholders that we believe we have
taken a prudent approach to valuing these illiquid securities
that are causing such volatility in the earnings of financial
Unfortunately, fair value accounting rules - while well intended
- have their limitations. Mark-to-market accounting rules
did not anticipate the illiquidity we have seen as a result
of the current market crisis and have generated unintended
consequences for bank earnings around the world. They have
also given rise to a wide range of judgments that can be applied
by companies, which have made comparisons across financial
institutions more difficult.
For example, some institutions have chosen to use a more
models based approach to valuation, while others have used
a greater level of observable market inputs. This can cause
the valuation of the same security to vary from one institution
to the next.
While using external market-based valuations will create
more income volatility than if we used internal models, where
feasible we have chosen to use observable market inputs because
we -- and our auditors -- believe it to be more transparent,
conservative and consistent with best practices.
In addition, institutions have also made different choices on what types of securities are held in trading versus non-trading portfolios, again making comparisons more difficult. We believe we have been selective in determining which securities should be held in non-traded portfolios.
While both the use of observable market measures and the
holding of securities in our trading portfolio causes greater
income volatility, we feel it provides better transparency
in reflecting the impact of current market conditions.
While we don't like this volatility, over time, there should
be convergence between different methodologies as these illiquid
assets mature and realized values are determined.
However, notwithstanding these market related charges, we
had a solid quarter and continue to manage the current headwinds
Today, RBC is the fourth largest bank in North America and
the tenth largest in the world. Having said that, I speak
for all of my colleagues when I say that we take no satisfaction
from our relatively strong financial performance because,
while we are proud of our strength, stability and the consistency
of our dividends, we know firsthand that our share performance
has not met expectations.
The world is dramatically different than it was a year ago
and the changes that have caused this turmoil have created
a new operating model for many financial companies - a new
normal, as I called it a year ago. For the industry, the
days of high leverage and quick returns are, in my view, gone.
Operating successfully today means being even more aware
of our clients and their needs, being more conservative in
the management of our portfolios, and more selective in the
businesses and partnerships we pursue.
RBC operates in 54 countries around the world, serving 18
million clients. Each of our five business segments does have
a mandate for growth, which in the context of today's economy
will be underpinned by a disciplined approach that will focus
on growth opportunities that meet our economic, strategic
and cultural criteria.
We have raised capital successfully so we can meet the expectations
of regulators and investors and ensure we can invest in our
businesses and meet the demands of our clients.
As a global organization, we clearly have not escaped the
current crisis unscathed, but our business approach has given
us the flexibility and options to prudently manage our business
and allocate resources. Further, we are implementing an aggressive
cost management initiative that will be the top priority for
our new Group Operating Committee, chaired by Janice Fukakusa.
Our objective is to pursue our strategic goals with unrelenting
focus on our clients while diversifying our risk and using
our balance sheet judiciously to produce high-quality earnings.
Open for Business
The overall strength of our business puts us in a position
to take advantage of opportunities that many of our competitors
can no longer consider. And while we will not sacrifice our
risk discipline for growth, RBC is very much open for business
and ready, willing and able to provide clients with valued
advice and services.
Despite some media reports, lending activity at Canada's
banks did not contract in 2008. At RBC, our loan book in Canadian
Banking grew by 13 per cent during the year.
More recently, loans to individuals and small businesses
in Canada grew by an additional 2.3 per cent in the first
quarter compared to last quarter.
While spreads have increased, we have not changed our lending
policies and practices, and continue to advise and provide
clients with credit solutions suited to their needs. We expect
to continue to have steady growth in new mortgage financing,
and small business and consumer lending across all parts of
Canada based on sound and consistent lending practices.
However, the retreat of many foreign companies from the market,
as well as the dramatic reduction in monoline activity, such
as auto leasing, has meant there is an overall reduction of
credit available in the system.
Unfortunately, this is not likely to reverse quickly as our
global competitors will, for the foreseeable future, be fixated
on repaying the billions of dollars of capital that their
governments have invested. This will impact their returns,
their capital deployment and their business strategies resulting
in a much greater focus on their domestic markets.
Our customers both in Canada and around the world are seeking
stability and consistency and we are increasing our efforts
to reach out to our clients.
There is no question we are having conversations with clients
that are markedly different from the ones we had a couple
years ago. Our retail clients in Canada, the U.S., and around
the world are getting financial statements that show large
declines in their portfolios, many for the first time in their
lives. They're seeing their retirement savings reduced. They're
worried about paying their mortgages. They're worried about
losing their jobs.
We know that our clients' dreams haven't changed, but the
path to achieve them has been forced to take a detour. More
than ever, we are seen as indispensable advisors to our clients,
giving them access to advice, products and services to help
them create a path forward.
In addition, over the past several months, we have spent
more time than usual in discussion with our regulators and
government officials. We've invested this time together because
we all share common objectives: To ensure the continued well-functioning
of the Canadian financial sector, and to share perspectives
on the best and appropriate actions that should be taken to
help restore confidence and maximize the availability of credit.
In Canada, we have close to 10 million client contacts every
month. Whether it's to answer questions about their accounts,
or discuss a need, we have made it more convenient for customers
to do business with us. We have grown our mobile and specialized
sales forces, added new bank branches and ATM's and increased
the number of branches that are open extended hours and Saturdays.
Our clients can now do business with our contact centre agents
in over 150 languages, and our small business and commercial
business clients in all major international trading regions
can now fulfill all their business needs through a single
relationship. Furthermore, we have deepened client relationships
and rewarded clients for their loyalty through innovative
As the largest Canadian provider of wealth management services,
we continue to offer a full range of investment advice and
planning services, supported by teams of experts in financial
and retirement planning, tax, law, trusts and estates.
Our portfolio of relatively strong performing, equity and
fixed income investment products grew dramatically in the
past year when we acquired Phillips, Hager & North in
the third quarter. The acquisition of this Vancouver-based
success story made us the largest mutual fund company in Canada.
RBC is also the leading bank in Canada in providing insurance
solutions for both personal and business clients. We are the
Canadian market leader in creditor and travel insurance and
the second largest provider of living benefits products.
We also remain Canada's largest investment bank, and number
one or two in virtually every domestic ranking as we help
companies reach their growth potential.
We continue to make strides across all of our domestic businesses
towards our goal of undisputed leadership in all areas of
financial services in Canada.
U.S. and International
Outside Canada, we have devoted significant management and
financial resources to building our capabilities, our client
base, and our brand as a foundation for future business growth.
Over the past year, we extended the reach of our wealth management
services into the United States -- RBC now has more than 2,000
financial consultants serving clients in 43 states making
us the sixth largest investment advisory firm in the U.S.
Our U.S. banking operations have been significantly impacted
by the ongoing stress in the U.S. housing market and the weakening
U.S. economy. It has been the weakest of all of our businesses,
but fortunately the size and scale of our operation has enabled
us to manage through the deterioration in results from this
Notwithstanding the challenge in U.S. banking, we have created
a network of nearly 440 branches in the Southeast and are
building a business that provides clients with an integrated
experience and a full product suite that serves their business
and retail needs.
Our management team is focused on improving our U.S. bank's
earnings and has done a great deal of work to create momentum
as conditions improve.
Meanwhile, our reputation for strength and stability has
played a key role in attracting new clients and business for
our U.S. capital markets operation. While many of our wholesale
banking competitors have downsized or significantly changed
their fundamental business models, we have hired exceptional
people and teams, and are doing business with clients that
we have never dealt with before.
Last month, we were pleased to see the latest indicator of
our success when RBC was named Mid-Market Investment Bank
of the Year.
We have continued to gain share in strategic wholesale markets
without changing our fundamental risk appetite or profile.
Consistent with our emphasis on prudent risk management and
maintaining our strong balance sheet, our capital markets
business has focused on allocating capital only in those areas
where we have competitive advantage and generate strong returns.
Outside North America, I note that it was less than a year
ago that we closed our acquisition of RBTT Financial Group
to make RBC the second largest banking group in the Caribbean
We now have 7,000 employees serving clients in 18 countries.
And as the integration of operations continues, our clients
in the region will have access to a more robust product offering
-- including trust, asset management, and investment banking
services, all provided by a stable financial institution with
Our wealth management operations also expanded their footprint
outside North America, opening new offices in Panama, Chile,
Mexico, and India in the past year. Overall, this business
is growing by recruiting experienced private banking professionals,
aided by RBC's reputation as a premier provider of wealth
management services to clients around the world.
As Canada's only global investment bank, we continued to
grow in 2008, generating approximately 50 per cent of our
revenue outside of Canada by executing a disciplined growth
We added a new finance team in London to support our European
investment banking business, and we expanded the U.K.-based
infrastructure financing business into Continental Europe,
Australia, and the U.S. In addition, we continued to extend
our global capabilities related to strategic sectors such
as energy and mining.
Ladies and Gentlemen, around the world, we are reaching out
to all our clients to ensure that they understand a simple
message: We have a long history of serving customers through
a variety of conditions.
We've been through difficult times before and while they
are challenging and stressful - we are optimistic that we
will come out of this period stronger.
Without question, the current tough times will test our commitment
and capabilities. But, now is exactly the time when people
need a financial services provider that can help them make
sense of a very complicated world.
At times like this, our role as a corporate citizen is paramount.
When it comes to corporate responsibility, we believe that
first and foremost, we're responsible for serving our clients
well, providing our shareholders with a good return, for paying
taxes and creating jobs in a workplace that respects and encourages
diversity. We can only do these things by operating ethically
and demonstrating integrity in our business practices, and
by providing leadership in the workplace and the marketplace.
Workplace, community, and environmental programs are integral
to our ability to serve our clients as well. They are an important
part of our approach to corporate responsibility, and support
our efforts to create a truly sustainable global business.
In 2008, RBC was once again named one of the Global 100 Most
Sustainable Corporations in the World -- and we were included
in the Carbon Disclosure Leadership Index, and the Dow Jones
Sustainability Index, amongst others. I am proud that RBC
is continually rated as a global leader in corporate environmental
sustainability, but I know that our work in this area can
never be finished.
For example, on the issue of climate change, we maintain
an ongoing dialogue with a variety of stakeholders. We are
listening to a number of environmental groups - from those
that have realistic and constructive agendas, as well as some
with more radical approaches.
For this complex issue, we believe that the only sustainable
approach is one that is solutions-driven, and considers a
sector's economic importance, as well as the related social
and environmental concerns.
As I have said in our new Corporate Responsibility Review,
we believe that the only way a company can thrive is by managing
its financial, social and environmental performance, and paying
close attention to all three. Our philanthropic and community
support programs are fundamental to who we are as an organization,
and, frankly, are second to none in Canada.
I'm proud of RBC's priority programs such as our Blue Water
Project, and our After School Grants Program. And I am proud
of our contributions to thousands of local charitable organizations
- such as the Crabtree Corner Shelter for Women, the Portland
Hotel Society and Arts Umbrella all here in Vancouver -- as
well as hundreds of national campaigns, like the United Way
and Own The Podium.
And perhaps most visibly in the next 12 months, we look forward
to helping welcome the world to Vancouver 2010, and to celebrating
with Canadians from coast to coast during the Olympic Torch
Relay that starts later this year.
At RBC, 140 years of experience and history have taught us
that, regardless of conditions, there is no substitute for
hard work, integrity, and an approach to business based on
a commitment to serving clients well and developing solid
Over generations, we have learned that, especially in difficult
times, our clients need honest, transparent and expert advice
from a financial company that is stable and capable.
At RBC, this means that each and every one of our people
is dedicating themselves to better understanding our clients'
needs, helping them create what they need - now and over the
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 professionalism, dedication and commitment
to our clients. I would also like to thank our Chairman, David
O'Brien, and the Board of Directors for their guidance. And
I am grateful to my management team for their continued support.
Most of all, I would like to thank our 18 million clients
for placing their confidence everyday in our people and our
As I said earlier, the events of the past 18 months will
forever change the face of our industry. While I have always
been confident in our organization's capabilities, that feeling
has only grown stronger during these past months.
We will do more to seize the moment and capitalize on our
growing global reputation for strength and stability. Significant
opportunity lies in the midst of uncertainty and turmoil,
and by providing value to our clients and to our shareholders,
RBC is ready to lead the way forward.
Ladies and Gentlemen, thank you for taking the time to be
here this morning and thank you for your continuing confidence