Address to Shareholders
President & Chief Executive Officer
Royal Bank of Canada
141st Annual Meeting of Royal Bank of Canada
March 3, 2010
Good morning ladies and gentlemen, and welcome to your annual
I want to begin this morning by thanking all of our employees
around the world.
While events of the past two years have irreversibly changed
our industry, your work has made us a better company than
we were at the start of the crisis.
In fiscal 2009, RBC generated cash net income1
of over five billion dollars, eight per cent higher than in
Our reported results of 3.9 billion dollars included a one-billion
dollar goodwill impairment charge that did not affect our
Our results reflected strong performances in Canadian Banking,
Capital Markets, Wealth Management, and Insurance.
At the end of fiscal 2009, we had top quartile shareholder
returns for one-, three-, five- and 10-year time horizons
compared to our North American peer group.
We exited 2009 with a Tier 1 capital ratio of 13 per cent,
among the highest levels in the industry.
Today, we are one of the largest banks in the world based
on market capitalization, and one of only five banks in the
world with a triple-A credit rating.
I am very proud of how we have managed through the financial
crisis, and optimistic about our ability to continue to succeed
We have healthy businesses, strong corporate values and culture,
highly engaged employees, and deep relationships with our
clients and our communities all of which will be critical
for our future success.
Although Canada was not without its challenges, we should
all be proud of how our system managed through the recent
We were able to work together to solve our problems, and
those institutions that suffered substantial losses were able
to re-capitalize without injections of capital from governments
and restore themselves to financial stability.
Having said that, I believe journalists and commentators
are oversimplifying the matter when they say Canada's dullness,
conservative culture or less competitive banking environment
accounted for our relative success.
Canada's banking market is far more competitive than virtually
any developed country in the world, particularly if you measure
competitiveness by the level of service offering and the cost
of services paid by clients.
Our banks are also more international and diversified than
most U.S. banks, particularly those that went under or were
And there were no restrictions that prevented us from making
the kinds of investments and loans that brought many global
institutions to their knees.
It wasn't dullness that caused Canada to outperform, but
rather a combination of:
- good macro-economic fundamentals in this country
- a more conservative risk appetite by both banks and our
- good governance and decision making
- a well structured mortgage market in Canada
- and a sound regulatory and public policy regime.
So— notwithstanding significant challenges faced by our
markets and specific institutions— our system worked, which,
of course, was not the case elsewhere.
The key factors that contributed to RBC's relative out-performance
are a healthy respect for risk and a balanced diversified
At RBC, we believe risk management is a source of our strength.
We manage our risks to ensure that business activities remain
within our overall risk appetite and we hold our business
We insist that risks be balanced by appropriate returns that
short-term returns be balanced against long-term vision and
that investing and growth initiatives be balanced against
the imperative to maintain financial stability.
Throughout the financial crisis, our number one priority
was maintaining the safety and soundness of our bank.
Key to managing risk is anticipating and responding to changing
In the past couple of years, deteriorating financial markets
and declining economies across the G20 challenged our businesses.
Lower interest rates reduced revenue, weak economic conditions
produced higher credit losses, and market turmoil caused significant
write-downs of securities.
The failure, or near failure, of significant trading counter-parties
presented the potential for significant losses.
Our responses to these issues have been decisive and deliberate:
- We increased capital ratios to strengthen our financial
position, and today, our ratios are amongst the highest
of global banks.
- We exited certain businesses to redeploy capital in areas
where we could generate higher returns.
- We accelerated cost management programs to ensure we deliver
advice and value to clients efficiently.
- And we have implemented aggressive business plans to clean
up our under-performing businesses and to ensure we take
full advantage of the opportunities resulting from market
The impact of the economic downturn has also had a material
impact on our customers and will be felt for years.
Individuals have had to postpone retirement plans that were
made during a ten-year bull market when investment returns
and employment conditions were more favourable.
Commercial and corporate clients have seen their businesses
suffer and may have lost access to sources of funding.
Throughout the crisis, our staff have been proactive in addressing
issues our clients faced, which has strengthened client relationships
and reinforced the benefits of doing business with a financial
company that can support long term growth.
In 2009, we gained market share in virtually all our businesses,
both inside and outside Canada.
Where others have retreated, we have continued to invest,
and we have even increased lending, generally unheard of during
a recessionary period.
Our brand in Canada has never been stronger, and we have
invested to support our brand internationally with campaigns
in the U.S. and U.K. promoting our global capabilities and
There has never been a better time for us to grow in these
As a result of the crisis, many of our competitors have been
forced to change their business mix and strategies.
But our strategic priorities have remained consistent throughout.
In Canada, we are recognized as a leader.
In 2009, all our businesses continued to build their leadership
positions in each market and product category.
We have expanded our network of branches and ATM's, and extended
the hours of operation in more than half our branches.
We have also added call centre employees, and expanded our
mortgage and investment specialized sales force.
We are gaining more business from both new and existing clients,
and seeing higher market shares in consumer lending, business
loans, and consumer and business deposits.
Our performance has been acknowledged by industry observers
through a variety of recognitions.
Our Canadian wealth management and asset management businesses
are the largest in the country and both maintained their leadership
positions in 2009.
Our full service wealth management business continued to
attract experienced advisors and earned 60 per cent of industry
profits during a challenging 2009.
In our asset management business, net sales of our long-term
mutual funds continued to increase through 2009, demonstrating
the power of our distribution network, rising financial markets,
and the confidence that clients have in our fund management
expertise, as well as the benefits of our acquisition of PH&N,
which was named fund company of the year by Lipper.
Our insurance operations in Canada are growing and providing
more value to clients by offering service and advice through
a variety of channels.
And as Canada's leading global investment bank, we were again
named Dealmaker of the Year by The Financial Post, and received
other citations by notable observers— such as Euromoney,
Bloomberg, and Thomson Reuters— for our leadership in virtually
every area of capital markets.
In the U.S., our reputation for financial strength and stability
attracted clients and talent to all of our businesses, and
we continued to strengthen our U.S. businesses generating
strong revenue growth and positive earnings growth.
Our capital markets division— which is our largest U.S.
business— was named as a primary dealer in the U.S. by the
Federal Reserve Bank of New York, a significant vote of confidence
in the health of our U.S. fixed income trading business and
additional muscle to what is a leading global platform.
Our U.S. wealth management business integrated our Ferris,
Baker Watts and J.B. Hanauer acquisitions, announced an agreement
to acquire J.P. Morgan's Third Party Investment Advisory Servicing
Business, and had a record year in recruiting more than 300
While the weak economic conditions in the U.S. continued
to put stress on our U.S. retail banking operations, we have
strengthened our management team and are in the midst of restructuring
to improve operational efficiency and client service, which
I believe will position us well as the credit environment
Outside North America, we are the only Canadian bank with
a global wealth management capability, capitalizing on the
sector's long-term growth around the world.
In 2009, our U.K. wealth management operations completed
the acquisition of Jersey-based Mourant Private Wealth which
enhanced our ability to provide integrated private wealth
management services to international clients.
Our global capital markets businesses took advantage of the
market dislocation by:
- recruiting hundreds of talented professionals
- acquiring new clients
- and being involved in the execution of a number of the
largest global transactions.
Over 60 per cent of RBC Capital Markets' people and revenues
and 40 per cent of earnings were from outside of Canada.
Finally, in our Caribbean banking operation, we are actively
integrating our RBTT acquisition to establish a common operating
platform to support its growth.
Ladies and gentlemen, our performance in 2009 was among the
strongest in the world and it wasn't about making big bets
and taking excessive risk.
It was about balance and diversification.
Looking ahead to 2010, we will continue to emphasize resilience
and return by:
- strengthening our core franchises,
- maintaining our strong capital ratios,
- enhancing risk management, and,
- proactively maintaining and acquiring client relationships.
If I have learned anything throughout my career, it is that
serving clients well and building strong relationships are
critical activities for all successful enterprises.
The events of the past two years are more proof of these
Banks paid a heavy price if they chose to grow assets rather
than customers, or if they grew revenues as opposed to franchises.
In a world that was flush with liquidity, it was easy for
financial companies to expand their balance sheets and finance
acquisitions, but in many cases they were not adding value,
and the consequences were dramatic.
I am optimistic about our ability to succeed in 2010 and
beyond, and to take advantage of the changing global landscape.
This morning we announced our first quarter results and we
are off to a strong start with earnings up 35 per cent from
All of our businesses had earnings growth this quarter; generating
net income of 1.5 billion dollars, and a return on equity
of 17.5 per cent, while maintaining our strong Tier 1 capital
ratio of 12.7 per cent.
Canadian Banking performed extremely well and continued to
underpin our earnings.
We had strong volume growth and market share gains across
Solid revenue growth coupled with our ongoing focus on cost
management drove an efficiency ratio of 45.7 per cent, an
improvement of 140 basis points over last quarter.
In Wealth Management, improved market conditions and investor
confidence drove higher fee-based assets and higher transaction
volumes over last year, continuing the significant earnings
recovery in this business from the period of market lows.
We are continuing to leverage our global capabilities to
differentiate our product and service offerings to both individual
and institutional clients.
Insurance exhibited strong growth across most products and
continues to complement our retail product offering.
In International Banking, the net loss in the first quarter
was lower than last year and last quarter.
We continue to see signs of improvement in our U.S. banking
loan portfolio and we are working hard to restructure the
business to improve client service and achieve greater operational
In Capital Markets, we benefited from the strength and diversity
of our business.
Compared to last quarter, we had stronger investment banking
activity driven by improved equity and credit market conditions.
And while we experienced moderating trading revenue in our
fixed income and money markets businesses, this was partially
offset by higher trading in equities.
Our results this quarter speak to the earnings power of this
organization, the strength of our businesses, and our ability
to manage costs and capital effectively.
While we see signs of improvement in market and economic
conditions, we can't ignore that the world is emerging from
a period of financial, economic and regulatory upheaval that
will potentially be a watershed for our industry.
The financial industry will never be the same, and the "new
normal" will bring with it both significant challenges
and unparalleled opportunities.
All financial services firms are wrestling with several problems
as they plot their future course.
An environment of more proactive regulation, declining client
trust, weak consumer confidence and unprecedented political
Managing through this period of change is the top strategic
and operational issue for every major financial institution
and it will, in my view, create winners and losers.
Looking through a long-term lens, it's clear that regulatory
reforms now being considered will play a material role in
setting the stage for the future prospects of our industry.
I understand that— particularly in the U.S. and U.K.— there
is popular outrage about bank bail-outs, compounded by the
recent profit levels and bonuses at banks that were bailed
Main Street is understandably upset, but unfortunately, political
rhetoric is distorting the cause of this recent crisis and
potentially distorting the cure.
This crisis was not caused by Wall Street, excessive compensation,
nor proprietary trading, although they all played a part.
The root cause of the crisis was the failure of the U.S.
residential mortgage market.
Mortgage insurance supplied by government sponsored entities
like Freddie Mac, the deductibility of mortgage interest,
and the origination and distribution of mortgages in the United
States encouraged risky lending and borrowing and created
a bubble in the world's largest market.
Wall Street was certainly complicit creating extremely complex
syndication structures that allowed lenders to easily sell
these high risk mortgages which provided even greater liquidity
and lower credit standards to a market that, in hindsight,
The basic requirement to qualify for a large mortgage in
the United States was a pulse, and the behaviour of mortgage
brokers, financial companies, credit rating agencies, politicians,
investors and borrowers resulted in this over-leveraged, high-risk
asset class expanding without appropriate risk standards,
and ultimately finding its way onto the balance sheets of
banks and investors all around the world.
This combined with the growing globalization of financial
markets and inter-dependence of global financial institutions,
led to a systemic crisis that ultimately required aggressive
government action to stabilize.
All banks faced a liquidity crisis, but this was brought
on by those banks that faced a solvency crisis.
Those banks that went under, and many that were bailed out,
fell victim to far too much concentration of toxic assets
and short term wholesale funding.
Many banks were under-capitalized and over-leveraged, and
in many cases failed to have appropriate risk standards.
We are now in a period where G20 governments and market regulators
are proposing substantial changes to bank regulation.
While new regulation in response to recent events is inevitable,
it is critical that new standards not impede the ability of
the market to operate efficiently.
As policymakers talk through potential reforms, they must
commit to a prudent set of rules, while resisting the temptation
to create a program that over-regulates, or one that is punitive
rather than stabilizing.
Any reforms must balance the need and urgency for change,
with their impact on economic growth, the health of the financial
services sector, and the ability for companies to generate
All constituents, including users of banking services, should
have some influence in these discussions.
Not all stakeholders are aligned:
- regulators are accountable for safety and soundness
- central bankers must balance regulation and economic growth
- banks have responsibilities to shareholders, as well as
- and elected officials have to focus on public discourse
and political fallout.
But ultimately, a large part of the increased costs associated
with new regulations will be borne by corporations, small
business and consumers.
If the debate is hijacked by one constituent, the long term
impact on the functioning of global capital markets, and on
society, could be punitive.
Recent developments show how emerging regulations could create
a host of unintended consequences, including smothering the
sparks of a fledgling economic recovery.
Reforms proposed in the U.S. seek to reduce risk-taking activities
within the banking system by limiting the size of banks and
preventing U.S. deposit-taking institutions from operating
in potentially lucrative — yet more risky— businesses, such
as proprietary trading or private equity.
These reforms are still being digested.
But at first blush, they appear to potentially put at risk
future earnings for U.S. banks, while accomplishing little
in terms of systemic risk reduction.
Restricting banks from activities like trading would not
have prevented the kinds of meltdowns we saw over the past
couple years, and the result could be the flight of a variety
of activities into unregulated areas or alternative geographies,
hardly a way to reduce systemic risk.
The way to control excessive risk taking is to ensure that
the appropriate capital is allocated to banking activities
that incur the risk.
If more capital is allocated, the returns will be reduced,
and the incentive to pursue the activity curtailed.
The largest U.S. bank failures had little, if anything, to
do with wholesale bank activities.
In fact many of the largest failures were not even banks,
but rather investment dealers, insurance companies, mortgage
brokers, consumer finance companies, and government agencies.
The bulk of the losses during the crisis arguably resulted
from lending practices and excessive concentration related,
primarily, to U.S. residential real estate and over-extended
consumers, not those activities addressed by the proposed
One of the pillars of strength of the Canadian regulatory
system is its requirement for Canadian banks to operate under
binding leverage constraints.
Excessive leverage in the industry was perhaps the greatest
contributing factor to the problems at many banks, because
capital rules risk-adjust for the quality of assets —and
the assets that caused stress in many banks were "highly
rated assets" and, therefore, required very little capital.
Since the start of this decade the rate of growth of what
was perceived to be low risk assets at many banks, was significantly
higher than the rate of growth of capital, a trend that played
a great part in the collapse of many financial institutions.
If you have 50 dollars of assets for every dollar of equity,
it doesn't take much of a decline in your asset values to
wipe out your equity.
Global leverage limits, in my view, are essential.
With regard to capital, I also believe it is important today
to be conservatively capitalized and I agree conceptually
with the need for increased capital requirements.
Having said that, the current Basel III proposals are so
complex and onerous that we run the risk of no agreement being
As these rules are tested, it will become evident, in my
view, that many banks around the world cannot meet the standards
without impairing their ability to lend money and contribute
to economic growth.
And given the uncertainty of new regulations, financial institutions
are now forced to take a very cautious approach to investing,
growing and deploying excess capital.
How can we make investments without knowing the cost or returns?
If banks seek to offset the impact of these reforms by increasing
costs of services and credit policymakers must carefully balance
the urgency for these reforms with their potential impact
A recent report by J.P. Morgan calculates that the cumulative
impact of proposed regulations would increase the cost of
financial products across the system by close to 40 per cent.
It is also concerning that regulatory reforms are emerging
from several sources and authorities, without coordination
of content or timing.
This lack of coordination is dangerous.
While a few months ago it appeared as if there was a high
degree of co-operation among the Financial Stability Board
countries, we are now experiencing a divide with different
countries trying to initiate rules that best suit their jurisdiction.
The unified response that was necessary and commendable during
the darkest days of the crisis now risks being replaced by
regulatory and legislative one-upmanship, as various governments
pursue local agendas.
Clearly, we need to find the right balance as governments,
regulators and banks need to work together to improve the
I am confident that if the industry is well capitalized,
properly leveraged and has sufficient liquidity, we should
be able to rely on good governance and effective local regulation
to ensure the system does not fail.
After all, it worked in Canada during the worst crisis since
the Great Depression.
If we don't get to the finish line in a reasonable time-frame,
and with balanced requirements, we will increase the risks
not just to the financial system but to economic growth.
And if that happens then everyone loses.
Finally, I want to briefly comment on an area of emerging
significance for shareholders: how banks should be accountable
for businesses that affect the environment.
I would encourage shareholders to read our Corporate Responsibility
Review that outlines many of our workplace, environmental
and community programs but I raise this specific issue because
it was the subject of some discussion at last year's annual
meeting, and some stakeholders have expressed views about
RBC lending to companies in the energy sector, and specifically
the Oil Sands.
In the past year, we've done our homework on the issues:
- We've met with our clients in the energy sector;
- We've gone to Fort McMurray, Fort Chipewyan and other
communities, and met with clients and numerous First Nations
- We've hosted a day of learning —bringing together
industry officials, financial companies, the Government
of Alberta, environmental groups and Aboriginal experts—
to discuss matters related to oil and gas exploration;
- We've talked with government officials;
- And we've met with environmental groups from around the
Without doubt, there are extreme views.
One side demands that banks should stop lending immediately
to oil and gas companies.
Another side says banks should not be concerned with environmental
policy and that role should be left to regulators and governments.
We believe that we have an obligation to all of our stakeholders
and have to find the right balance.
We have a responsibility to our shareholders and our economy
to provide financial solutions to all types of businesses
that behave in a manner consistent with the laws and regulations
of the jurisdictions where they operate, but we have standards
and policies that commit us to ensuring we are dealing with
companies, organizations and projects that meet specific criteria
regarding social, ethical and environmental standards.
We provide a wide range of financial services to the energy
sector, as we do for all our clients, including many companies
producing renewable energy, alternative energy and green technology,
all areas in which we are a global leader.
However, because of our size and stature in Canada, we often
have to defend ourselves against misrepresentations by groups— primarily non-Canadian— pursuing their own agendas and
The facts are that we lend almost 300 billion dollars globally
to businesses and individuals.
Of this, less than two per cent are loans to the oil and
gas sector, a small share of which is lent to companies operating
in the Oil Sands.
We are neither the largest lender, nor do we have any direct
investments in the Oil Sands.
But having said that, we are very proud of the relationships
and quality of customers that we do deal with in this market— clients that invest billions of dollars to create jobs and
create technologies that will ensure responsible development.
We are well-informed, engaged and thoughtful about the environmental
issues posed by the energy sector and we understand that if
we don't take a long-term view of these issues, we are making
But any solution must be balanced.
The Oil Sands are an important natural resource for Canada,
and integral to our energy security and our economic strength.
Having said that, there is much work to be done to ensure
responsible development that takes into account environmental
This is not an issue that will go away: Government and industry
must work together, and banks must support and fuel best practices
The Canadian energy sector is vital to our economy and especially
for First Nations communities but, again, not without significant
questions that need to be discussed and resolved.
In this matter, I have sought counsel from many people, including
Phil Fontaine, former National Chief of the Assembly of First
Nations and a Special Advisor to RBC.
He's helped bring clarity to what's required for current
and future development.
This reality calls for dialogue, for partnerships, transparency
and education— not posturing and extreme demands.
The questions posed by the development of new energy sources
will not go away— and they demand an even-handed and balanced
response based on fact, not rhetoric.
As shareholders, I'm sure you'll agree that finding a solution
here is not within the scope of a bank's role and expertise.
Governments, industry, regulators and environmentalists must
all come to the table.
That said, we will push for greater transparency and dialogue,
so decisions regarding risk can be better informed.
We will continue to be open to financing innovative ideas
and entrepreneurs who want to develop renewable energy alternatives
and help people embrace change willingly.
We will take a balanced approach to this issue, and we will
make decisions based on the facts, and consistent with "best
We have outstanding people who are passionate about social
and environmental issues responsible for developing and refining
our polices, and rest assured we will maintain the highest
of standards and live up to our commitments.
At RBC, we pride ourselves on being able to work with our
clients, with governments, NGOs and other stakeholders, to
have a constructive discussion on important issues of the
day, including broad environmental concerns.
For 140 years, we have listened to our clients and our communities;
we have learned about their needs and the causes most important
to them; and we have acted.
I'll remind everyone that our commitment to environmental
sustainability dates back over 20 years.
We've learned a lot since then, and the scope of our activities
has continued to grow.
We're very proud of our community projects, especially the
RBC Blue Water Project— which has now committed more than
20 million dollars to 150 projects around the world including
one million dollars to provide access to freshwater and sanitation
to the people of Haiti.
I am proud that several global organizations have recognized
us for our programs and performance related to sustainability
and corporate responsibility.
In 2007, we topped Newsweek International's ranking of the
100 global companies considered most capable of adapting to
the risks and opportunities presented by climate change.
We have been listed as one of the most sustainable large
corporations in the world for six years in a row, according
to the annual ranking by Corporate Knights.
For ten consecutive years, RBC has been named to the prestigious
Dow Jones Sustainability World Index.
We are also listed on the Jantzi Social Index, the FTSE4Good
Index, and the Carbon Disclosure Project Canadian Leadership
We have been recognized as one of Canada's Greenest Employers,
one of Canada's 50 Most Socially Responsible Corporations,
and on February 15th, of this year, we were ranked 34th in
The World's Most Respected Companies by Barron's, one of two
Canadian Companies to be on the list and one of two global
banks in the top 50.
We are not perfect— we can always improve our contribution
to the environment—but I assure you, we know it is a priority
and we understand our responsibility.
Ladies and gentlemen, the past two years have been one of
the most challenging periods in our history and the most challenging
in our careers.
But our success has served to give us the confidence to tackle
any challenge in the future.
We've taken a balanced approach to all aspects of our business.
Taking a balanced approach is how we out-performed our competitors
in the short and long term.
That's how we continue to provide good careers, and serve
our clients to the best of our abilities. While I have emphasized
the challenges we face in a changing business environment,
I would say the opportunities for RBC to expand its businesses
in Canada and globally have never been better.
We have many competitive advantages, including our financial
strength and the quality of our people and we'll put them
to work to create shareholder value.
I hope you share with me the optimism for our next phase
of growth, and I thank you for your confidence.
We have high expectations of our businesses.
And all of our 77,000 employees are committed to our vision
of "Always Earning the Right to be our Clients' First
I want to thank all our employees for their professionalism
and dedication along with my Group Executive team, for their
Finally, I want to thank all of our 18 million individual,
corporate and institutional clients— we will continue to
earn your trust by providing valuable advice to help you realize
1 Cash net income is a Non-Gaap
financial measure. Cash net income excludes the goodwill impairment
charge and the after tax impact of amortization of other intangibles.
See our Q4 2009 Earnings Release for more information including
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of risk factors could cause our actual results to differ materially
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These factors— many of which are beyond our control and the
effects of which can be difficult to predict— include: credit,
market, operational liquidity and funding risks, and other
risks discussed in the Risk, capital and liquidity management
section of our Q1 2010 Report to Shareholders and in our 2009
Annual Report; general business, economic and financial market
conditions in Canada, the United States and certain other
countries in which we conduct business; changes in accounting
standards, policies and estimates, including changes in our
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of changes in government fiscal, monetary and other policies;
the effects of competition in the markets in which we operate;
the impact of changes in laws and regulations, including tax
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the accuracy and completeness of information concerning our
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our strategies and to complete and integrate strategic acquisitions
and joint ventures successfully; and development and integration
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We caution that the foregoing list of
risk factors is not exhaustive and other factors could also
adversely affect our results. When relying on our forward-looking
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and others should carefully consider the foregoing factors
and other uncertainties and potential events. Except as required
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time to time by us or on our behalf.
Additional information about these and
other factors can be found in the Risk, capital and liquidity
management section of our Q1 2010 Report to Shareholders and
in our 2009 Annual Report.
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