Address to Shareholders
President & Chief Executive Officer
Royal Bank of Canada
142nd Annual Meeting of Royal Bank of Canada
March 3, 2011
Good morning ladies and gentlemen, and welcome to your annual
The first decade of this century is now over, and it appears
to have taken its cue from the well-known curse, May you
live in interesting times. And indeed, our decade began
with strong economic growth and soaring markets, and it ended
in the context of a global financial crisis, one that has
crippled many national economies the world over and destroyed
significant wealth. And while the global economy is showing
improvement, there remain significant structural challenges,
particularly in the United States and Europe.
But Canada's performance has been stronger than most as a
result of both good management and a little luck.
- We live on the second largest territorial mass in the
world, rich with natural resources;
- With 34 million people - which puts us in the lowest decile
of population density in the world - Canada ranks amongst
the highest in terms of immigrants per capita. This gives
us a strong foundation for growth, particularly as our population
- Our housing market has held up well, with prices five
per cent above their pre-recession peak, compared to the
U.S., which remains 30 per cent below;
- Financial markets and economic conditions are improving,
and the employment rate is expected to get better.
Thanks to our strong economic policies and our sound banking
system, the World Economic Forum considered Canada to be one
of the bright spots during the recent recession.
So while many countries today face a takeaway decade, I believe
that Canada has the possibility of a breakaway decade.
I see many unique assets in our country driving our success
-- economic resilience, good governance, standard-setting
social values and our conservative fiscal nature. But while
we should be proud of our success, we cannot be complacent.
Notwithstanding our strong economic performance, our competitive
position in a globalizing world has slipped and raises concern
over our ability to continue to outperform. A country's standard
of living will increasingly depend on its productivity, which
in turn depends on a country's success in innovation and Research
and Development. Our economic success still remains rooted
in natural resources more than in innovation and the knowledge
economy. Slowly, we must re-adjust this balance.
Both the government and corporations have a major role to
play in ensuring economic success and productivity improvement
and we, in the business community, must take advantage of
our preferred position to enhance both our productivity and
In addition, while our governments have done a good job on
the fiscal front, we have recently seen government deficits
grow, particularly at the provincial level, and I would strongly
caution that we not give up the benefits of our fiscal responsibility
which has been a key differentiator for Canada. While we had
to respond to the global recession, we must ensure we get
the balance right between spending, tax competitiveness, investment
and fiscal prudence. It is not easy but we must only make
promises to future generations that we can keep, and if we
can maintain global leadership in fiscal prudence it will,
in the long run, be a great differentiator in terms of economic
success and financial flexibility.
If we can capitalize on our relative strength to enhance
productivity, while at the same time remaining focused on
returning to fiscal balance, our country will be in an enviable
And, just as I believe Canada could be at the beginning of
a breakaway decade, I see the same for RBC. I am also proud
of how the Canadian banking industry and our organization
navigated these turbulent times, and I was pleased by the
degree to which the global crisis ended up building both Canada's
and RBC's international reputation.
As the largest bank in one of the most fiscally responsible
countries in the world, RBC is uniquely positioned to take
advantage of our success to invest in future growth.
This morning I would like to share with you our performance
and outlook, our plans for continued leadership in Canada
and global expansion, and our continued commitment to corporate
and social responsibility.
While 20 years ago, an investment in one Canadian bank was
arguably only marginally different than investing in another,
today that is not the case. Canada's banks' strategies are
RBC's growth strategies have produced total shareholder returns
that have outperformed the TSX Bank Index and materially increased
our presence and potential in the global financial markets.
RBC is the largest Canadian bank and in the top 15 globally.
In addition to our powerful Canadian banking business, we
have established leading global franchises in Wealth Management
and Capital Markets and have other regional businesses that
provide a sound platform for growth.
This year we revisited our three strategic goals to better
articulate our growth opportunities.
First, we're committed to remaining the undisputed leader
in financial services in Canada.
Second, we're determined to be a leading global provider
in both wealth management and capital markets.
Third, in targeted markets, we're focused on being a leading
provider of select financial services complementary to our
These goals are all about seizing significant opportunities.
RBC is committed to maintaining a diversified business mix,
and one of our basic tenets is to maintain a balance between
retail (which includes banking, wealth management and insurance)
and wholesale (primarily capital markets) of approximately
75 per cent to 25 per cent. This principle reflects the fact
that each of our businesses behaves differently at a given
point in the economic cycle, but together, with the right
mix, we can better achieve our goals for shareholder returns.
We are also well diversified across geographies and clients,
which contributes to earnings stability and risk diversification.
Our diversification strategy paid great dividends during the
past decade, and as a result we have experienced low earnings
volatility compared to our peers.
Our risk management processes have been well tested in recent
years, and I was pleased with how well they mitigated our
exposure to the collapse of the CDO and other markets in the
U.S., and to the sovereign debt crisis in the Eurozone. We
have continued to manage our balance sheet aggressively to
reduce complexity and risk.
We're one in a short list of global banks with strong capital,
low leverage, high credit ratings and significant liquidity
- and in today's environment, this represents a real competitive
But we acknowledge that simply having a lot of capital and
being Canadian does not make a bank safe. There is no substitute
for good judgment and even within Canada there has been great
variation in relative performance of financial firms through
the crisis. Recognizing that our strength and stability ultimately
come down to the decisions made by RBC employees, we've worked
hard to foster a strong risk management culture, where shareholder
value, client value and integrity are ingrained in our philosophy
and our business processes.
It's people who build strong countries, vibrant communities
and great companies. At RBC, our greatest assets enter and
leave our offices every day. We are fortunate to have the
best and the brightest serving our clients, working together
to deliver on our strategy, and creating value and growth
for our shareholders.
Behind all the numbers that measure our performance is a
culture based on strong values, where we stress service, teamwork,
responsibility, diversity and integrity. Our people put into
action every day our vision to always earn the right to be
our clients' first choice.
In return, RBC takes our responsibility to our employees
seriously. We invest in recruiting outstanding people, building
their knowledge and skills, and providing a flexible and rewarding
work environment in which to learn and grow. It's an investment
that's given us a talent base that is second to none, and
that's established RBC as an employer of choice. I'm proud
that in this past year, RBC was recognized as a leading employer
in Canada, the U.S. and the U.K.
In 2010, we were particularly gratified to win the global
Catalyst Award for our commitment to diversity and inclusion.
Having a diverse workforce and diverse leaders allows us to
understand our clients better, and helps to generate innovative
ideas and solutions.
I'd like to thank our 80,000 employees who serve 18 million
clients in more than 50 countries. You are the brand and you
deliver our brand promise every day.
In fiscal 2010, RBC delivered net income for the year of
just over $5.2 billion, up 35 per cent from the prior year
and on a normalized basis, 10 per cent. It was a year in which
we delivered on our internal plan, notwithstanding the fact
that we did not meet the lofty expectations of the marketplace.
We like the market to have high expectations of RBC as we
certainly have them for ourselves, but we had anticipated
a pull back in capital markets activities and a slower than
expected recovery in the U.S. credit markets. Having said
that, we ended the year with all of our businesses well structured
and well positioned for future growth and we are off to a
strong start in 2011.
Our year-end Tier 1 capital ratio of 13 per cent and Tier
1 common ratio of 9.8 per cent, coupled with our low leverage,
reflect the strength of our balance sheet and capital position.
These ratios, along with our credit ratings, are among the
highest of financial institutions globally.
Approximately two-thirds of our revenues came from our businesses
in Canada in 2010. The largest business is personal and commercial
banking. Here, we're seeing very positive results from our
focus on advice, service, convenience, and value for money.
In addition to record earnings, this business gained market
share and held a first or second market position in every
business. In fact, over the last five years, our retail earnings
growth has significantly outpaced that of our competitors.
One key driver of this is increased customer satisfaction,
which is currently at an all-time high. And we're continuing
to invest to improve it further. For example, during the year
we unveiled our new retail store, which transforms the branch
experience into an interactive learning and shopping opportunity.
We also continue to make investments to improve our processes
and client experience and are being recognized and rewarded
for this investment.
Wealth Management also had a very successful year. The business
extended its number one market position in Canada in wealth
and asset management, and continued to climb the rankings
as a leading global wealth manager.
This is a very attractive business for us for many reasons.
We have a clear competitive strength, we rank first in Canada,
we're the sixth largest full-service brokerage firm in the
U.S., and we're a top 10 global player. The business also
has low capital requirements and can grow organically, and
there are many opportunities to work with capital markets
and banking for our clients' benefit.
Last year, we announced the acquisition of BlueBay Asset
Management in the U.K., which bolsters our global asset management
business and adds fixed income capability in the U.K. and
Europe. We also acquired the wealth management business of
Fortis in Hong Kong.
Our insurance business complements our retail banking offering
and contributes sizeable and stable earnings. RBC has the
largest bank-owned insurance company in Canada, with strong
growth in new sales. During 2010, we expanded our retail insurance
network to 52 branches, which positions us well for future
growth. We continued to improve our profitability, we deepened
our client relationships and we simplified the way we do business.
International Banking includes RBC's banking business in
the U.S. and the Caribbean, as well as our 50 per cent interest
in RBC Dexia, which offers global custody and investor services.
2010 results in International Banking were somewhat disappointing,
as our U.S. retail bank continued to be affected by weak economic
and credit conditions. There is a significant amount of work
underway to restore operating performance at RBC Bank and
we are making good progress. We are actively managing our
loan portfolio, restructuring retail operations and improving
Our Caribbean bank and RBC Dexia made positive contributions
and both are well positioned franchises. RBC Caribbean is
one of the largest banking networks in the region, and we've
made solid progress in improving the client experience, implementing
new technology and leveraging the strengths of the broader
RBC Dexia remains a top-10 global custodian and in 2010 won
a number of international awards, including European Transfer
Agent of the Year, European Client Relationship Manager of
the Year and European Custodian of the Year.
RBC Capital Markets is Canada's only truly global investment
bank. During the year, we maintained our leadership position
in Canada and advanced our standing in markets around the
In Canada during 2010, our awards and recognition included
Dealmaker of the Year, Best Investment Bank, excellence in
Canadian equity research, and the number one ranking in debt,
equity and M&A.
In the U.S., where we have a sizeable franchise that has
doubled over the past three years, 2010 saw us increase market
share and win key mandates for both mid-cap and large-cap
companies. We continue to grow our global trading business
but also rebalanced our businesses with a much higher percentage
of earnings coming from investment banking, which carries
lower levels of risk capital and volatility.
In Europe, we broadened our investment banking, equity and
research businesses. Of particular note is our trading business,
which received many top rankings from institutional investors,
including the Best Bank for Fixed Income electronic trading.
We now have primary dealer status in Canada, the U.S., the
U.K., Australia, Germany, France and the Netherlands - making
us one of very few firms in the world with such a broad geographic
reach of primary dealer capabilities.
Turning to the first quarter, we had an exceptional start
We delivered record net income of $1.84 billion, up 23 percent
from the same period last year. Diluted earnings per share
for the quarter were $1.24, up from $1.00 last year, and return
on common equity was 20.3 percent, up from 17.5 percent.
These strong earnings were driven by record results in Canadian
Banking, Capital Markets and Wealth Management, strong performance
in Insurance and significant improvement in International
Banking which reported positive earnings for the quarter.
Our growth across businesses and geographies demonstrates
the strength of our diversification.
Much of this strong performance can be traced back to the
groundwork we have laid in building our domestic and global
businesses. We have enhanced our leadership position in Canada
and used this strength to build our global franchise.
Over the past two years we have also taken steps to de-risk
our balance sheet and this quarter took further action to
eliminate accounting volatility and improve liquidity.
All in all, an outstanding quarter across each of our businesses.
Looking ahead, I am confident that both our organization
and our country are extremely well positioned for long-term
growth. But while we have done well through the crisis, the
global economic recovery remains fragile.
We still have a relatively high unemployment rate, particularly
in certain regions and sectors. Many older Canadians have
had to postpone their retirement in the wake of market losses.
Business owners face tough decisions, weighed down by uneven
consumer confidence, high production and energy costs and
a strong dollar.
There is also concern about rising debt levels in Canada,
with our ratio of household debt to disposable income now
at a record high, with recurring worries about rising interest
rates putting further pressure on homeowners. In addition,
there are continued risks from the European sovereign debt
crisis, massive structural imbalances in the United States
and rising geopolitical unrest in many parts of the world.
So, what are Canadians to make of these global uncertainties?
Families, retirees and business owners are asking: "Should
I be spending, which would help drive economic growth? Or
should I be saving, because the rainy days aren't over?"
These are important issues to the millions of Canadians who
rely on RBC. I'm proud that RBC is making a difference in
the lives of our clients by providing expert advice - advice
they can use, advice to help them realize their goals - advice
they can bank on.
These are also important issues to RBC as we go about implementing
our growth strategies. We know that while we have delivered
strong results and see exciting opportunities for further
expansion, the future presents new challenges - more aggressive
regulation, an extended period of low growth in developed
economies, higher costs across the industry and the fallout
from the inevitable restructuring of fiscal imbalances in
the United States and Europe. I can assure you that we are
managing the bank to take advantage of growth opportunities
but properly balance risk and reward in what is likely to
be a tumultuous decade.
Given the degree of regulatory reform being discussed and
implemented in our industry these days, I wanted to bring
your attention back to the curse May you live in interesting
times. It has a companion that seems particularly appropriate
for banks today. It goes as follows: May you come to the attention
of those in authority. Well, once again keeping my superstition
in close check, regulatory reform is among the top issues
in global financial services today, and it will force many
banks weakened by the crisis to dramatically reshape their
market activities and growth opportunities.
I can't tell you what the regulatory landscape will look
like, but I do know that more regulation is not the solution
we need smarter regulation. That's why RBC is working
with governments, regulators and legislators to discuss and
share our views on the impact of new rules.
The Canadian government has worked successfully in the past
year to make the case for smart regulation - and by this I
mean regulation that ensures stable financial markets without
hindering economic growth. Our government, our central bank,
and our regulators deserve congratulations for their work
with the G20. They successfully argued against a global bank
tax and helped clarify key Basel III proposals. They made
the case for appropriate capital ratios and timelines to ensure
Canadian bank shareholders and customers will not pay for
mistakes made in other jurisdictions. It is my continued hope
that these reasoned perspectives will influence the achievement
of uniform and balanced regulation around the world.
But the cumulative impact of the regulatory burden is enormous.
Proposed regulation, particularly Basel III, is resulting
in significant confusion in the market place and impacting
business activity across institutions. Its complexity, inconsistent
interpretation and conflicting implementation schedule between
jurisdictions have implications for the marketplace and economic
One of the biggest risks we face in Canada is that we push
regulation so far ahead of other countries, we end up not
only with an uneven playing field but with a real cost to
Canadians in the form of compromised ability to grow and compete.
Canada cannot afford a significantly higher cost of capital
than other countries and frankly, why should we, given our
strong relative performance during the economic crisis.
In addition, risk is being pushed outside of the regulated
system to the shadow banking system, which is hardly a way
to reduce the risk of future crisis. And rules that are designed
to push banks in a certain direction and influence business
mix will, in my view, reduce diversification and innovation
and actually increase systemic risk.
Increased regulation of banks is extremely important but
we must get the balance right. It is important that we not
rely solely on bank regulation to avoid future crises but
also focus on governance, management and proper oversight
of national markets and individual institutions.
While the costs of a new regulatory regime are not yet fully
known, what I can assure you is that we are comfortable that
we can exceed the new Basel III capital requirements without
shifting our strategic focus. To reduce the pressure on returns,
we will continue to find ways to reduce our discretionary
costs and permanently reduce our traditional cost base through
process and technology improvements. We are also working to
significantly differentiate our value to customers and increase
our market share so that we can continue to build shareholder
The global financial crisis and its aftermath have exposed
the divide between banks that were poorly managed, over-leveraged
and under-capitalized, and banks that were well-managed and
well-capitalized. Our objective is to take advantage of this
opportunity - and we will.
Our wealth management and capital markets businesses have
become global players and we have built strong franchises
with global competitive advantages. We remain optimistic that
our core domestic businesses, in which we continue to invest,
can deliver strong growth and enhanced productivity, and that
we can build our other regional franchises and generate strong
returns. In a tumultuous world, we are excited and remain
optimistic about all of our businesses and the opportunities
These opportunities extend beyond our role as a financial
services company to include our role as a corporate citizen.
We have responsibilities to the communities in which we do
business, and to the larger world, and we take those responsibilities
Our RBC Environmental Blueprint outlines how we will reduce
our footprint, lend responsibly and provide 'green' products
and services to our clients. We've worked hard to make a difference
and are deeply gratified at being named one of Canada's Greenest
Employers and one of Canada's 50 Most Socially Responsible
Corporations. We also won the GLOBE Corporate Award for Environmental
Excellence, recognizing our achievement in environmental stewardship
Our environmental commitment is not just theory. Many of
our clients are active in the extraction of natural resources
- an industry with significant impact on Canada's economic
welfare. Our clients work hard to manage the social and environmental
impacts from their operations. We are proud to be partners
and advisors to them, and recognize their contribution to
job creation, responsible development, and technology innovation.
In 2010, we updated our environmental policies governing
how we do business with large corporations, including natural
resources companies. Our new Environmental and Social Risk
Management Policy is an evolution of RBC policies on the environment
for the past 20 years, and it focuses on environmental and
social issues in corporate lending and underwriting activities.
It requires us to assess our clients' impact on air, land
and water as well as their consultation with nearby communities
and, in particular, aboriginal peoples. This policy formalizes
and extends our process for balancing social and environmental
impact with financial and economic impact.
Another responsibility we take seriously is our contribution
to the communities we serve. RBC is one of Canada's largest
corporate donors and an active sponsor of community events.
We have a long legacy of employee involvement in all parts
of the world where we do business. Our sponsorship of the
Vancouver Olympic and Paralympic Winter Games and the Torch
Relay was a high point of 2010 and hundreds of our employees
volunteered. This event united the country in a way I've never
seen and reinforced my pride in being a Canadian.
While an economic crisis is never good news for the charitable
sector, we, along with many other Canadian companies, stepped
up our support during the downturn. During 2010, RBC invested
more than $100 million in community sponsorship and charity,
including $56 million in donations to communities worldwide
to support partnerships in children's mental health, after
school programs, and United Way campaigns - just to name a
One of our important causes is the RBC Blue Water Project,
a 10-year global commitment to help protect the world's most
precious natural resource. Water has been our global cause
since 2007, and the issue has gained terrific momentum both
within RBC and in the communities around us. We want to do
what we can to keep the issue of fresh water front and centre,
and engaging our employees, clients, suppliers and peers can
make a real difference.
As my colleagues and I look ahead, we have an eye on the
challenges but a focus on the opportunities.
Notwithstanding my words of caution, it's time to assure
that we take advantage of what has gone right. Now is the
time to act decisively to shape and share the rewards of Canada's
breakaway decade and I am extremely excited about RBC's position.
Thank you, RBC employees around the world, for working so
hard to our serve clients well, and for doing so with integrity.
I would also like to thank Barb Stymiest, who has made a
significant contribution to RBC, and has decided to retire
in June. Barb has been a key member of my Group Executive
team, and a valued partner and friend and I would like to
thank her for her dedication and support.
I also extend gratitude to our board of directors for their
active involvement in guiding the company, and our management
team for their support, hard work and commitment.
And to you, our shareholders, we appreciate your continued
confidence. We look forward to delivering on our strategy
to generate the strong long-term results that you have come
to expect, and that we demand of ourselves.
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risk factors is not exhaustive and other factors could also
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