Address to Shareholders
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Gordon M. Nixon
President & Chief Executive Officer
Royal Bank of Canada
143rd Annual Meeting of Royal Bank of Canada
March 1, 2012
Toronto, Canada
Good morning ladies and gentlemen, and welcome to your annual
meeting. I’m very pleased to share with you our Q1 results
as well as a brief review of our 2011 performance.
But first, I want to describe the context for our performance.
I think it’s important to do so because RBC’s success
– domestically and in the U.S., the U.K., and increasingly
in Asia – exemplifies Canada’s continued strength
and opportunities. These attributes of ours are truly striking
in a world where many industrialized countries are both succumbing
to and contributing to a pall on the global economy.
Looking south to our neighbour, while there are some early
signs that it may be on the mend, there are significant structural
issues that must be addressed. Nearly 13 million Americans
are out of work and the U.S. government is facing burgeoning
and unsustainable debt, a shift in its role in the world,
political paralysis and an approaching election that debates
some of the core values that Americans have about individual
rights and responsibilities.
And in Europe we’re continuing to see significant problems
– unemployment rates at record levels in many countries,
pervasive youth unemployment, and social unrest in the face
of tough choices and even tougher decisions.
We are monitoring the situation in Europe very carefully.
We are hopeful that the efforts to stabilize the Euro will
contain the current problems and avoid a disorderly break-up.
And we’re continuously reviewing possible Eurozone scenarios
to make sure we can respond to developments quickly.
Add the world’s economic challenges to the cauldron
of political, social and religious conflicts, and we have
a world in troubling times. And even here, in what is in my
view the best nation in the world to live, we have important
issues at various stages of brewing.
Fifteen minutes listening to a Canadian news channel gives
you a long list of challenges, including First Nations housing,
debate over oil and gas pipelines, retirement savings, pension
underfunding, higher consumer leverage, Canadian productivity
levels, and the challenges faced by immigrants in finding
jobs and securing wage equity. There are plenty of issues
and plenty of debate.
And regardless of one’s views on the Occupy movement,
it brought focus not only to the issue of income disparity,
but also to the squeeze being felt by the middle class. And
we in the business community must find ways to be part of
the solution to the social and structural issues or we will
be part of the problem.
However, in the face of all of this, I continue to hold fast
to my conviction that this is Canada’s decade. We have
shown ourselves to be a nation that is resilient, measured
and well managed; the kind of country that fostered one of
the strongest and most stable financial services industries
in the world.
We are a country described as rich in resources: and this
means much more than just oil and gas, minerals and forests.
It also means a highly skilled and educated population, and
one that offers employers diverse international perspectives
and insights thanks to a progressive immigration policy. It
means flourishing communities – where support for the
arts, for sports, for issues critical to our future well-being
like clean water and children’s mental health –
is provided by both citizens and corporations.
Overall, Canada’s reputation has grown – as a country,
as a safe place to invest, and as the home of a strong financial
services system. I travel a lot and I can tell you that being
from Canada has never been viewed more positively. Frankly,
it’s cool to be Canadian. In a world where global financial
institutions are deleveraging and many are heading home to
tend to their domestic operations, we are fortunate to be
from Canada.
It’s made the job of pitching RBC’s strengths to
prospective clients outside of Canada much more appealing.
RBC is a strong bank from a strong country. So despite the
global and domestic challenges, we can either view our glass
as half empty or half full. And I choose to see it as half
full.
We have used our domestic strength as a springboard and we
are not only the largest bank in Canada, but also the 10th
largest bank in the world by market capitalization. In addition
to size, we have strength, thanks to a well diversified business,
our strong capital base and our highly liquid balance sheet.
It’s this financial strength and our reputation for
integrity and stability that has allowed us to continue investing
for growth, even as regulatory changes and market volatility
have redefined the marketplace.
In this regard:
- We’ve continued to invest in new technologies to
meet changing client needs;
- We’ve used our scale to increase efficiency so we
can offer competitive pricing even in a low interest rate
environment;
- We’ve used our strong balance sheet to support our
clients, while many competitors have been unable to do so;
- And we also continued to attract top talent and a diverse
workforce to ensure we can meet our clients’ needs
with better understanding and advice.
Our results this quarter continue to demonstrate the strength
of our long-term strategy, based on generating approximately
three-quarters of our earnings from retail and the balance
from wholesale. Looking ahead and based on our long-term plan,
our retail platforms should deliver solid growth; and while
we expect the contribution from Capital Markets to continue
to be strong and also to grow, the percentage of our overall
earnings from wholesale is forecast to trend lower from the
mid to the low 20s. We believe this is the right mix not only
from an earnings perspective but also from a risk diversification
outlook.
I point this out because, as some of you may be aware, Moody’s
recently placed our long-term credit rating under review along
with 16 other firms simply because we are deemed to have significant
global capital markets activities. In our view, we are being
reviewed because of our profitability and success in this
business, rather than due to specific performance or risk
concerns.
Our credit rating and capital base are among the strongest
of all banks globally and over the past three years, Capital
Markets has been consistently profitable with high returns
– something that is not true of other large global banks
or even all other Canadian banks. The relative size of our
wholesale business is at the median of our Canadian peers
and well below the other large banks included in the review.
We look forward to discussions with Moody’s over the
review period to assist them in clearly understanding our
business today, and the steps we have taken over the past
few years to optimize our balance sheet, reduce risk and adapt
to structural and regulatory changes occurring in the market.
With respect to our strategy, we have stayed the course,
which is to build a universal bank in Canada with the number
one market position, and to selectively grow premier, globally
competitive businesses that serve corporate, institutional
and high net worth clients.
Our strategy has given us what many banks in the world do
not have today: flexibility. We can deploy our strong capital
in a number of ways to best serve our shareholders. We can
make further investments in our existing businesses to continue
advancing our leadership. We can repatriate capital through
share buybacks or dividends, as we have demonstrated. We could
also take advantage of economic turbulence and market dislocation
to make strategic acquisitions. We intend to find the right
balance among these options. This flexibility is an important
competitive advantage.
With respect to returns, over the medium term, we continue
to outperform our global peers on total returns to shareholders.
Our annual total shareholder return over five years ranks
us in the first quartile.
In 2011, we delivered record results from continuing operations.
This included record earnings in Canadian Banking, Wealth
Management and Insurance, and strong growth in our corporate
and investment banking business in Capital Markets. We continued
to extend our lead in Canada and selectively grow our presence
globally.
In 2011, we announced the sale of businesses that did not
meet our return hurdles, including our U.S. retail banking
operations. We made these decisions consistent with our commitment
to actively deploy our capital to where we can generate the
highest returns. In our capital markets business, we scaled
back some of our trading activities and invested in growing
our lower risk and less capital intensive investment banking
business.
I would also highlight that we were required to adopt International
Financial Reporting Standards starting in fiscal 2012, and
our comparative period results have also been provided in
accordance with IFRS. These new standards will help make our
results more comparable to other global financial institutions.
In 2011, we delivered record net income from continuing operations,
which were $7 billion for the year under IFRS. Diluted earnings
per share were $4.55, and return on common equity was 20.3
per cent.
On a continuing operations basis, we met or exceeded all
our medium-term financial objectives, and we increased our
quarterly dividend by 8 per cent.
On a consolidated basis, our results, again under IFRS, were
net income of $6.4 billion, diluted earnings per share of
$4.19 and return on equity of 18.7 per cent.
In 2011 our Canadian Banking group stood out for record earnings,
for growing overall volumes faster than any other Canadian
bank and for ranking number one or two in market share in
all consumer and business product categories. This business
won numerous awards for client service over the year and was
the first to launch fully integrated mobile banking applications
for all platforms. We will continue to invest in this business
to maintain the unparalleled advice and products we offer
to our individual and business clients.
RBC Wealth Management has grown to be the sixth-largest wealth
manager in the world by client assets, fifth in revenues and
fourth by profits. We continue to focus on profitable growth
in the U.S., where we are the sixth-largest full service wealth
manager, and on growing our business in the U.K. and Emerging
Markets. In Canada, we are the leading wealth manager by a
wide margin and are focused on extending our number one position
among high net worth investors, driven by our global capabilities
and collaboration across RBC. In addition, for the past eight
calendar years, our asset management business has exceeded
20 per cent of the industry net sales of long-term mutual
funds in Canada.
RBC Insurance delivered record earnings and a strong year
of business growth, and continues to win service awards from
customers and agents.
In the Caribbean we are undertaking an extensive reorganization.
We have a solid brand in the region and are building a strong
franchise to ensure we can take advantage of the long-term
opportunities in this business.
RBC Dexia Investor Services, our 50 per cent joint venture,
is a top 10 global custodian serving a diverse base of institutional
and corporate clients in 15 countries. This past year, RBC
Dexia continued to execute its growth strategy and broadened
its suite of products and services. This business is well
positioned to benefit from the long-term demographic trends
that point to growth in wealth management around the world.
We remain committed to the Investor Services business, which
is very complementary and fits with our long-term strategy.
As has been previously reported, we continue to have discussions
with our partner and we hope to conclude negotiations soon.
Our Capital Markets business ranked 11th in the world by
fees, up from 14th last year. For the second year in a row,
we were named the number one team for Canadian Equity Research,
and we were named the top firm in Canada for debt and equity
underwriting combined by the National Post. North America
represents the vast majority of our business. Our past investments
in our U.S. business are paying off, and we successfully expanded
our sector coverage, corporate loan book, client relationships
and mandates. Globally, our investment banking team continued
to gain market share and win significant mandates across geographies.
Outside of our domestic market we focus in areas where we
have competitive strengths, including global mining, energy
and infrastructure. In Europe, we continue to win awards for
our credit, foreign exchange and infrastructure businesses.
Turning to the first quarter results we released this morning,
we had a very strong start to 2012 with first quarter earnings
from continuing operations of over $1.8 billion, up 17 per
cent over last quarter.
We had a record quarter in Canadian Banking with earnings
of nearly $1 billion dollars as well as strong results in
Capital Markets and continued strength in Insurance and Wealth
Management.
We generated a strong Tier 1 capital ratio of 12.2 per cent,
and a Tier 1 common ratio of 9.6 per cent.
I am also pleased to report that today, we announced a 3
cent or 6 per cent increase to our dividend, bringing the
quarterly dividend to 57 cents a share.
Our outlook for RBC in the year ahead is optimistic. We are
confident that RBC has positioned itself well to grow and
prosper through a challenging environment.
In Canadian Banking, we want to continue outgrowing the industry
by a 25 per cent premium. We are leveraging our distribution
network and mobile sales force – the largest in the country
– to continue cross-selling and taking advantage of our
scale to reduce costs and improve efficiency.
We are investing in new digital solutions and advice channels
so that we remain an unmatched resource for financial advice
and solutions. This includes our retail store concept, which
provides a new way of delivering banking through a hybrid
of best-in-class retail shopping and financial services.
There has been a lot of attention lately on housing prices
and consumer debt in Canada. We analyze this very closely
and continually stress test, and we are comfortable with our
retail portfolios. Overall, we believe the Canadian housing
market continues to fare reasonably well. The annual housing
price appreciation over the last several years is within the
historic long-term range, housing affordability remains at
reasonable levels in most markets, and we are confident in
our underwriting standards.
With respect to consumer leverage, while the absolute number
appears high by historical standards, it is important to note
that consumer debt service ratios are again within our historical
and normalized range, and clearly indicate that our clients
have the capacity to service these debt levels. We continue
to monitor these issues closely.
Wealth Management still faces some headwinds caused by the
markets and continued low interest rates, but is very well
positioned to execute its growth strategy in Canada, the U.S.,
the U.K. and Emerging Markets.
In Insurance, we continue to deliver industry-leading service
and a wide range of products to meet our clients’ needs.
Insurance is a growth business that is becoming a significant
part of our overall retail offering and diversifies our earnings.
In International Banking, we are strengthening our franchises
to take advantage of attractive long-term potential returns.
We expect the sale of our U.S. retail banking operations to
close tomorrow. We have launched a new cross-border platform
to continue to meet the U.S. banking needs of Canadians and
this also provides us with a good platform for growth.
RBC Capital Markets is well positioned to win business as
we take advantage of our strong balance sheet and financial
stability to add more client relationships and increase mandates.
We continued to add quality names to our loan book, and our
investment banking pipeline remains strong.
In short, we enter 2012 well positioned to grow our earnings
and take advantage of opportunities while ensuring we are
managing risk. And we’re off to a good start.
Regarding regulation, I would like to state once more a conviction
I have voiced since the financial crisis began four years
ago. While ensuring a safe and secure global banking system
is a critical objective, it’s not appropriate to paint
all banks with the same brush. There are significant differences
in performance, governance and risk management.
Regulating to the lowest common denominator means that all
banks and all markets will pay for the mistakes made in certain
jurisdictions and by specific institutions; that all companies
and industries will see their access to capital diminished;
and that all consumers will be burdened with the ultimate
costs. Financial services companies are in the business of
managing risk: it is at the core of what we do. Some banks
and some jurisdictions do it better than others. Avoiding
the costs of yesterday’s bad decisions by shackling all
banks’ ability to create value through their capital
and expertise can mean new costs and new risks to the world’s
economic recovery.
An example of this is the Volcker Rule. We share the significant
concern that this legislation could negatively impact Canadian
markets, including the ability of corporations to access capital,
and for both Canadian financial institutions and Canadian
governments to effectively manage their liquidity and funding
requirements. That kind of extraterritorial reach simply should
not be within the span of control of other regulators.
The rules as currently laid out will also have serious unintended
consequences for all foreign banks operating in the U.S.,
and in my opinion will ultimately adversely affect U.S. capital
markets and economic growth.
In addition, I believe that the new Basel rules, while well
intended, will have consequences that may increase rather
than decrease systemic risk. It is extremely important that
we don’t look back in the years to come and realize that
regulatory policy served as an obstacle and de-stabilizer
rather than a facilitator and source of financial strength.
It’s important that we take a leadership role on these
issues. We will continue to actively work with governments
and regulators because we do support financial reforms. We
do need to create better transparency, stronger capital and
liquidity standards, reduced risk and enhanced financial stability.
But we also need policies that continue to support capital
flows and economic growth, and avoid creating unfair disadvantages
for some jurisdictions.
And finally, more focus should be placed on national, market
and individual bank regulation, a formula that has worked
effectively in our country.
One thing is for certain. The banking industry is moving
forward in a new environment that will require banks to adapt
– one characterized by greater regulation, a more challenging
economic period, and likely low interest rates. But, we are
confident RBC is well positioned to succeed.
Strong banks like RBC will adapt to the new rules, seize
on new opportunities, and earn superior rates of return.
We have set high standards for ourselves, not just in terms
of strategic growth goals and financial performance, but also
as a corporate citizen. We focus on supporting issues where
we can make a meaningful, long-term impact.
We know that our clients and communities also expect this
from us. They expect the companies they buy from to be visible
corporate citizens. We will continue to work hard to meet
this expectation.
You’ll see behind me the highlights from RBC’s
membership on global sustainability indices and lists, as
well as the recognition we’ve received as an employer
of choice. Our high employee engagement is a continued driver
of our success.
In 2007, RBC created the RBC Blue Water Project. We are now
in the fifth year of a $50-million donation program to help
ensure people have access to clean and fresh water.
The RBC Children’s Mental Health Project has provided
almost $10 million since 2008 to organizations dedicated to
providing early intervention, increasing public awareness
and reducing the stigma of mental illness.
And I am very proud of our recent launch of the RBC Impact
Fund, which will provide $10 million in capital to help finance
projects by organizations and entrepreneurs tackling social
and environmental challenges. It’s our hope that this
fund will inspire other organizations to make similar investments,
and in doing so, contribute to the next wave of innovation
and productivity growth.
Our consistent outperformance, our commitment to corporate
citizenship and the communities where we live and work, and
the unwavering client focus of our employees have combined
to build our brand and spur our growth.
In Canada, we were named Brand of the Year by Strategy magazine
and Most Valuable Brand in Canada by Brand Finance. Our brand
is increasingly an advantage for us outside Canada. In today’s
environment, we are seeing increased opportunities as clients
are reconsidering traditional banking relationships, and are
attracted to the strength, stability and integrity of RBC.
Our brand is not a logo or an icon. It is the people who
stand behind our promises and represent RBC every day. These
are the 74,000 knowledgeable, client-focused and committed
employees who help us earn the right to be our clients’
first choice. They differentiate RBC as an exceptional source
of advice for clients. Our shared values of service, teamwork,
responsibility, diversity and integrity help guide our behaviours
and decisions, inspire us to lead in diversity and inclusion
and define what it means to be a responsible corporate citizen.
On behalf of our Board of Directors and my colleagues on
the executive team, I would like to thank all of our employees
worldwide for their strong performance and hard work in 2011.
I also want to thank our 16 million clients for trusting us
with an increasing amount of their business. And to our shareholders,
our thanks for your continued confidence and support.
I am honoured to work with all of you to make RBC a company
we can be proud of.
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June 1, 2012 by visiting the Royal Bank of Canada ("we"
or "our") website at [www.rbc.com/investorrelations/ir_events_presentations.html.]
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CAUTION REGARDING
FORWARD-LOOKING STATEMENTS
From time to time, we make written or
oral forward-looking statements within the meaning of certain
securities laws, including the "safe harbour" provisions
of the United States Private Securities Litigation Reform
Act of 1995 and any applicable Canadian securities legislation.
We may make forward-looking statements in this Annual Meeting
of Common Shareholders presentation, in other filings with
Canadian regulators or the SEC, in reports to shareholders
and in other communications. Forward-looking statements in
this presentation include, but are not limited to, statements
relating to our strategic goals, the economic forecast, and
the 2012 outlook for our business segments. The forward-looking
information contained in this presentation is presented for
the purpose of assisting the holders of our securities in
understanding our financial position and results of operations
as at and for the periods ended on the dates presented and
our strategic goals, and may not be appropriate for other
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By their very nature, forward-looking
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to inherent risks and uncertainties, which give rise to the
possibility that our predictions, forecasts, projections,
expectations or conclusions will not prove to be accurate,
that our assumptions may not be correct and that our financial
performance objectives, vision and strategic goals will not
be achieved. We caution readers not to place undue reliance
on these statements as a number of risk factors could cause
our actual results to differ materially from the expectations
expressed in such forward-looking statements. These factors
- many of which are beyond our control and the effects of
which can be difficult to predict - include: credit, market,
operational, and liquidity and funding risks, and other risks
discussed in the Risk management section of 2011 Annual Report
and in our Q1 2012 Report to Shareholders; general business,
economic and financial market conditions in Canada, the United
States and certain other countries in which we conduct business,
including the effects of the European sovereign debt crisis
and the lowering of the U.S. long-term sovereign credit rating
by Standard & Poor's; changes in accounting standards,
policies and estimates, including changes in our estimates
of provisions, allowances and valuations; the effects of changes
in government fiscal, monetary and other policies; changes
to and new interpretations of risk-based capital and liquidity
guidelines; the impact of changes in laws and regulations,
including relating to the payments system in Canada, consumer
protection measures and the Dodd-Frank Wall Street Reform
and Consumer Protection Act and the regulations issued
and to be issued thereunder; the effects of competition in
the markets in which we operate; our ability to attract and
retain employees; judicial or regulatory judgments and legal
proceedings; the accuracy and completeness of information
concerning our clients and counterparties; our ability to
successfully execute our strategies and to complete and integrate
strategic acquisitions and joint ventures successfully; development
and integration of our distribution networks; and the impact
of environmental issues.
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
statements to make decisions with respect to us, investors
and others should carefully consider the foregoing factors
and other uncertainties and potential events.
Except as required by law, we do not undertake
to update any forward-looking statement, whether written or
oral, that may be made from time to time by us or on our behalf.
Additional information about these and
other factors can be found in the Risk management and Overview
of other risks sections of our 2011 Annual Report and in the
Risk management section in our Q1 2012 Report to Shareholders.
Information contained in or otherwise
accessible through the websites mentioned does not form part
of this presentation. All references in this presentation
to websites are inactive textual references and are for your
information only.
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