Address to Shareholders

Gordon M. Nixon
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 Meeting.

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 success.

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 policy.

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 year.

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 retail franchise.

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 institutions.

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 effectively.

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.

Canada overview

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 offerings.

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 division.

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 region.

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 global reach.

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 strategy.

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.

Corporate Responsibility

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.

Conclusion

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 relationships.

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 long term.

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 company.

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 in RBC.