Address to Shareholders
President & Chief Executive Officer
Royal Bank of Canada
137th Annual Meeting of Royal Bank of Canada
March 3, 2006
Good morning ladies and gentlemen, and welcome to your Annual
Meeting. It is a privilege for me to report on our 2005 performance
as well as our plans for 2006 and beyond.
I'd like to begin by telling you how proud I am of what we
have achieved over the past year in transforming our company
and advancing our corporate vision of "Always earning
the right to be our clients' first choice."
This transformation began in 2004, a year in which we fell
short of some financial objectives despite record performances
from four of our five businesses. In order to improve our
performance, two issues in particular had to be addressed.
The first involved the operations of our U.S. banking business,
and I will address our progress on this front later. The second
issue involved the amount of bureaucracy, process and territorial
issues that were getting in the way of what our employees
do best — serving clients.
The impact of these issues was that revenue growth was slowing
while our cost base was not and, therefore, our operating
leverage was not where we wanted it to be. As an organization
we had to re-invigorate and sharpen our focus on providing
the highest quality products and service to our customers
if we were to maintain the strong returns our shareholders
have come to expect. We acknowledged that to build on our
strengths we had to better align all parts of the organization,
streamline processes, reduce bureaucracy and find new ways
As a result, we made significant management, cultural and
structural changes across RBC, and launched the "Client
First Initiative." The most critical elements of "Client
First" include a broad series of revenue, expense management,
and client service initiatives.
At the beginning of 2005 we re-organized our five business
segments into three to better align our products and services
around the customer. In addition, we centralized all the activities
supporting these businesses, such as finance, treasury, audit
and law, into a single global functions group, and we consolidated
our technology and operations capabilities at the enterprise
By streamlining our processes, we have been able to eliminate
approximately 2,000 positions and reinvest in our front-line
capacity where we have added resources and expanded our distribution
channels. We have enhanced our product offerings, divested
non-strategic operations, and made significant changes to
our senior management. And we have become more focused on
delivering better solutions and quality service to our clients.
All of these initiatives contributed to RBC's strong financial
performance last year.
In fiscal 2005, our employees delivered record net income
of nearly 3.4 billion dollars, an increase of 21 per cent
from the previous year. This solid earnings growth reflects
the strong performance turned in by each of our three business
In RBC Canadian Personal and Business, net income was up
261 million dollars or 13 per cent, due to strong revenue
growth in all business lines. In RBC U.S. and International
Personal and Business, net income was up 176 million dollars
or 78 per cent, reflecting strong earnings growth in our banking
and wealth management operations. Reported earnings in RBC
Capital Markets were down; but if we exclude the after-tax
charge of 326 million dollars established as a reserve for
our Enron litigation — which was unrelated to last year's
activities — net income would have exceeded 1 billion dollars
for the first time, a substantial increase over a year ago.
In summary, each of our business segments had strong underlying
performance in 2005 and made solid contributions to net income.
We generated strong revenue growth, delivered good expense
control and benefited from the diversity of our businesses.
As a matter of interest, excluding the aforementioned reserve,
we generated close to 1 billion dollars of net income after
tax from our continuing operations outside of Canada last
year, roughly split between the U.S. and international operations.
And finally, we met or exceeded most of our performance objectives,
which Barb Stymiest, our Chief Operating Officer, will address
following my remarks.
In terms of shareholder value, our common share price increased
by 31 per cent and we raised dividends three times in 2005,
resulting in a total shareholder return in excess of 35 per
cent. As this slide shows, over the past 5 and 10 years, our
returns have significantly outperformed the top U.S. and international
So as shareholders, you have done well; but that is history,
and our responsibility as management relates to future performance.
So, I'd now like to spend a few minutes talking about the
strategies and goals we have in place to capitalize on the
solid momentum we have created over the past year.
In 2006, we plan to build on our three strategic goals established
With respect to our first strategic goal of leadership in
Canada, we strengthened our positions and increased our market
shares in most personal and business products during 2005.
We also had a strong year in our Capital Markets business,
where we earned the "Dealmaker of the Year" title
from the Financial Post, and the Canadian Debt and Equity
House of the Year award from Euromoney's Awards of Excellence.
In terms of our second strategic goal of building on our
strengths in the United States, we divested two non-strategic
assets in Liberty Insurance Services and RBC Mortgage Company,
to focus on our core businesses of banking, wealth management
and capital markets. As I said earlier, we experienced operational
issues and disappointing earnings at RBC Centura in 2004.
A significant part of that was in the mortgage business that
we exited, and we are now more focused on high-growth client
segments such as businesses, business owners, professionals
and commercial clients. This has resulted in strong growth
of both consumer and commercial loans and deposits, and has
contributed to a significant improvement in RBC Centura's
On the brokerage front, RBC Dain Rauscher grew its fee-based
assets by 24 per cent, and in partnership with Global Private
Banking, introduced the RBC Premier Line of Credit to meet
the complex needs of its high net worth clients. By fiscal
year-end, we had approved over 470 million dollars in credit
lines with this product.
At RBC Capital Markets, we made considerable progress in
building a mid-market client base in the U.S., particularly
in energy and real estate. We were co-lead manager and joint
bookrunner for the largest equity financing of any U.S. independent
oil company, and ranked 6th in senior managed transactions
in the U.S. municipal league tables.
With respect to our third strategic goal of being a premier
provider of selected global financial services, we achieved
a number of significant milestones. We merged the fixed-income
business of Dain Rauscher with that of RBC Capital Markets,
which raised our visibility among clients as a bank with significant
global fixed income capabilities. We also announced a joint
venture of our custody business with Dexia Bank International
to form RBC Dexia Investor Services. This transaction closed
in January of this year, and the combined company ranks among
the world's top 10 global custodians.
In Global Private Banking, we opened representative offices
in Brazil, California and Texas, and acquired Abacus Financial
Services in the Channel Islands. This acquisition increased
assets under administration in Global Private Banking by 48
billion dollars. The combination also brought together two
organizations with a strong focus on customer service, with
Abacus and RBC ranking first and second in a recent Euromoney
survey of the best providers of trust services in the United
In addition, a few days ago we opened our Beijing branch
where we can now provide a wider range of banking activities,
including correspondent banking and trade finance. We can
also help Chinese citizens immigrating to Canada arrange their
personal financial affairs before they get here. This branch
is a good example of how we are collaborating across the enterprise
to better meet the needs of our clients.
Going forward, we have established a number of strategic
priorities to underpin our enterprise goals and help us improve
client loyalty. And we have identified a number of revenue,
expense and service initiatives to support them.
In our Canadian Personal and Business segment, we have set
- better optimize our distribution network,
- continue to simplify our processes and structures; and,
- focus on areas that offer above-average growth potential.
We currently serve more than 13 million clients in Canada
through a network of branches, call centres, electronic channels,
our own sales forces and third-party agents. We are managing
this network with a view to maintaining our leadership position
while maximizing the productivity of each channel and continually
improving the client experience. To accomplish this goal,
we have expanded our relationship management sales force,
opened new insurance and bank branches and augmented our online
sales and service capability. We have also put more emphasis
locally on client loyalty and breadth of relationship with
RBC, and have removed a layer of sales management to bring
senior leaders closer to clients.
In order to make it easier for clients to do business with
us, we have a number of new initiatives in place and in the
pipeline. For example, we have streamlined applications for
business account opening, introduced an option so that clients
can select electronic versions of their statements, enhanced
our travel insurance options for seniors, and improved our
credit card program for businesses.
In the high-growth area of wealth management, we are building
on the strong performance of RBC Dominion Securities as well
as RBC Asset Management, which has led the mutual fund industry
in net sales of long-term funds for nine consecutive quarters.
In our U.S. and International businesses, we have three priorities
- focus on businesses, business owners and professionals
to build a leading bank position in the U.S. Southeast;
- enhance our market position in the Caribbean; and,
- deliver a broad range of integrated advisory and balance
sheet solutions for our wealth management clients.
At RBC Centura, we are growing our business by developing
value-added products for our target client segments such as
our new streamlined suite of personal and business accounts.
In the Caribbean, we continue to grow organically by deepening
relationships with existing clients, and by offering a superior
full-service banking experience. At RBC Dain Rauscher, we
are developing enhanced wealth management solutions for our
clients, and building a stronger network of financial consultants
through our retention and recruitment efforts. And in Global
Private Banking, we are deepening our relationships with clients
by offering a broader range of products and services.
In RBC Capital Markets, we have four priorities for 2006:
- advance our leadership in Canada;
- achieve sustainable leadership in the U.S. mid-market;
- become a leading trader and manufacturer of converging
asset classes; and,
- continue to build a strong, global fixed income capability.
With these priorities in mind, we are building on several
strengths in our capital markets business, including global
debt markets, foreign exchange, and our leading investment
banking capabilities in technology, energy, and mining and
metals, to name a few. In addition, we continue to expand
our global platform through the development of new capabilities
such as the recently established U.S. treasury trading team
in New York, and a new base metals team in London. The latter
further strengthens our metals and mining franchise, where
we achieved a global top ranking for mergers and acquisitions
in the gold mining sector last year.
RBC is a large and complex organization with numerous businesses
operating in more than 30 countries. Each of our businesses
must invest and grow at a rate exceeding their industry average
if we are to achieve top-tier performance collectively. Every
member of our management team has taken on senior accountability
for planning and executing the strategies to ensure we meet
the aggressive targets that each business has established.
We take this accountability seriously, and have developed
a robust and comprehensive performance management system to
track and monitor our progress. This system provides us with
a holistic view of RBC's activities, and with a clear line
of sight into our future performance.
I am confident that all of our employees have a clear focus
on our strategy in 2006, which is supported by the fact that
we are off to a pretty good start. While Barb Stymiest will
provide a detailed review of our first quarter results that
were released earlier this morning, I am pleased to report
that we announced record earnings for the first quarter with
net income from continuing operations of 1.17 billion dollars,
up 20 per cent from a year ago. In addition we announced a
dividend increase of 8 cents or 12.5 per cent, and a stock
split by way of stock dividends.
Annual meetings tend to be a time for CEOs to celebrate past
achievements or justify past performance. Believe me, I would
rather do the former. But as we celebrate a good year, I must
also acknowledge the challenges that lie ahead and the fact
that we can and must do better.
As you know, we operate in an intensively competitive business
in which Canadian banks "duke it out" daily with
each other, as well as foreign banks, credit unions, mutual
fund companies, insurance companies and many others. It's
this daily battle for customers and market share that has
made Canada one of the most competitive, efficient and low-cost
banking markets in the world. This fact has been supported
by several international studies, but is not, particularly
well understood by most Canadians.
The success of our financial system has been good for our
country's economic development. As things stand, our industry
makes the largest contribution to Canada's gross domestic
product. The six large banks alone employ approximately 250,000
people - more than half of whom work right here in Ontario.
Together, we invest in research and development, spending
more than 4 billion dollars on technology annually. We pay
approximately 8 billion dollars in taxes each year, which
does not include the many billions paid by our employees in
personal income tax. We spend 11 billion dollars a year to
purchase local goods and services. And we help to make Canada's
economy more productive at a time when a nation's success
in global markets is measured by how cost effectively it can
But our success in large part has come from our ability to
adapt to shifts in the marketplace and to the changing demands
of our customers. In the past, timely regulatory changes have
enabled us to meet the evolving needs of our clients for services
like mortgages, mutual funds, brokerage and investment banking,
all products that we were prohibited from selling just a few
decades ago. So it is important that regulations continue
to evolve and change for the benefit of all Canadians. I'd
like to comment on one of those areas of potential change,
which is insurance.
Canada is the only developed country in the world that prohibits
consumers and small business owners from buying insurance
products, or even getting information about insurance from
their bank. The absurdity of this is highlighted by the fact
that stores like Loblaws and Costco can provide this financial
service, but banks that are in the business of providing financial
advice, cannot. This simply does not make any sense to us,
nor to our customers, who would benefit from the increased
competition, greater access, broader choice and better pricing
that bank distribution of insurance would provide.
While bank branches are prohibited from selling insurance,
similar restrictions on bank products do not apply to the
insurance industry. For example, Manulife, which is now larger
than five of the six big banks, can sell mortgages and savings
accounts to their clients. The network of insurance brokers
that owns Alberta-based Bank West can conveniently offer their
clients a full range of financial products including insurance,
investments and banking. And credit unions in Quebec, which
are large and direct competitors of banks, have been able
to sell insurance since 1987.
Greater competition for insurance leads to better pricing
and more availability, particularly for low-income consumers.
For example, in Quebec where credit unions can sell insurance
through their branch network, a greater proportion of households
with incomes under 30 thousand dollars have life insurance
than anywhere else in the country. This is because the high
cost of selling insurance through traditional insurance channels
such as agents and brokers means low-income consumers often
History has also shown that when new competitors enter a
market, they actually increase the size of the market for
all competitors. For example, when banks began selling mutual
funds, access went up, fees went down, and the size of the
market increased significantly. Bank entry into the mortgage
market also led to greater availability of mortgages across
the country as well as more competitive rates. And, in other
countries that have opened their insurance markets, not only
have consumers benefited, but market expansion has meant that
good insurance brokers have thrived — as they do, incidentally,
in the Province of Quebec.
Ironically, one of the excuses used by the insurance industry
in arguing against allowing banks to compete for insurance
business is their concerns about information privacy and tied
selling. Yet, the banks are the only financial providers in
Canada that are governed by a consistent set of strong, national
regulations on both these issues.
There are also a number of important technical amendments
that need to be addressed in this year's review of the Bank
Act, such as streamlining rules for foreign banks; making
changes to the bank holding company structure; and updating
regulations governing electronic cheque imaging. But in my
view, in a world where financial products are rapidly converging,
insurance is a critical issue for those of us in the business
of providing financial services, and for those who consume
In a globally competitive business like financial services,
these types of regulatory and legislative advances are important
to the future health of our Canadian industry, and to the
contribution we can make to the prosperity of our nation.
Yes, banks must do their part by investing in new technologies,
more innovative products, better service, and most importantly,
people. But governments must also ensure the right economic
conditions and industry regulations are in place for growth.
Government should support and defend its key industries through
good policies, rather than what sometimes makes for good politics.
This point is particularly relevant right now as we expect
the Government of Canada will soon be issuing a White Paper
on its plans for renewal of the Bank Act - a process that
occurs just once every five years. In a world where new technologies
and competitors can dramatically change an industry's business
model in just a few months, it is important that banks and
other financial service providers have the flexibility to
compete and deliver innovation to customers.
I would like to conclude with a comment on the ultimate performance
driver, client loyalty, which brings us back to our corporate
vision of "Always earning the right to be our clients'
We believe we can grow our business by focusing everything
we do around our clients and by helping them succeed. We want
to be their first choice for financial services, and we hope
our clients are noticing a positive difference in the way
we are trying to earn their business.
This "Client First" mission starts with our employees,
whose commitment is key to earning the loyalty of our clients.
To support that commitment, we are creating a more collaborative,
transparent and accountable culture where everyone, no matter
where they work or what they do, feel they can create a superior
client experience. And we are re-engineering our processes
and approach so that employees have the tools to do a better
job for their clients.
The behaviour that supports this vision is underpinned by
our core values of service, teamwork, responsibility, diversity
and integrity. And it is supported by a brand that is trusted
by Canadians, and has been rated as the most valuable in the
country for the past two years.
We believe that corporate responsibility and good governance
are also important to our vision. We are proud of our record,
but we understand that no organization - including RBC —
is perfect. We have had issues and unfortunately always will;
however, we will be judged not only by the mistakes we make,
but also by how we respond in dealing with them.
We have dedicated a great deal of management time promoting
a culture of integrity. At RBC, it is mandatory for all of
our employees to pass a test demonstrating their understanding
of our Code of Conduct. We have made major investments in
our corporate governance, and our compliance capabilities.
And we continue to enhance our policies and processes in response
to the needs of our clients, as well as market and regulatory
A company's reputation is paramount and we are pleased that
our programs and initiatives continued to earn recognition
Once again, Canadian Business magazine and the Globe and
Mail newspaper ranked our governance among the best in Canada.
And for the fourth year in a row, RBC was named Canada's
Most Respected Corporation in a survey conducted by Ipsos
Reid. The same survey ranked RBC first in 6 of 9 sub-categories,
including human resources, corporate governance, long-term
investment value and social responsibility. We were also ranked
highest among all Canadian financial institutions for customer
service, an indication that our Client First Initiative is
beginning to take root.
The various accomplishments I have mentioned this morning
are a reflection of an organization made up of outstanding
people. That our people are a competitive advantage may be
a well-worn expression, but it is also an important acknowledgement
of the driving force behind our corporate vision. If I have
learned one thing in my five years as CEO, it is that our
most valuable assets enter and leave our buildings every day.
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 hard work in 2005, and for their ongoing
passion for our organization and our clients. I would also
like to thank our board of directors for their support and
guidance and my management team for their commitment as well
as their individual and collective achievements. And I would
like to thank our 14 million clients for giving us their business
and placing their trust in our people.
Ladies and gentlemen, our 70,000 employees around the world
are working hard to transform RBC into an even more client-focused
organization. We have aligned our goals and initiatives with
our corporate vision. We are developing new products and services
that better meet our clients' needs. We are enhancing our
processes so that it's easier for clients to do business with
us. And we are empowering our people to do more for their
I have no doubt that we have the commitment and the will