Royal Bank of Canada Investor Presentation
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Royal Bank of Canada Investor Presentation October 2008 RBC | INVESTOR PRESENTATION 1 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 presentation, in other filings with Canadian regulators or the United States Securities and Exchange Commission, in reports to shareholders and in other communications. Forward-looking statements include, but are not limited to, statements relating to our medium-term and 2008 objectives, our strategic goals and priorities, and the economic and business outlook for us, for each of our business segments and for the Canadian, United States and international economies. Forward-looking statements are typically identified by words such as “believe,” “expect,” “forecast,” “anticipate,” “intend,” “estimate,” “goal,” “plan” and “project” and similar expressions of future or conditional verbs such as “will,” “may,” “should,” “could,” or “would”. By their very nature, forward-looking statements require us to make assumptions and are subject 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 objectives, strategic goals and priorities will not be achieved. We caution readers not to place undue reliance on these statements as a number of important factors could cause our actual results to differ materially from the expectations expressed in such forward-looking statements. These factors include credit, market, operational, liquidity and funding risks, and other risks discussed in our Q3 2008 Report to Shareholders and our 2007 Annual Report to Shareholders; general business and economic conditions in Canada, the United States and other countries in which we conduct business, including the impact from the continuing volatility in the U.S. subprime and related markets and lack of liquidity in financial markets; the impact of the movement of the Canadian dollar relative to other currencies, particularly the U.S. dollar, British pound and Euro; the effects of changes in government monetary and other policies; the effects of competition in the markets in which we operate; the impact of changes in laws and regulations; 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; changes in accounting standards, policies and estimates, including changes in our estimates of provisions and allowances; our ability to attract and retain key employees and executives; changes to our credit ratings; and development and integration of our distribution networks. We caution that the foregoing list of important 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 our Q3 2008 Report to Shareholders and in our 2007 Annual 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. Note: All data in this presentation are in Canadian dollars unless otherwise stated. RBC | INVESTOR PRESENTATION 2 1 Contents 1RBC Overview 2 Canadian Economy 3 Strategy 4 Financial Profile 5 Global Funding Strategy RBC | INVESTOR PRESENTATION 3 3 Canada’s banking market is underpinned by solid fundamentals • #1 for soundness of banks (World Economic Forum) • #1 for economic strength over past decade among G7 (International Monetary Fund) • Nine consecutive years of current account surplus • Ten consecutive years of fiscal surpluses • Net foreign indebtedness lowest since 1945 Canada U.S. 2009 Real GDP forecast (1) 1.5% 0.2% Inflation (CPI) (2) 3.5% 5.4% Unemployment rate (3) 6.1% 6.1% • Modest leverage • Higher leverage than Canada Consumer fundamentals • Household net worth has been increasing • Household net worth has been decreasing • High mortgage quality • Lower mortgage quality Mortgage fundamentals • Low loan-to-value ratios • Higher loan-to-value ratios • Low delinquencies • Higher delinquencies (1) Source: RBC Economics, October 2008. (2) Source: Statistics Canada, RBC Economics, August 2008. RBC | INVESTOR PRESENTATION (3) Source: Statistics Canada and US Bureau of Labor Statistics, August 2008. 4 2 RBC is largest in Canada, 5th in North America and 14th globally 10 Largest North American Banks (1) 25 Largest Banks Globally (1) (US$ billions as at October 8, 2008) (US$ billions as at October 8, 2008) Rank CompanyMarket Cap Assets Rank Company Market Cap 1 ICBC 200 1 JP Morgan 155 1,776 2 HSBC 184 2 Bank of America 111 1,717 3 JP Morgan 155 3 Wells Fargo 106 609 4 China Construction Bank 118 5 Bank of China 113 4 Citigroup78 2,101 6 Bank of America 111 5 RBC 54 645 7 Wells Fargo 106 6 US Bancorp 54 247 8 Banco Santander 91 7 TD 40 494 9 Mitsubishi UFJ Financial 84 10 BNP Paribas 79 8 Scotiabank 39 447 11 Citigroup 78 9 Bank of NY Mellon 28 201 12 Banco Bilbao Vizcaya Argentaria 57 10 PNC Financial23 143 13 Intesa Sanpaolo 56 14 RBC 54 15 US Bancorp 54 16 UBS 47 Up from 6th in North America and 17 Societe Generale 46 18 Unicredito Italiano 45 24th globally a year ago 19 Sumitomo Mitsui 44 20 Credit Suisse 42 21 Mizuho Financial 41 22 Barclays 40 23 TD 40 24 Commonwealth bank of Aust. 40 25 Scotiabank 39 RBC | INVESTOR PRESENTATION (1) Source: Bloomberg, OSFI. Assets as at June 30, 2008 5 RBC is a Canadian leader with global strength • Largest bank in Canada with strong financial profile – $3.4 billion of earnings and 18.7% return on equity year-to-date in 2008 – Capital ratios and senior debt ratings among highest globally – High quality balance sheet and solid liquidity position • Clear leader in Canada with market share momentum – Core strength in Canada (approximately 70% of revenue) – #1 or #2 across all major financial products & services, and growing market share • Scale and financial strength providing competitive advantage globally – More clients are choosing RBC over our competitors • Well-balanced and diversified business mix – Retail banking, wealth management, insurance (70% to 80% of earnings) – Capital markets (20% to 30% of earnings) • Continuing to invest in our businesses for long-term growth RBC | INVESTOR PRESENTATION 6 3 RBC’s financial profile is consistently strong • Capital ratios among highest globally (1) (Basel II) (Basel I) – Tier I capital ratio: 9.5% 8.7% – Total capital ratio: 11.7% 11.1% – Assets to capital multiple: 19.4x 19.3x • Senior debt ratings among highest of financial institutions globally – Moody’s: Aaa Fitch: AA – Standard & Poor’s: AA- DBRS: AA • Proactive risk management – Limit exposure to any single name and any single sector – Stringent credit review, approval, limit and monitoring processes • High quality balance sheet – Canadian loans, strong retail deposit base, liquid trading assets • Strong liquidity position and diversified funding sources – Diversified and well-established global funding programs – Modest term funding requirements through to end of 2009 – High quality balance sheet with liquid assets provides significant flexibility RBC | INVESTOR PRESENTATION (1) As at July 31, 2008. 7 Contents 1RBC Overview 2 Canadian Economy 3 Strategy 4 Financial Profile 5 Global Funding Strategy RBC | INVESTOR PRESENTATION 8 8 4 Strong fiscal and trade performance • #1 for soundness of banks (World Economic Forum G7 Real GDP Growth (%) (1) Global Competitiveness Report 2008-2009) 1998-2007 3.3 Canada GDP (2) • #1 for economic strength (GDP) over past decade 2.9 2.9 Forecast (1) among G7 nations 2.3 • Nine consecutive years of current account surplus 1.5 1.5 1.5 1.2 • Ten consecutive years of fiscal surpluses 0.9 • Net foreign indebtedness lowest since 1945 y . a an l K S 8 9 ta d ap I U. U. 00 J 200 2 France Cana Germany (4) Canadian Federal Government Budget Balance (3) General Government Net Debt (C$ billion) (% of nominal GDP, 2007) 21.2 90.6 14.2 85.9 14.1 13.2 8.9 12.9 5.0 6.7 7.1 3.2 1.5 3.8 3.0 43.8 44.5 -7.9 30.4 34.0 Federal Budget 23.3 Projection -30.0 a e an UK nc US ny taly nad I 6 8 9 4 6 7 9 0 a Fra rma Jap -9 -01 -03 -0 -0 -0 -0 C 7 0 2 3 5 6 8 Ge 95-9 98-9 07-08 09-1 ' '96-97'9 ' '99-00'0 '01-02'0 '0 '04-05'0 '0 ' '0 ' (1) Source: International Monetary Fund (2) Source: RBC Economics, October 2008 (3) Source: Dept. of Finance, Canada RBC | INVESTOR PRESENTATION (4) Source: OECD 2008 Economic Outlook 9 Strong domestic economy and solid fundamentals Canadian Housing Starts (1) Inflation Rates (2) 5.0% (Year over year change) 250 (thousands) 4.5% 4.0% 200 3.5% 150 3.0% 2.5% 100 2.0% 1.5% 50 1.0% 0.5% 0 0.0% 2002 2003 2004 2005 2006 2007 Jan-Jul/08 2001 2002 2003 2004 2005 2006 2007 Q2/08 (annualized) Canada U.S.