Royal Bank Of Canada · TSX:RY
Royal Bank Of Canada — RBC Financial Group — Investor Presentation (September 2002)
21 slides from Royal Bank Of Canada's investor presentation, Sep 4, 2002
Slide 1: Risk Management at RBC Financial Group
Risk Management Risk Management at RBC Financial Group Presentation to Institutional Investors on September 4, 2002 by Suzanne Labarge, Vice Chairman & Chief Risk Officer Good afternoon •The purpose of this presentation is to provide an overview of how we assess and manage the various risks the Bank
Slide 2: Economic Outlook
Risk Management • Economic Outlook 2 First the context in which we look at risk . I thought it worthwhile to give you our economists’ perspective on the economic outlook. It is a lot brighter than most of us would have thought a year ago. 2
Slide 3: Consensus GDP Growth Forecast 2002/03
Risk Management CONSENSUS GDP GROWTH FORECAST – 2002/03 4 2002 2003 3 2 1 0 -1 3 U.S. Japan Eurozone U.K. Canada Canada seems ready to continue to outperform the US which will grow slowly at least through this year. 3
Slide 4: Outlook for Canada's Financial Services Industry
Risk Management OUTLOOK FOR CANADA’S FINANCIAL SERVICES INDUSTRY Year-over-year % change unless otherwise indicated FY2002 FY2003 Household lending 6.7 5.6 Consumer Credit 6.0 8.0 Residential mortgages 7.0 4.5 Household savings Personal deposits 6.0 -2.0 Mutual fund sales ($bln) 20.0 58.0 Business l
Slide 5: Corporate Credit Quality
Risk Management CORPORATE CREDIT QUALITY RBC Annual Corporate Default Rate Basis Points 100 90 80 70 60 50 40 30 20 10 0 Q4/95 Q2/96 Q4/96 Q2/97 Q4/97 Q2/98 Q4/98 Q2/99 Q4/99 Q2/00 Q4/00 Q2/01 Q4/01 Q2/02 Q4/02 Q2/03 10000 Forecasted As expected, the default rate in 2002 is higher than that experien
Slide 6: Approach to Risk
Risk Management • Approach to Risk 6 6
Slide 7: Business is about taking and managing risk
Risk Management Business is about taking and managing risk. What is bad is risk that is mismanaged, misunderstood, mispriced or unintended. 7 7
Slide 8: Risk Pyramid
Risk Management RISK PYRAMID Systemic Less Control Regulatory Competitive & Legal Strategic Reputational More Control Operational Insurance •Technology Credit Market Liquidity •Underwriting •People 8 •Actuarial •Process • The Risk Pyramid is the framework we use for assessing risk – whether it be at
Slide 9: Portfolio Mix
Risk Management PORTFOLIO MIX October 31, 1991 July 31, 2002 Residential Residential mortgages mortgages 27% 39% Personal Personal loans loans 14% 18% Business & gov't loans & Business & acceptances Credit gov't loans & 57% cards acceptances Credit 2% 40% cards 2% Significant change in portfolio mix
Slide 10: Business and Government
Risk Management BUSINESS AND GOVERNMENT Q4/94 Q3/02 Canada - Small International Business International Canada - 13% Small 17% 12% Business 13% United States United 13% States Canada - 29% Canada - Corporate Corporate 58% 45% Since 1994 the Business & Government portfolio has seen a reduction reduct
Slide 11: Sector Exposure
Risk Management SECTOR EXPOSURE ($ MM) Loans and Acceptances by Sector - July 2002 16,000 14,000 Energy ($MM) 12,000 Power & Power 10,000 2,022 Generation 8,000 Natural Gas 1,521 Oil and Gas 3,809 6,000 7,352 4,000 Telecom, Media & Cable 2,000 ($MM) - Telecom 1,836 y r ble Energ otive tate ds he Med
Slide 12: Peer Comparison: Gross Impaired Loans
Risk Management PEER COMPARISON Gross Impaired Loans Gross Impaired Loans as a % of Loans and Acceptances as a % of Loans and Acceptances (RBC and Cdn Peers excluding Residential Mortgages) (Including Residential Mortgages) 3.0% 3.0% 2.5% 2.5% 2.0% 2.0% 1.5% 1.5% 1.0% 1.0% 0.5% 0.5% 1997 1998 1999 2
Slide 13: Peer Comparison – Q2 YTD
Risk Management PEER COMPARISON – Q2 YTD RBC Rank in RBC RBC Canadian US Canada Rank in Average (excl. Average US RBC) PCL as a % of pre-provision income 1 4 19% 49% 26% PCL as a % of gross revenues 1 3 7% 16% 11% PCL as a % of NII (Q2 YTD) 1 3 15% 58% 21% NII as a % of average earning assets 3 10 2
Slide 14: Specific Risks: Operational Risk
Risk Management Specific Risks OPERATIONAL RISK 1. 2. Capability & Learning Change Capability 3. Purpose & Communication 4. Work-Life Balance & Wellness 5. Dereliction of Duty 6. Discrimination/Harassment 7. Employee Fraud/Malice Risk 8. Inadequate or Loss of People Resources 9. Unauthorized/Trading
Slide 15: Linking Strategy and Risk
Risk Management LINKING STRATEGY AND RISK Corporate Strategy Linkage Business Unit Risk Appetite Strategy 15 The long term success of RBC Financial Group hinges on the need to: - ensure that the Corporate Strategy of the organization is well communicated and that Business Unit strategies are aligned
Slide 16: The Risk Pyramid: An Organizational Perspective
Risk Management THE RISK PYRAMID: AN ORGANIZATIONAL PERSPECTIVE B o a rd o f t Cu ig h D ire c to rs ltu rs re ve C o n d u c t R e v ie w & – -O Fr a R is k P o lic y C o m m itte e io n me la t G r o u p R is k C o m m itte e wo ca rk Es – C h ie f R is k O ffic e r – De ing le g r G ro u p R is k
Slide 17: Key Questions
Risk Management KEY QUESTIONS Ÿ have we identified all the risks? Ÿ do we understand their impact? Ÿ can we limit our risk cost? Ÿ how do we influence judgment? Ÿ how can we measure performance? Ÿ how much shareholder value is at risk? 17 These are the key questions we ask as we review strategies or
Slide 18: Linking Strategy and Credit Risk
Risk Management LINKING STRATEGY AND CREDIT RISK Focus on Single Name Limits: RBC limits should take the following objectives into account: 1. Earnings Volatility: • An average rated name should not destroy the quarterly earnings for RBCCM 2. PCL Target: • An average rated name should not put our co
Slide 19: Linking Strategy and Market Risk
Risk Management LINKING STRATEGY AND MARKET RISK Ratio of Daily Trading Revenue Standard and Poor's to VaR, Fiscal 2001 Revenue Volatility Index RBC BMO Merrill Lynch Lehman MSDW Lehman MSDW Goldman Sachs Bank of America BNS Citigroup Merrill Lynch CIBC JP Morgan Chase Barclays JP Morgan Chase Citig
Slide 20: Linking Strategy and Operational Risk
Risk Management LINKING STRATEGY AND OPERATIONAL RISK • Key Objectives: 1. To enhance our ability to achieve our business objectives 2. To enable us to demonstrate externally that we are “in control” • Key Initiatives: 1. Development and implementation of Risk and Control Self-Assessment methodology
Slide 21: Enterprise-Wide Risk Management
Risk Management ENTERPRISE--WIDE RISK MANAGEMENT ENTERPRISE Ÿ understand the risks Ÿ create appropriate risk culture Ÿ support with quantitative tools Ÿ strike the right risk-reward equation Ÿ establish roles and responsibilities = Enhance shareholder value 21 • Risk Management at RBC is enterprise-
RBC Financial Group — Investor Presentation (September 2002) on 6ix