Royal Bank Of Canada · TSX:RY
Royal Bank Of Canada — Scotia Capital Financials Summit 2002
35 slides from Royal Bank Of Canada's conference presentation, Sep 10, 2002
Slide 1: Continuing to create superior shareholder value
Continuing to create superior shareholder value “RY” on TSX & NYSE Scotia Capital Financials Summit 2002 Gord Nixon President & CEO Royal Bank of Canada Toronto September 10, 2002
Slide 2: Presentation to institutional investors, Scotia Capital Financials Summit 2002
Gord Nixon, President & CEO, Royal Bank of Canada Presentation to institutional investors Scotia Capital Financials Summit 2002 Toronto, September 10, 2002 Good morning everyone. I’d like to take this opportunity to tell you what RBC Financial Group is doing to build on its track record of sharehold
Slide 3: Since 1995 revenues, earnings, dividends and share price growth
[Slide 3.] Since 1995, we’ve grown our revenues and earnings by 12-13% annually, dividends by 14% and share price by 21% annually. In addition, we’ve raised our dividend payout ratio from 34% to 37%. In fact, using the fourth quarter of this year’s indicated dividend of 40 cents per share, our payou
Slide 4: U.S. expansion and key priorities
I will also discuss U.S. expansion in detail in a few moments. Outside North America, we will continue to focus only on those businesses where we are strong globally, have a competitive advantage and can generate attractive returns. Examples of businesses that meet our third goal include global cust
Slide 5: Trading revenues and cost management
[Slide 14.] Our trading revenues have held up reasonably well and have shown much less volatility than many of our competitors, helping drive a more consistent bottom line. We’d attribute this to the diversification of our trading book and a very conservative philosophy whereby we don’t take large b
Slide 6: Credit quality, capital generation and dividends
[Slide 18.] And the non-accrual loan ratio isn’t much above the 1998 level. [Slide 19.] In addition, the consumer loan portfolio has held up quite well over the last couple of years. [Slide 20.] We are generating substantial capital internally – $1.3 billion already this year, after paying out over
Slide 7: Expansion outside Canada: platform-extension strategy for the U.S.
[Slide 25.] Turning to our second priority, expansion outside Canada, we have adopted a platform-extension growth strategy for the U.S.. Significant platform investments were made in 2000 and 2001 and this past year has been one of consolidation and integration of these acquisitions with small inves
Slide 8: Net income from U.S. acquisitions
[Slide 30.] Net income from our recent U.S. acquisitions was $153 million in the first nine months of 2002, up from a loss of $19 million a year ago. [Slide 31.] This improvement reflects the acquisition of Centura Banks in June 2001, better performance at RBC Dain Rauscher and the fact that a lot o
Slide 9: Acquisition criteria and cost synergies
[Slide 37.] We undertook each of our acquisitions because, among a number of other criteria, our models indicated that they would be accretive to cash EPS in no more than 2-3 years. And, in all cases, the deals were manageable in size and represented a good cultural and strategic fit. And while all
Slide 10: High-return businesses and cross-platform leverage
[Slide 42.] With regards to growth of high-return & high-P/E multiple businesses, our primary focus is on RBC Banking (personal and commercial banking) and RBC Investments (wealth management), although all business platforms have selected segments for priority growth. [Slide 43.] As for cross-platfo
Slide 11: Financial planning launch and E2 initiative
[Slide 46.] To achieve this, we have completed a lot of the blocking and tackling required to prepare for a full-scale launch this fall. We now have a sales force of 1,640 planners ready, with increased focus on variable compensation. We have learnt a lot from successful spring/summer 2002 pilots. W
Slide 12: Caution regarding forward-looking statements
Caution regarding forward-looking statements Royal Bank of Canada, from time to time, makes written and oral forward-looking statements, included in this presentation, in other filings with Canadian regulators or the U.S. Securities and Exchange Commission, in reports to shareholders and in other co
Slide 13: Created significant shareholder value; Outperformed major indices
Created significant shareholder value (C$ millions, except per share amounts) 1995 9 Mos. 2002 CAGR Income statement: Gross revenues $7,317 $15,7991 12% Net income after-tax $1,258 $2,8881 13% Fully diluted EPS $1.74 $4.091 13% Return on common equity 16.2% 16.7% 50 bp Closing share price $15.07 $53
Slide 14: Share price outperforming Canadian peers; Our goals
Share price outperforming Canadian peers Relative share price performance (Weekly close October 31, 2001 to September 6, 2002) $130 $125 $120 RBC $115 $110 BMO $105 BNS $100 $95 TD $90 CM $85 12-Apr 26-Apr 2-Aug 16-Aug 30-Aug 5-Jul 19-Jul 1-Mar 15-Mar 29-Mar 31-Oct 9-Nov 23-Nov 7-Dec 21-Dec 10-May 2
Slide 15: Our goals; Key priorities
Our goals In Canada: Committed to retaining our #1 or #2 market positions. Intend to: è increase the number of salespeople in the branches è improve customer service è re-invest in our network è introduce more innovative products Tremendous opportunity in the financial planning area Outside North Am
Slide 16: Leadership in EPS growth continues; Most stable earnings among Canadian peers
Priority #1 – Strong fundamentals Leadership in EPS growth continues Reported EPS growth1 Core EPS growth1 14% 13% -14% -20% -27% -26% -49% -47% -95% -98% TD CIBC BMO BNS RBC TD CIBC BNS BMO RBC 1 9 months 2002 over 9 months 2001. Core EPS excludes unusual items (such as restructuring charges and ga
Slide 17: Strong ROE performance vs. North American peer group; Acquisitions drive revenue growth
Priority #1 – Strong fundamentals Strong ROE performance vs. North American peer group Core ROE Royal Bank Peer Group 1 19.3% 18.1% 17.8% 17.9% 16.6% 16.7% 17.4% 16.1% 17.5% 15.9% 14.4% 11.8% 1997 1998 1999 2000 2001 9 Months 2 2002 1 selected peer group consists of: Bank of New York, Wells Fargo, P
Slide 18: Potential upside from market turnaround; Most stable trading revenues
Priority #1 – Strong fundamentals Potential upside from market turnaround Average market-sensitive revenues as a % of total core revenues1 (Q1/01 to Q3/02) 35.5% 32.4% 27.6% 19.9% 20.2% BNS BMO RBC CM TD 1 trailing 7 quarter average of market-sensitive revenues (include capital market and brokerage
Slide 19: Continuing to watch costs; Stronger balance sheet
Priority #1 – Strong fundamentals Continuing to watch costs Operating expenses1 (ex. U.S. acquisitions) down 5% in 9 months 2002 versus flat operating revenues RBC Banking core efficiency ratio down 710 b.p. since 1999 to 58.6% for 9 months 2002 C$580 million taken out of cost base in 1999- 2000 Con
Slide 20: Strong credit culture; Nonaccrual loans ratio trending back down
Priority #1 – Strong fundamentals Strong credit culture Reputed to have strong credit culture Lowest growth in nonaccrual loans of Big 5 Canadian banks (C$ millions) Growth Q4/99 Q3/02 % $ TD $ 709 $2,024 185% $1,315 BNS $2,380 $4,839 103% $2,459 BMO $1,092 $2,057 88% $ 965 CIBC $1,482 $2,292 55% $
Slide 21: Canadian consumer loan credit quality stable; Generating substantial capital internally
Priority #1 – Strong fundamentals Canadian consumer loan portfolio credit quality remains stable Provision for credit losses % of outstanding balance1 0.12% 0.11% 0.11% 0.11% 0.10% 0.10% 0.10% 0.09% 0.09% Q3/00 Q4/00 Q1/01 Q2/01 Q3/01 Q4/01 Q1/02 Q2/02 Q3/02 1 total Canadian consumer loans, excludin
Slide 22: Dividends up 33% since Q4/00; On-track for meeting 2002 objectives
Priority #1 – Strong fundamentals Dividends up 33% since Q4/00 Steady dividend increases (C$ per share) 0.40 0.38 0.38 0.36 0.36 0.36 0.33 0.33 0.30 Q4/00 Q1/01 Q2/01 Q3/01 Q4/01 Q1/02 Q2/02 Q3/02 Q4/02 history of uninterrupted dividend payments target payout range 30-40% (37% in Q3/02) 21 U.S. GAAP
Slide 23: Aggressive performance targets; Strong debt ratings
Priority #1 – Strong fundamentals Aggressive performance targets 3 - 5 year goals1 ROE 20%+ EPS growth 15%+ Revenue growth 8 - 10% Specific provision ratio2 0.30 - 0.40% Dividend payout ratio 30 - 40% Capital management2 Tier 1 capital 8% Total capital 11 – 12% 1 based on core results 2 based on Can
Slide 24: U.S. expansion strategy; Building sizeable U.S. platform
Priority #2 – Expansion outside Canada U.S. expansion strategy Roll-out, platform extensions, not “bet- the-bank” strategy Expanded in businesses where we have competitive advantage 2002 acquisitions to be limited to approximately $1 billion 25 Priority #2 – Expansion outside Canada Building sizeabl
Slide 25: Branding; Growing U.S. client base
Priority #2 – Expansion outside Canada Branding 27 Priority #2 – Expansion outside Canada Growing U.S. client base Approximate # of clients RBC Liberty Insurance 700,000+ households RBC Centura 800,000 RBC Dain Rauscher 500,000 accounts Tucker Anthony 300,000 accounts Eagle Bancshares 90,000 account
Slide 26: Proportion of U.S. revenues growing; Higher earnings from U.S. acquisitions
Priority #2 – Expansion outside Canada Proportion of U.S. revenues growing 2000 revenues 9 month 2002 revenues U.S. 7% U.S. Canadian Canadian 84% 28% 62% Other Int’l Other 9% Int’l 9% 29 U.S. GAAP Priority #2 – Expansion outside Canada Higher earnings from U.S. acquisitions1 (C$ millions) $153 -$19
Slide 27: Strong contributions from RBC Centura; Organic growth goals
Priority #2 – Expansion outside Canada Strong contributions from RBC Centura (C$ millions) 9 mos. 9 mos. 2002 2001 RBC Centura1 $149 $ 10 RBC Liberty 17 21 RBC Dain Rauscher2 (13) (50) Total U.S. acquisitions $ 153 $(19) NOTE: 9 months 2001 core numbers included 7 weeks of results for RBC Centura, 8
Slide 28: RBC Centura delivering on cost savings; RBC Dain Rauscher benefiting from integration
Priority #2 – Expansion outside Canada RBC Centura delivering on cost savings (US$ Millions) 3 year % of target Key initiatives FY02 plan1 target by FY02 Consolidate Internet platforms & back end product and marketing $30 $45 150% capabilities Shared mortgage operations & back office for mortgage $2
Slide 29: Retention compensation expenses to fall; U.S. brokerage positioned for recovery
Priority #2 – Expansion outside Canada Retention compensation expenses to fall1 (C$ millions) $176 $158 RBC Capital Markets $87 RBC $53 Investments $31 2001 2002F 2003F 2004F 2005F 1 forecasts based on current C$/US$ exchange rates 35 U.S. GAAP Priority #2 – Expansion outside Canada U.S. brokerage w
Slide 30: Disciplined acquisitions accretive in 2-3 years; Cost savings from phase II
Priority #2 – Expansion outside Canada Disciplined acquisitions – should be accretive in 2-3 years Cash EPS accretion Eagle Bancshares In Year 1 Liberty Insurance In Year 1 Prism Financial In Year 1 Admiralty Bancorp In Year 2 Barclays’ Americas private banking operations In Year 21 Business Men’s A
Slide 31: U.S. expansion priorities; North-South initiatives well underway
Priority #2 – Expansion outside Canada U.S. expansion priorities Near-term focus è Consolidating recent acquisitions è Meeting operating targets 39 Priority #2 – Expansion outside Canada North-South initiatives well underway RBC Banking exporting its Canadian expertise to the U.S. è specialized sale
Slide 32: East-West initiatives enhance synergies; Grow high-P/E businesses
Priority #2 – Expansion outside Canada East-West initiatives enhance synergies Partnering with: To sell: RBC RBC Liberty • Credit insurance to RBC Centura Centura clients • Variable annuities from RBC Centura Securities to RBC Liberty clients RBC RBC Liberty • Credit insurance to RBC Mortgage Mortga
Slide 33: Cross-platform leverage; Financial planning initiative
Priority #4 – Cross-platform leverage Cross-platform leverage RBC Financial Group ideally positioned: è diversified business mix è strong market positions è sizeable customer base (12+ million) è strengths in CRM 43 Priority #4 – Cross-platform leverage RBC Investments and RBC Banking financial plan
Slide 34: Financial planning opportunities; Blocking & tackling largely complete
Priority #4 – Cross-platform leverage Financial planning opportunities Increase our market penetration in the Builders & Borrowers and Wealth Accumulators segments Capture the estimated C$80 to C$140 billion annual intergenerational wealth transfer RBC Royal Bank 12 Focus Total Canadian Population (
Slide 35: E2 initiative; Conclusion
Priority #4 – Cross-platform leverage E2 initiative E2 committee consists of business and functional heads: è breaking down boundaries between areas è sharing best practices to: è grow revenues è eliminate duplication Cross-platform leverage a top priority 47 Conclusion Will maintain clear focus on
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