royal bank of canada annual report 2014 - rbc · 2015-03-10 · responsibility – personal...

ROYAL BANK OF CANADA ANNUAL REPORT 2014

RBC IS AGLOBAL LEADERRoyal Bank of Canada is the largest bank in Canada, and the12th largest bank in the world, based on market capitalization.Our approximately 78,000 employees serve over 16 millionpersonal, business and corporate clients across a diversifiedmix of businesses in 40 countries.

Our values define who we are:Service – Excellent service to clients and each otherTeamwork – Working together to succeedResponsibility – Personal responsibility for high performanceDiversity – Diversity for growth and innovationIntegrity – Trust through integrity in everything we do

CONTENTSWe Have A FocusedStrategy 1

We Create Long-term Value 2

We Have Five Key StrengthsThat Drive Our Success 3

We Deliver Stability &Opportunity ThroughDiversification 4

We Make CommunitiesStronger 5

Message from Dave McKay 6

Message from Katie Taylor 9

Management’s Discussionand Analysis 10

Enhanced Disclosure Task ForceRecommendations Index 107

Reports and ConsolidatedFinancial Statements 108

Ten-Year Statistical Review 197

Glossary 199

Directors andExecutive Officers 202

Principal Subsidiaries 203

Shareholder Information 204

For more information, please visit: rbc.com

To view our online annual report, please visit:rbc.com/ar2014

WE HAVE AFOCUSED STRATEGYOur client focus, diversified business model and commitment to ourlong-term strategic priorities have been fundamental to our growth andsuccess in the past, and will allow us to continue to create value in the future.

STRATEGIC GOALS

In Canada, to be theundisputed leader infinancial services

Globally, to be a leadingprovider of capitalmarkets, investor andwealth managementsolutions

In targeted markets, tobe a leading provider ofselect financial servicescomplementary to ourcore strengths

2014 KEY HIGHLIGHTS

� Gained market share across keybusinesses and client segments

� Delivered solid volume growth(loans and deposits)

� Launched new products to meetclients’ evolving needs

� Continued to lead the Canadianleague tables

� Recognized as Canada’s mostvaluable brand

� Expanded international distributionof our U.S. and global assetmanagement business

� Deepened offering and capabilities inkey markets to win new clients andmandates and to grow market share

� Strategically added top talentwithin capital markets and wealthmanagement in the U.S. andinternationally

� Continued to optimize Caribbeanbanking operations for efficiencyand profitability

� Strengthened our cross-borderbanking business in the U.S.

2015 STRATEGIC PRIORITIES

1. Extend lead in Canada through largest distribution network and increased efficiency

2. Deepen presence in the U.S., U.K./Europe and key international hubs by expanding capabilities, offering and distribution

3. Lead change with differentiated experiences to help clients achieve their goals

4. Pursue balanced growth opportunities and disciplined use of capital to create value for the long term

5. Maintain robust risk management staying within our risk appetite across our diversified business model

Royal Bank of Canada: Annual Report 2014 1

WE CREATELONG-TERM VALUEWe delivered record earnings and strong returns to shareholders. In 2014, wegrew earnings by 8%, increased our quarterly dividend by 12% compared tolast year, delivered strong return on equity (ROE) of 19% and maintained arobust capital ratio of 9.9%.

Financial Performance MetricMEDIUM-TERM OBJECTIVE

(3 TO 5-YEAR)

2014

RESULTS ACHIEVED

Diluted EPS Growth 7%+ 9.3% ✓

Return on Equity 18%+ 19.0% ✓

Capital Ratios (CET1) Strong 9.9% ✓

Dividend Payout Ratio 40%–50% 47% ✓

StrongEarnings

ProfitableGrowth

FinancialStrength

Delivered Returnsto Shareholders

NET INCOME(C$ BILLION)

RETURN ON EQUITY(ROE)

COMMON EQUITY TIER 1 (CET1)CAPITAL RATIO

DIVIDENDS DECLAREDPER SHARE

$9.0

$7.5$8.3

1412 13 12 13 14

19.0%19.6% 19.7%9.9%8.9% 9.6%

1412 13

(pro forma)

$1.01

04

$2.84

Annualizeddividend

increase of:

12% – 1 yr11% – 10 yr CAGR

14

Over the past decade, we’ve delivered a strong annualized total shareholder return (TSR) of 14%, second highest among our global peergroup. Our strong TSR has been underpinned by consistent financial performance and low earnings volatility.

Total Shareholder Return1 ONE-YEAR THREE-YEAR FIVE-YEAR TEN-YEAR

RBC 19% 23% 12% 14%

Global Peer Average 11% 19% 8% 5%

1. Compounded annually, as at October 31, 2014. The peer group average excludes RBC; for more information on the list of 19 financial institutions in the peer group, refer to the Financialperformance section of our 2014 Management’s Discussion and Analysis.

2 Royal Bank of Canada: Annual Report 2014

WE HAVE FIVEKEY STRENGTHS THATDRIVE OUR SUCCESSOur key strengths underpin past performance and provide a strong foundationfor future growth. These strengths enable us to successfully deliver on ourstrategy.

DIVERSIFIEDBUSINESS MODEL

SIZE & SCALE INCANADA WITHGLOBAL REACH

CLIENTFOCUS

EMPLOYEES, BRAND& REPUTATION

FINANCIAL STRENGTH &PRUDENT RISK MANAGEMENT

@ Named Bank of the Year for Canada1

@ Best-in-class client service, wealth planning and trust offerings2

@ Received Best Banking awards for financial planning, advice and channel excellence3

@ Recognized as a global leader among investment banks in expertise and skill4

@ Diversified by business, geography and client segment

@ 37% of revenue from outside Canada

@ Largest bank in Canada by market capitalization5

• 5th in North America • 12th globally

@ 40 countries

@ ~78,000 employees

@ ~16 million clients

@ 4.5+ million active online & mobile clients

@ ~1,400 branches

@ Consistent earnings and dividend growth

@ Strong capital position and credit ratings

@ Prudent risk management built on a culture of doing what’s right

@ Named one of the Best Workplaces in Canada6 for the 6th consecutive year while attracting talented employees globally

@ Canada’s most valuable brand and 16th most valuable bank brand globally7

@ One of the World’s Most Admired Companies8

1. The Banker. 5. Bloomberg as at Oct. 31, 2014.2. Private Banker International. 6. The Great Place to Work® Institute.3. Ipsos – Best Banking Awards. 7. Brand Finance.4. The Economist. 8. Fortune.


WE DELIVERSTABILITY & OPPORTUNITYTHROUGH DIVERSIFICATIONWe serve our clients through a number of business lines across many geographies.We’re confident we have the right mix to deepen client relationships, benefit from growthopportunities and support consistent performance over the long term. Our diversifiedbusiness model positions us well to deliver superior returns and earnings stability throughthe business cycle.

23%CAPITAL MARKETS

12%WEALTH MANAGEMENT

5%INVESTOR &TREASURY SERVICES

1. By client assets – Scorpio Partnership’s 2014 Global Private Banking Benchmark.2. Pensions & Investments and Towers Watson 2014 Global Asset Manager Ranking Report.3. By assets – Investment Funds Institute of Canada (IFIC) as at September, 2014.4. By assets and advisors – Company data.5. Company data.6. By AUA.7. Global Investor.8. Thomson Reuters by fees.9. The Economist.10. Euromoney.11. Retail Banker International.

2014EARNINGS

$9.0B

9%INSURANCE@ Among the fastest-growing insurance organizations in Canada5

@ One of the largest Canadian bank- owned insurance organizations

@ Top 10 global custodian6

@ Best overall global custodian7

@ Top 5 global wealth manager1 and top 50 global asset manager2

• Among the fastest-growing asset managers in the world2

• #1 in Canada in mutual funds3

• Top 10 full-service brokerage firm in the U.S.4

@ Top 10 global investment bank8

• #1 in Canada

@ Recognized as the Most Trusted Investment Bank in the World9

@ Named Best Investment Bank in Canada across Equity, Debt and M&A for the 7th consecutive year10

51%PERSONAL &COMMERCIAL BANKING@ #1 or #2 market share in all Canadian banking retail product categories

@ Largest distribution network in Canada

@ Recognized as the Global Retail Bank of the Year11

@ First bank globally to provide a cloud-based mobile payment solution offering clients a choice of paying with credit or debit, and the first in North America to offer the flexibility to pay a friend through Facebook Messenger

* Amounts exclude Corporate Support

For more awards, please visit: rbc.com/aboutus/awards


WE MAKECOMMUNITIESSTRONGERWe contributed more than $100 million this year to causes that will have a positive andlasting social, economic and environmental impact for generations to come. We are activelyinvolved with charitable organizations around the world and we support our employees intheir volunteering efforts.

RBC KIDS PLEDGE:$100 MILLION.5 YEARS.

We believe kids are our future: for our economic prosperity,the health of the planet and the hope for our communities.

The RBC Kids Pledge is a commitment toimprove the well-being of at least 1 millionkids and youth. We believe kids need anddeserve our complete commitment so theycan be healthy in mind, body and spirit.This pledge consolidates our support for adiverse range of arts, sports, wellness,education and employment programs tohelp kids reach their full potential.

When you believe in kids, they can doanything.

Employees laced up their running shoes to takepart in RBC Run/Race for the Kids events globally tohelp raise funds for local children’s charities.

$50 MILLION.10 YEARS.

RBC BLUE WATER PROJECT®:

We help provide access to drinkable, swimmable, fishable waternow and for future generations.

The RBC Blue Water Project is our globalcharitable commitment that is dedicatedto protecting fresh water and promotingresponsible water use. This year, RBCBlue Water Project Leadership andCommunity Action Grants providedfunding for protection and preservationprograms.

On RBC Blue Water Day, more than 20,000 employeesrolled up their sleeves and participated in over 700‘clean up,’ ‘plant some green’ and ‘cultivate awareness’makeover events to help protect water.

WE ALSO INVEST IN A WIDE RANGE OF EDUCATION, HEALTH, ARTS & CULTURE,ENVIRONMENT AND SPORTS PROGRAMS AND ORGANIZATIONS

For more information, please visit: RBC Corporate Responsibility Review at rbc.com/community-sustainability


MESSAGE FROMDAVE MCKAY

Dave McKayPresident and Chief Executive Officer

Dear fellow shareholders,

Let me begin this letter by saying that I’mhonoured to serve as your President andChief Executive Officer. I started my careerat RBC more than 25 years ago as a summerstudent. As I worked in differentbusinesses, functions and locations overthe years, I was always impressed by thecalibre of people who work here. Today, I’mprivileged to lead this tremendous teamwith a shared commitment to building onRBC’s proud history of more than 150 years.

Six years after the financial crisis it feelslike the global economy has begun to turn acorner. The Canadian and U.S. economiescontinued to improve throughout the year.While the central banks of both countriesmaintained historically low interest rates,we saw lower unemployment, higherconsumer spending and improved housingmarket activity – all signals of healthyeconomic activity. The U.S. Federal Reserveended its asset purchase program inOctober, further proof that the U.S.economy is back on track. While growth inEurope was slow, the U.K. continued to be agood news story in the region. Across thebanking industry, regulation continued tobe a key theme.

Delivering record financial results in2014 for our shareholders

Against this backdrop, I’m pleased to reportthat 2014 was a record year for RBC. Wecontinued to extend our leadership positionin Canada and build our businesses inselect global markets. We earned $9 billion,

up 8 per cent from last year, reflectingrecord results in all of our businesssegments.

With these results, we achieved all of ourfinancial objectives. We earned $6.00 pershare (diluted EPS) with a return on equityof 19 per cent, and we ended the year witha strong Common Equity Tier 1 capitalratio of 9.9 per cent.

These financial objectives measureprogress toward our medium-termobjective of maximizing Total ShareholderReturns (TSR). We delivered compoundannual TSR of 23 per cent and 12 per centover the three- and five-year periods.During 2014, our one-year TSR was 19 percent. We raised our dividend twice during2014 for a combined increase of 12 percent while repurchasing shares, and werenewed our share buyback program for2015.

Building on our strengths to grow ourbusinesses

Looking ahead, we understand the driversof growth will be different from those inthe past decade, and I feel confident RBCcan adapt to changes and capitalize onnew opportunities including the shift indemographics, the emergence of newtechnologies and the changing needs andpreferences of our clients.

We know the pace of consumer borrowingin Canada will continue to moderatefollowing many years of strong creditgrowth, and that the shift to savings andinvesting will accelerate. In fact,investments are forecast to grow three

I am enormously proud ofwhat we’ve achievedtogether and incrediblyexcited for theopportunities that lieahead

times faster than credit over the nextdecade. RBC is extremely well positioned toserve our clients as we are the largestmutual fund provider in our home market,selling almost twice as many mutual fundsas our nearest bank competitor. We alsohave the largest full-service wealthmanagement business with leading marketshare for high-net-worth individuals inCanada, and we have the most mobile andbranch-based investment and financialplanners to serve our clients. We are alsoamong the fastest-growing insuranceorganizations in Canada.

As the market leader in business financialservices in Canada, we see opportunityfrom the growing demand for credit frombusinesses, especially as improvements inthe U.S. economy help foster greaterconfidence to spur investing. Additionally,with over 45 per cent of businessesexpected to change ownership in the nextfive to 10 years, we are well placed to helpbusiness owners plan for succession andwith the transition itself – by finding abuyer, financing the transaction andmanaging their new wealth.


ANNOUNCED 37% TOTALINCREASE TO QUARTERLYDIVIDENDS OVER 3 YEARS

There is no question our home market is acompetitive banking environment andpressure from continued low interest rateswill remain a headwind for our businessnext year. Within this context, we arecommitted to improving on our industryleading efficiency ratio and deepeningclient relationships through cross-sell, aproven capability for RBC. Overall, I believewe can continue to extend our lead inCanada to deliver profitable growth.

Globally, we have the right strategies tobuild leadership in select businesses andmarkets where our strengths can help uswin.

We have a strong presence in the U.S., anadvantage given the expected growth in theAmerican economy. In our Capital Marketsbusiness, the U.S. now accounts for morethan 50 per cent of revenue, reflectingstrong client acquisition over the pastnumber of years, and we are focused onbuilding deeper relationships with thoseclients. Our U.S. Wealth Managementbusiness is the seventh-largest full-servicebrokerage by assets and we are broadeningour product offering. Over the last few yearswe’ve also added global fixed income andequity capabilities to our assetmanagement business in that market,which continues to grow.

In the U.K. and Europe, we are building ourpresence, adding expertise across wealthmanagement, asset management andcapital markets, and benefitting from RBC’sbrand and reputation. Given the challengingeconomic environment, we are taking aprudent approach to building our

capabilities as we know the recovery willtake some time. I am encouraged by ourprogress in these markets and expect it tocontinue. In Capital Markets, we areincreasingly winning corporate andinvestment banking mandates. We areamong the fastest growing assetmanagers with strong momentum outsideof Canada. With its reputation for serviceexcellence, our Investor & TreasuryServices business is also well positionedfor expansion in the global investmentindustry.

Across all of our businesses advance-ments in technology are changing clientexpectations, transforming businessmodels and redefining the competitivelandscape. Meanwhile, the regulatoryenvironment for banks will continue toevolve. Our financial strength gives us theflexibility to effectively manage regulatorychanges while investing in ourbusinesses. We have digitized andsimplified processes to lower costs anddeliver a faster, better client experience,and are investing in our technology andinnovation to shape the future with newproducts and services. For example, thisyear we launched a new system thatautomates many of the steps inprocessing a new mortgage to deliverfaster service, and we are a leader inemerging payment solutions.

Looking ahead, we will maintain ourbalanced and disciplined approach tocapital deployment. Our first priority willremain investing in our existingbusinesses to generate strong returns.

Second, we remain committed to returningcapital to shareholders through dividendincreases and share buybacks. And lastly,we will consider targeted acquisitions thatfit our strategy and risk appetite, anddeliver strong returns for our shareholdersover the long term.

Bringing the best of RBC to our clients

United by our vision of always earning theright to be our clients’ first choice, we putcustomers at the centre of everything thatwe do.

Whether it’s helping them buy their firsthome, start their own business, travelworry-free, pay for their children’seducation or prepare for a comfortableretirement, we enable more than 16 millionclients in achieving their goals. At the endof 2014, we funded $231 billion inmortgages and lines of credit forhomeowners in Canada and $5 billion insmall business loans for Canadianentrepreneurs. We grew the assetsentrusted to us by investors around theworld by 13 per cent this year.

We loaned nearly $110 billion to mediumand large companies around the world tohelp them build their businesses, andensured our institutional clients could makeinformed decisions by providing top-rankedresearch and investment solutions in keyinternational markets.


NAMED BANK OFTHE YEAR FOR CANADA1

Creating opportunities for ouremployees

Our employees’ passion for helpingclients succeed is second to none. Theyrepresent our brand with pride. I’mparticularly proud of how much ouremployees care about doing what’s right.Our people, culture and brand are a truedifferentiator wherever we do business.

We enable success by fostering anenvironment of respect and inclusionwhere everyone can contribute andachieve their potential. The diversity ofour workforce brings differentperspectives and abilities and plays acentral role in serving our clients anddriving productivity, innovation andgrowth.

Making a positive difference incommunities

One of the things that defines RBC is thepositive social, economic and environ-mental impact we make in communities.In 2014, we invested more than$100 million in community efforts, sharedour expertise and provided nearly2,500 RBC Employee Volunteer grants.We’re on track to improve the well-beingof at least one million kids and youththrough our multi-year, $100-million RBCKids Pledge. A key element of thatcommitment is the RBC Run/Race for theKids, which took place in seven citiesaround the world, and this year more than8,000 employees, their families andfriends ran with us in support of local

children’s charities. Our employees arealso tremendous supporters of the RBCBlue Water Project, our commitment toprotecting fresh water for generations tocome.

Thank you

Thank you to our clients who choose toplace their trust in us, and to ouremployees who work so hard to help themsucceed.

I’d like to acknowledge and thank GordonNixon, who retired as CEO this year, for hisleadership of a truly world-classorganization, and for leaving the companywith the strength and depth to build forthe future. And finally, I’d like to expressmy gratitude to the Board of Directors fortheir continued insight and counsel.

And to you, our shareholders, we arecommitted to delivering high-qualitygrowth, industry-leading returns and long-term value. I am enormously proud ofwhat RBC has achieved and incrediblyexcited for the opportunities that lieahead.

David McKayPresident and Chief Executive Officer

We serve more than25% of activeCanadian digitalbanking clients2

We have more than30% share of allmutual fundssold by banks inCanada – other bankshave less than 20%3

Awarded Best FundGroup Overall4

Named Most TrustedInvestment Bank inthe World5

1. The Banker.2. Finalta Digital and Multichannel

Banking Benchmark 2014 Study –Big 5 Canadian banks.

3. Investment Funds Institute of Canada,September 2014.

4. 2014 Lipper Canada Fund Awards.5. The Economist.


MESSAGE FROMKATIE TAYLOR

Katie Taylor, Chair of the Board

Dear fellow shareholders,

It is an honour to take on the role of Chair,more than a decade after first joining RBC’sBoard of Directors in 2001.

Over the years the Board has overseenRBC’s continued growth resulting from itssuccessful focus on cultivating broad anddeep client relationships, investing inpeople and contributing to the economicprosperity and betterment of communitieswhere it does business.

In 2014 the Board continued to engage withthe outstanding management team at RBC.Our oversight is directed at guiding theirbusiness decisions to deliver value toshareholders over the long term.

RBC has the right strategy to drivegrowth and create valueAs strategic advisors to management, theBoard must prudently balance strategicopportunities with risk discipline. Today’sapproach to shareholder value creationmust build agility to benefit from oppor-tunities to allow RBC to thrive in tomorrow’schanging environment. To that end, theBoard and management actively discusshow RBC is positioned to grow as externalfactors such as technology, regulation andchanging client demographics shape thefinancial services industry.

The Board is focused on ensuring that RBChas both the right strategy to drivecontinued success and the competitivestrengths and capabilities to deliver on itspriorities. We assess the amount and typeof risk RBC will accept in pursuit of itsbusiness objectives, and monitor theorganization’s systems and processes tomanage those risks. We work closely withmanagement on how best to enhance thebank’s strong capital position and createvalue by investing in organic growth,

funding dividend increases, repurchasingshares or making strategic acquisitions.

RBC has the right team in place tobenefit from future opportunitiesSuccession planning, including theselection and appointment of the seniormanagement team, is a fundamentalresponsibility of the Board. We review thedepth and diversity of succession poolsfor key leadership roles, and we monitorthe progress of succession candidates.This year Dave McKay succeeded GordonNixon as President and CEO, and therewere a number of other importantappointments at the Group Executivelevel. The skills and experience of oursenior leaders are essential to achievingsustainable growth over the long term.

The Board is confident that under DaveMcKay’s leadership, RBC will continue tobuild on its past successes. Hisdistinguished 26-year career at RBCincludes international experience incorporate banking and senior roles inretail banking and risk management. Hisoutstanding dedication to clients, focuson innovation, commitment to employeesand track record of performance will serveRBC well as it continues to grow.

As the bank grows and its leadership teamtransitions, we remain committed toenhancing the diversity of experience,perspectives and skill sets represented onthe Board. We are pleased to welcomeDave McKay and Jacynthe Côté to theBoard, and to announce that ToosDaruvala will join as a Director in January2015. With a longstanding career at RioTinto Alcan, most recently as Presidentand Chief Executive Officer, Ms. Côtébrings extensive experience in interna-tional business. Mr. Daruvala, currently aDirector and Senior Partner at McKinsey &

Company, brings more than 30 years ofexperience in advising financial institutionson matters ranging from banking and riskmanagement practices to corporate strategyand organizational effectiveness.

As we welcome these three new Directors,we say farewell to one. Over his 13-yeartenure as CEO, Gordon Nixon addedtremendous value in earnings, returns andclient focus. Under his guidance, RBC hastaken its place among the most-respectedfinancial institutions globally.

RBC is committed to driving growth,which is essential to its continuedsuccessThe Board of Directors recognizes that RBCsucceeds when its stakeholders –shareholders, employees, clients andcommunities – succeed. As one of thelargest financial institutions in the world,RBC sets high standards as a top employerand leading corporate citizen. United bystrong corporate values, the Board ofDirectors, management and employeesworldwide share the vision of alwaysearning the right to be our clients’ firstchoice.

In 2014, RBC delivered significant value tostakeholders as it continued to grow anddeliver on its strategic goals. I want to thankmy fellow Board members for their valuableadvice. The Board would like to extend itssincere thanks to the management team atRBC and the company’s dedicatedemployees who serve and focus on clients– each and every day.

Kathleen TaylorChair of the Board

For more information on our governance policies, visit: rbc.com/governance


royal bank of canada annual report 2014 - rbc · 2015-03-10 · responsibility – personal...

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