royal bank of canada annual report 2015 helping clients ... · business and continued investment in...

ROYAL BANK OF CANADA ANNUAL REPORT 2015

Helping clients thrive andcommunities prosper

RBC

By the numbers

#1 #13 ~40largest bankin Canada

largest bankin the world

countries

~78,000 16 Million+ $100 Million+employees clients across

a diversified mixof businesses

donations, sponsorshipsand communityinvestments tocauses worldwide

All figures as at October 31, 2015. Geographic rankings based on market capitalization.

Our values guide, unite and inspire us to do what’s right

Client First Diversity & InclusionWe will always earn the rightto be our clients’ first choice

We embrace diversity forinnovation and growth

Collaboration IntegrityWe win as One RBC We hold ourselves to the highest

standards to build trustAccountabilityWe take ownership for personaland collective high performance

Contents

Executing on our strategy 1

Achieving strong performance 2

Delivering stability and growth 3

Helping communities prosper 4

Message from Dave McKay 5

Message from Katie Taylor 8

Management’s Discussion and Analysis 9

Enhanced Disclosure Task ForceRecommendations Index 115

Reports and Consolidated FinancialStatements 116

Ten-Year Statistical Review 205

Glossary 207

Directors and Executive Officers 210

Principal Subsidiaries 211

Shareholder Information 212

To view our online annual report, please visit: rbc.com/ar2015

Executing on our strategyRBC is focused on markets and client segments where we can apply our strengths to win business,deepen relationships with clients and our communities, and create shareholder value. We arepursuing initiatives to drive sustainable growth and contribute to the success of our employees,clients, shareholders and communities.

Purpose Vision

Helping clients thrive andcommunities prosper

To be among the world’s most trustedand successful financial institutions

Strategic Goals HighlightsIn Canada: To be theundisputed leader infinancial services

� Continued to lead across key businesses and client segments� Delivered solid volume growth� Led peers in retail client cross-sell� Launched innovative products and services to meet clients’

evolving needs and expectations� Ranked as the most valuable brand1 in Canada

In the U.S.: To be thepreferred partner to corporate,institutional and high networth clients andtheir businesses

� Announced acquisition of City National Bank2 creates apowerful platform for long-term growth in the U.S., andprovides significant opportunity to build deeper clientrelationships

� Expanded capabilities, presence and brand awareness� Won several significant mandates in corporate and

investment banking� Strategically added top talent

In select global financialcentres: To be a leadingfinancial services partnervalued for our expertise

� Prudently built out our wealth management, assetmanagement and capital markets presence and capabilities

� Realized significant operational improvement in our custodialbusiness and continued investment in client-focusedtechnology solutions

� Refocused international wealth business to better serve highnet worth clients from our key operational hubs

� Improved business performance in the Caribbean

1. Brand Finance2. Acquisition closed on November 2, 2015

Royal Bank of Canada: Annual Report 2015 1

Achieving strong performanceIn 2015, we grew earnings by 11%, increased our annual dividend by 8% fromlast year, delivered strong return on equity of 18.6% and strengthened ourCommon Equity Tier 1 capital ratio to 10.6%.

Metrics Objectives Results Achieved

Diluted EPS Growth 7%+ 12.2% ✓

Return on Equity 18%+ 18.6% ✓

Capital Ratio (CET1) Strong Strong ✓

Dividend Payout Ratio 40% – 50% 46% ✓

Solid Earnings Profitable Growth Financial Strength Solid Returns to ShareholdersNet Income (C$ Billion) Return on Equity (ROE) Common Equity Tier 1 (CET1) Capital ratio Dividends Declared per Share

$8.3$9.0

$10.0

151413

19.7% 19.0% 18.6%

151413

9.6% 9.9%10.6%

151413

$2.53$2.84

$3.08

151413

Total Shareholder Return1 Three-year Five-year Ten-year

RBC 14% 11% 10%

Global Peer Average 15% 12% 8%

Since 2005 we’ve increased our dividend by anannualized rate of 10%

1. Annualized TSR is calculated based on the TSX common share price appreciation plus reinvested dividend income. Source: Bloomberg, as at October 31, 2015. RBC is compared to ourglobal peer group. The peer group average excludes RBC; for the list of peers, please refer to our financial performance objectives section of our 2015 Management’s Discussion and Analysis

2 Royal Bank of Canada Annual Report 2015

Delivering stability and growthOur diversification by business and geography contributes to consistent performanceand growth opportunities. Our employees collaborate across businesses andgeographies to ensure our clients benefit from the full breadth of RBC’s unmatchedcapabilities, advice, and solutions to meet their financial needs and aspirations.

Earnings by business segment

52% Personal & Commercial Banking 11% Wealth Management

7% Insurance6% Investor & Treasury Services

24% Capital Markets

$10 Billion1

Personal & Commercial Banking• Number 1 or 2 share in all key Canadian

Banking product categories• Largest sales force in Canada• Continued to deliver client innovations:

� Host Card Emulation technology allowingclients with Android devices to use RBCWallet™ anywhere in the world

� RBC Newcomer Advantage™ offering newfinancial solutions to help newcomers getestablished quickly

� Cheque-ProTM allowing high cheque volumeclients to easily make deposits online

• Continued to focus on quality asset andrevenue growth

Wealth Management• Top 5 global wealth manager2:

� #1 in Canada – Largest fund company3 andleader in high net worth market share4

� 7th largest brokerage firm in the U.S.5

� Our Global Asset Management business isone of the fastest growing asset managers inthe world6

• Announced key acquisition of City NationalBank adding private and commercial bankingcapabilities complementing our presence inthe U.S.

• Focused U.S. & International business to betterserve high net worth and ultra-high net worthclients from our key operational hubs

Insurance• A Canadian market leader and among the

fastest growing insurance organizations inthe country7

• Ranked as #1 Banking-Based InsuranceBrand Globally8

Investor & Treasury Services• Rated by our clients #1 global custodian for

five consecutive years9

• Dominant offshore provider in Luxembourgand Dublin, and rated UCITS Fund Admin-istrator of the Year10

• Canada’s leading asset managementprovider11 with number one ratings acrossclient service, custody, fund administrationand Canadian dollar transactions

• High level of investment in client-focusedtechnology solutions

Capital Markets• 10th largest bank globally and in the

Americas12

• Best Investment Bank in Canada acrossEquity, Debt and M&A for 8th consecutiveyear13

• Strategically aligned with ~90% of globalinvestment banking fee pool12

• Leveraged depth of capabilities includingcross-border solutions to deepen clientrelationships

Revenue by geography

$35.3 Billion1 Canada63%

United States19%

International18%

We work together to bring the best of RBC to our clients to help them achieve their goals

• Helped over 200,000 Canadians buy a homethis year

• Supported businesses globally with nearly$130 billion in business loans

• Helped 4.9 million clients bank online every month

1. Amount excludes Corporate Support2. Scorpio Partnership Global Private Banking Benchmark 20153. Investment Funds Institute of Canada, June 2015 and company data4. Investor Economics, April 20155. By assets under administration – company data6. Boston Consulting Group, McKinsey7. Company data8. Brand Finance

9. Global Investor ISF Global Custody Survey 2011 to 201510. Custody Risk, European Awards, 201511. Global Investor ISF Global Custody Survey 2015; R&M Global Custody Survey 2015;

Global Investor ISF Fund Administration Survey 2015; Global ISF Beneficial OwnersSurvey 2015; The Banker, November 2014

12. Thomson Reuters Global Investment Banking Review, Q3 201513. Euromoney

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

Royal Bank of Canada Annual Report 2015 3

Helping communities prosperAs a recognized leader in corporate citizenship, we’re focused on deliveringhigh-value impact through our efforts, initiatives and investments. We are proudto support our employees as they actively contribute their time, resources andexpertise to making a difference in the world. Together, we’re creating meaningfulimpact and contributing to a prosperous future.

Impact

Community and Social

$100 Million+

Invest in communities where

we live and work, and issuedmore than 4,500 grants tosupport the volunteer efforts ofour employees.

Lead in corporate citizenship Shape thought leadership Contributed in donations,

as our efforts make a positiveand lasting impact.

by contributing our expertiseto shape the future.

community investments,and sponsorships incommunities around theworld.

Initiatives

Youth Arts EnvironmentWe know that when you believe in young people,anything is possible. We support a wide range of keyprograms that span education, health, sports,entrepreneurship, career development and financialliteracy, to make sure young people have the right skillsand opportunities to succeed.

Our support of the arts is a long-standing priority, as we recognize thearts are the heart of our communitiesand culture. We are particularlyfocused on the next generation ofartists through our Emerging Artistsprogram.

The RBC Blue Water Project® is our10-year global commitment of$50 million to help protect freshwater, now and for future generations.This year, nearly 25,000 employeesparticipated in 850 Blue Water Daymakeover events in over 25 countries.

Our contribution of time, funds and expertise to the world around uswill continue to be a focus and drive our success moving forward

For more information, please visit: rbc.com/community-sustainability/index.html


Message from Dave McKayAt RBC, we help our clients thrive, and our communities prosper. This simple statement sums up whowe are, what we stand for and what we seek to achieve each day when we come to work. It also reflectsour successes and achievements throughout 2015, from record earnings, to our ongoing investmentsin delivering an exceptional client experience, to the deep commitment we have to making a positivedifference in the communities where we live and work.

DAVE McKAYPresident and Chief Executive Officer

We earned a record $10 billion, up 11% fromlast year, reflecting consistent strength acrossour businesses. We earned $6.73 per share ona diluted basis, delivered a return on equity of18.6%, and strengthened our capital position,ending with a Common Equity Tier 1 capital ratioof 10.6%. We also raised our dividend twiceduring 2015, for an annual increase of 8%. I ampleased to say we met all of our financialobjectives, which measure our progress towardmaximizing Total Shareholder Returns (TSR).We delivered compound annual TSR of 14% and11% over the three- and five-year periods,respectively.

We achieved these results despite a challengingmacroeconomic environment. Global growthremains uneven, holding back investment andemployment. Canada’s economy struggled in thefirst half of the year due to a sharp pull-back inoil prices, which negatively affected other partsof the economy and impacted real GDP growth.Growth improved in the second half of the yeardue to strengthening export demand, higherconsumer spending and residential investmentspurred in part by lower energy prices and aweak Canadian dollar. Interest rates in Canadaand abroad remained at or near historical lows,reflecting central bankers’ ongoing concernabout the near-term health of their economies.

Against this backdrop, our record earningsreflect our progress in attracting and serving theneeds of personal, business and institutionalclients, the power of our diversified businessmodel, and our prudent approach to riskmanagement. We also remained focused onmanaging costs and reducing the rate of growthof our expenses, while continuing to invest, witha particular focus on innovation, technology anddigitization.

Focus on innovationThe financial services industry continues to facechange including advancements in disruptivetechnology, new competitors, and acorresponding evolution in client needs andexpectations. We have a long and successfulhistory of innovation and are leveragingtechnology to improve the way we serve ourclients by delivering simple, useful, timely andsecure mobile and digital experiences.

The results we have seen to date show that weare having an impact. We have close to 5 millionactive digital customers per month, of which2 million are mobile and tablet users. Theydeposited more than $2.5 billion by chequethrough our mobile channel in the feature’s firstfive months of availability.

Innovation also drives efficiency, and wecontinue to simplify how we work and digitizeprocesses.

We are confident that we have a number ofsignificant advantages which we can leverage aswe navigate the digital transition including abrand which has the trust of millions of clientsaround the world, a proven innovation trackrecord that has led to securing patents in areasincluding secure cloud payment and securitytechnology, our global scale, and depth andbreadth of products and services. At the sametime, we will continue to move quickly to ensurewe have the technology and solutions ourclients want to see from their financial servicesprovider.

An undisputed Canadian leaderOur success continues to be driven by thestrength and stability of our businesses, centredfirst and foremost on our clients and theirsuccess.

See Dave McKay’s video message to stakeholders: annualreports.rbc.com/ar2015/ceo.html


Looking forward, we are confident that we will continue to grow by appealingto key client segments including high and ultra-high net worth clients as wellas newcomers to Canada who represent an important and growing market.

Our successcontinues to bedriven by thestrength andstability of ourbusinesses,centred firstand foremost onour clients andtheir success.

Beyond Canada,we are focusingour efforts ontarget geographicmarkets anddesirable clientsegments.

In Canada, we continued to bolster our position asthe undisputed financial services leader, buildingon our scale and breadth and ensuring we serveour clients as One RBC, bringing the best we haveto offer from all our businesses.

We hold the number one or two market position inall key retail and business product categories. Weremain the market leader in business banking,underwriting a quarter of all business loans under$25 million and providing a key source of capitalto the small- and medium-sized businesses whichfuel Canada’s economy.

We continue to be Canada’s top wealth managerwith a leading share of the high net worth market,the largest fund company, the top investmentbank with leading rankings across Equity, Debt &M&A for the 8th consecutive year, a marketleader and among the fastest-growing insuranceorganizations in the country, and a leadingprovider of Canadian clearing, cash managementand trade finance through our Investor & TreasuryServices business.

Looking forward, we are confident that we willcontinue to grow by appealing to key clientsegments including high and ultra-high net worthclients as well as newcomers to Canada whorepresent an important and growing market. Wewill also continue to focus on underpenetratedcommercial banking segments and building loyaltyamongst our existing client base as a result of thedifferentiated experience they have with us.

Beyond Canada, we are focusing our efforts ontarget geographic markets and desirable clientsegments.

Preferred partner in the U.S.We view the U.S. as our second home market –there simply is no other developed market whichprovides the same combination of size, earningspotential, access to new entrants and connectivityto Canada. Our goal is to be the preferred partnerto U.S. corporate, institutional and high net worthclients and their businesses, primarily through our

Capital Markets and Wealth Managementbusinesses.

Our Capital Markets business derives half of itsearnings from the U.S., and is a top 10 globalinvestment bank. Our Wealth Managementbusiness is a leading global player, and the 7th

largest brokerage firm in the U.S., where our brand,reputation and expertise are enabling us tocontinue to win new business and attract andretain top talent. We are acquiring new clientswhile strengthening and growing existing relation-ships by focusing on improving productivity andcross-selling.

The US$5.5 billion acquisition of Los Angeles-based City National Corporation marks a majormilestone in our U.S. strategy and complementsour existing capital markets and wealthmanagement presence, providing significantopportunities to deepen our relationships withhigh net worth and mid-market commercial clients.

Since City National serves high net worth clientslocated in major metropolitan areas, it is stronglypositioned to benefit from the significant wealthcreation taking place in those markets. Weannounced this transaction in January, closed it inNovember and will start reporting combinedresults beginning in the first fiscal quarter of 2016.

A focus on select global financial centresInternationally, our aim is to be a leading financialservices partner in select global financial centresin the U.K., Europe, Asia and the Caribbean.

With that in mind, in 2015, we continued torefocus a number of our international businesseson specific markets where we can be a leader.We’ve strengthened our retail Caribbean bankingbusiness by exiting non-core regions, and we’velargely completed the realignment of our U.S. &International Wealth Management business, whichwill let us better serve our clients from our keyoperational hubs in Canada, the United States, theBritish Isles, and Asia.

See Dave McKay’s video message to stakeholders: annualreports.rbc.com/ar2015/ceo.html


We are prudently building out our wealthmanagement, asset management and capitalmarkets capabilities in the U.K. and Europe. I’mencouraged by our ongoing progress in winningclient mandates as it demonstrates ourstrengthening market position in the region.

We continued to extend our Global AssetManagement business internationally and, today,roughly 30% of our institutional assets are fromoutside of Canada. In Capital Markets, we openedoffices in Frankfurt and Paris, and expanded anumber of our research teams. We’ve also seenbenefits from selectively expanding ourinvestment banking sector and geographiccoverage to markets and industry sectors that weknow well, and we are also extending our loanbook where it makes sense to help drive neworigination.

Investor & Treasury Services built on its reputationfor leading client service and further enhanced itsstrong position among global custodians, thanksto robust levels of activity from new and existingclients.

Our employees drive our resultsOur successes this year would not have beenpossible without the dedication andprofessionalism of our talented and highlyengaged employees. Our teams put clients first,collaborate effectively and look for ways tocontinue to deliver an exceptional clientexperience and nurture client trust. They alsocontinue to create pride throughout theorganization by giving their time and expertise tohave a positive impact on our communities.

We will continue to build an even better workplaceby ensuring our people succeed in anenvironment of respect and inclusion whereeveryone has the opportunity to contribute andrealize their potential.

Helping our communities prosperThe depth of our commitment to clients and toour employees is matched by our passionatebelief in making a positive social andcommunity impact. In 2015, we contributedmore than $100 million in donations,community investments, and sponsorships.However, we are giving much more than moneyin our efforts to help communities prosper.Over the course of the year, thousands of RBCemployees, retirees, families, friends andcommunity members donated their time tocauses and initiatives that matter to them. Thisyear’s Blue Water Day was a great demon-stration of our community commitment comingto life, as 25,000 employees in 26 countriesrolled up their sleeves and completed850 community makeovers, cleaning upshorelines, parks and streets.

Thank youI’d like to personally thank all of our clientswho continue to trust us with their business.I also want to thank all of our employees,whose commitment and hard work helpsclients thrive and contributes to our vision ofbeing among the world’s most trusted andsuccessful financial institutions. And to you,our fellow shareholders, I would like toreiterate our commitment to continuing todeliver high-quality, sustainable earningsgrowth.

David McKayPresident and Chief Executive Officer


Message from Katie Taylor

KATIE TAYLORChair of the Board

Dear fellow shareholders,

This year your Board of Directorsmaintained its focus on delivering long-term shareholder value and positioningRBC for future growth. Record earnings,increased dividends and strategicexpansion of our already strong U.S.presence are among the hallmarksof 2015.

RBC has the right strategy to drive growthand create valueCentral to our role as directors is ourresponsibility to ensure that RBC has theright strategy, talent and risk managementto succeed and deliver long-term value.Your Board actively engages with ouroutstanding management team to developthe strategic plans aimed at achieving ourshared vision: to be among the world’smost trusted and successful financialinstitutions. Aspects of enterprise andbusiness segment strategy are discussedat every board meeting and we participatein an annual session focused onlonger-term growth plans. We work closelywith management on how best to enhancethe Bank’s strong capital position andcreate value by investing in organic growthand strategic acquisitions. This year theBoard contributed to management’splanning and deliberations in the acquis-ition of City National Corporation, a

premier U.S. private and commercial bank,to serve as a powerful expansion platformfor long-term growth in the U.S.

Ensuring RBC has the depth of talent toimplement strategy and top performerswho will exhibit excellence in its executionis another priority of the Board. We activelyassess management’s bench strength,reviewing development plans for seniorexecutives who possess the strengthsmost valuable to RBC.

In today’s challenging market conditionsand competitive technologicalenvironment, promoting strong riskconduct and embedding a riskmanagement culture throughout RBC arekey priorities. The Board carefullyassesses whether management’s plansappropriately balance strategic oppor-tunities with risk discipline. We overseethe frameworks and processes designed toidentify the principal risks to thebusinesses and the systems implementedto manage those risks. The Board isinvolved in determining the amount andtype of risk that RBC will accept in thepursuit of business objectives, approvingthe Bank’s risk appetite and monitoringrisk profile to ensure plans and activitiesare prudently focused on generating long-term shareholder value.

The Board fosters a culture of integrityand good governanceWe regard good governance as a businessimperative, positively impacting corporateperformance by establishing the structuresand processes that drive RBC to meetstrategic objectives and achieve long-termsustainability. To maximize ourcontribution, your Board and itscommittees are committed to adaptingbest governance practices to the needs ofthe organization. This year we won BestOverall Corporate Governance in theExcellence in Governance Awards inrecognition of the integration of highgovernance standards throughout RBC.

Your Board is also proud of RBC’scontributions to the communities it serves.We understand that a good company issimultaneously purpose-driven,

principles-led and performance-focused.The strong reputation and brand of RBC arefounded on a business approach in whichwe work to make a positive impact onsociety, the environment and theeconomy. In setting the tone at the top, theBoard nurtures the strong corporate valuesthat are entrenched in the culture of RBC,and reinforces the ethical principles onwhich our reputation and success arefounded.

The Board is committed to the ongoingsuccess of RBC and creating long-termvalue for our shareholders and otherstakeholdersThe Board places strong emphasis uponselection of director candidates, assessingthe Board’s existing strengths against theevolving needs of the Bank. An importantelement of this is ensuring that a diversityof viewpoints, backgrounds andexperience are present at the Board. Inaddition to Toos Daruvala, a Director andSenior Partner with McKinsey & Companywho joined the Board earlier in 2015, wewere pleased this year to welcomeThierry Vandal, the recently retiredPresident and Chief Executive Officer ofHydro-Quebec, who brings to the Boardextensive experience in the energyindustry, regulatory affairs andcybersecurity.

The Board of Directors is confident thatRBC has the right people in place to buildon its success. The Board extends itsthanks to Dave McKay and his leadershipteam for their collective focus ondelivering an exceptional clientexperience, and on helping our clientsthrive and communities prosper. And asalways, a special thank you to all of RBC’semployees, whose passion andcommitment to our clients continues todrive our success.

Kathleen TaylorChair of the Board

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


royal bank of canada annual report 2015 helping clients ... · business and continued investment in...

Documents