U.S. Expansion Strategy

Transcription

1 U.S. Expansion Strategy Presentation to Analysts & Institutional Investors Peter Currie Vice-Chairman & CFO Royal Bank of Canada Charlotte, North Carolina June 12, 2002 RBC Financial Group goals To be recognized as: 1. The undisputed lead provider of integrated financial services in Canada 2. A best in class provider of select financial services in the United States 3. A premier provider of specialized global financial services 1

2 Key priorities 1. Strong fundamentals 2. International expansion 3. Growth of high-return & high-p/e multiple businesses 4. Cross-platform leverage 2 Reasons for U.S. expansion Consistent with goal 2 and priorities 2-4 Sizeable market positions in Canada Limited opportunities for revenue growth in Canada U.S.: largest global economy contiguous market similar culture and language fragmented banking industry offering good growth potential 3

3 The Canadian banking industry is world class and more efficient the domestic banks [have] dominant positions in the personal and commercial market, and very competitive pricing. Canada s banking infrastructure is leading edge, with a high degree of automation and strong management and control systems. Canadian banks enjoy higher penetration of electronic channels, such as debit cards, Internet banking, and telephone banking, than any other banking system in the world. An international comparison of the Canadian banks shows they are able to provide and sell products and services in an efficient way at a lower cost, while at the same time turning in profits that are comparable with the industry average. - Standard & Poor s Bank Industry Risk Analysis: Canada March 15, ROE exceeds average for North American peer group Core ROE 18.1% 17.4% 17.8% 17.9% 16.1% Royal Bank 19.3% 17.5% Peer Group 16.6% 16.9% % 15.7% 11.8% Months selected peer group consists of: Bank of New York, Wells Fargo, PNC Financial, Bank One, JP Morgan Chase, US Bancorp, Wachovia, Bank of America, FleetBoston, KeyCorp, Power Financial, TD Bank, CIBC, Scotiabank, Bank of Montreal 2 6 months 2002 ROE for Canadian banks and first quarter 2002 ROE for U.S. banks 5 U.S. GAAP (where available)

4 Diversified U.S. platform reduces concentration and provides flexibility RBC Banking U.S. acquisitions since April 2000 RBC Insurance RBC Investments RBC Capital Markets Centura Banks, Inc. US$2.2 billion June 5, 2001 Eagle Bancshares, Inc. approx.us$153 million expected close: by July 31, 2002 Prism Financial Mortgage Origination US$115 million April 19, 2000 Liberty Life & Liberty Insurance Services US$580 million November 1, 2000 Genelco assets Insurance software and outsourcing November 17, 2000 Barclays Americas private banking ops. up to US$90 million expected close: by June 30, 2002 Business Men s Assurance Co. approx. US$220 million expected close: by Aug. 31, 2002 Dain Rauscher US$1.2 billion January 10, 2001 Tucker Anthony Sutro US$594 million October 31, 2001 U.S. direct life insurance operations 6 Jones & Babson (mutual fund company) Higher earnings from U.S. acquisitions (C$ millions) RBC Centura 1 RBC Liberty RBC Dain Rauscher 2 Total U.S. acquisitions 6 mos $ (23) $ 87 6 mos $ (2) 9 (26) $(19) NOTE: 6 months 2001 numbers included 5 months of results for RBC Liberty Insurance and 3 months and 3 weeks of results for RBC Dain Rauscher 1 RBC Centura (acquired in Q3/01) includes RBC Mortgage and Security First Network Bank 2 Includes Tucker Anthony Sutro beginning October 31, U.S. GAAP

5 RBC Dain Rauscher profitable before retention compensation (C$ millions) 6 mos mos Retention compensation costs (after-tax) $37 $20 Net income (excluding retention compensation) $14 $(6) 8 RBC Dain Rauscher retention compensation expenses to fall 1 (C$ millions, after-tax) $68 $54 $43 $33 $ F 2003F 2004F 2005F 1 forecasts based on current C$/US$ exchange rates. Numbers relate to RBC Investments (wealth management) segment alone and include Tucker Anthony Sutro acquired in Q1/02 9 U.S. GAAP

6 U.S. brokerage well positioned for market recovery Believe in the full-service brokerage model Successful track-record in Canada RBC Dain Rauscher s 2,100 brokers position it well to perform better when the markets recover 10 Expanding profitable U.S. Insurance platform Initial entry with Liberty acquisition in November 2001 (little goodwill) Business Men s Assurance acquisition to add further capabilities, including variable life and variable annuities (to close by Aug. 31, 2002) RBC Liberty earned C$10 million in first half 2002, up from C$9 million in 6 months

7 Disciplined acquisitions Acquisitions should be accretive to cash EPS in 2-3 years 12 Cash EPS Prism Financial In Year 1 Liberty Insurance In Year 1 Eagle Bancshares In Year 1 Business Men s Assurance In Year 2 1 Dain Rauscher In Year 2 Centura Banks In Year 2 Barclays Americas private banking operations In Year 3 2 Tucker Anthony Sutro In Year neutral to cash EPS in Year 1 (2003) 2 minimally dilutive to cash EPS in 2002 and neutral to cash EPS in Year 1 (2003) 3 neutral to cash EPS in Year 2 (2003) Proportion of U.S. revenues growing 2000 revenues 6 month 2002 revenues U.S. 7% Canadian 84% Canadian 64% U.S. 27% Other Int l 9% Other Int l 9% 13 U.S. GAAP

8 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 accounts Business Men s Assurance 150,000 policies Recent U.S. acquisitions 2,500, Substantial cost synergies in phase II of U.S. expansion Integration of SFNB and functions of RBC Prism and RBC Builder Finance into RBC Centura expected to result in US$70 million of cost savings on an annualized basis by end of 2002 Merger of Tucker Anthony into RBC Dain Rauscher annualized cost savings of over US$60 million expected to be realized (50% in 2002, remainder in 2003) Integration of Eagle Bancshares into RBC Centura (to begin once closed expected by July 31, 2002) expected to result in US$7+ million of cost savings (25% of Eagle s costs) on an annualized basis within 12 months of close Integration of Business Men s Assurance into RBC Liberty Insurance (to begin once closed expected by Aug 31, 2002) expected to result in US$6 million of cost savings on an annualized basis within 12 months of close from policy administration consolidation alone 15

9 U.S. expansion priorities Near-term focus Consolidating recent acquisitions Meeting operating targets 16 What next? Primary focus is on expanding in Personal & Commercial Banking, largely in the South East U.S. Eagle Bancshares small footstep in the lucrative Atlanta market Georgia and Florida are both attractive 17

10 Considerations impacting our expansion deliberations 1. Trade-off between fundamentals and expansion 2. Sizeable internal capital generation C$895 million in 6 months 2002 buyback program of 3% renewed committed to investing capital prudently for sustainable returns 3. Banking consolidation in Canada inevitable, although not imminent will not put our future on hold for it each Canadian bank has U.S. presence 18