corporate
DESCRIPTION
TRANSCRIPT
Corporate & Investment Banking
Chuck WinogradChief Executive Officer
Presentation to Analysts & Institutional Investors
October 22, 2001Toronto
1
Business focus
Wholesale banking and advisory unit of RBC Financial GroupEncompasses:� Corporate and institutional business of
Dominion Securities� Royal Bank’s corporate banking business� Capital markets business of Dain Rauscher
Corporation� Reorganized private equity business of RBC
Financial Group
2
$379
$502
$390 $387
1999 2000 9 mos '00 9 mos '01
1 Excluding special items
Net income1 & contribution to total bank net income(in C$ millions)
21%23%
24% 22%
Business performance
3
Performance by division
-20%
0%
20%
40%
60%
80%
100%
1999 2000 9mos '00 9mos '01
Global MarketsGlobal EquitiesGlobal BankingDRW
RBC Capital Partners
Contribution to RBC Capital Markets total revenue
4
Geographic diversification
After-tax profits
1999 2001 YTD
International Domestic
42% 58%
International Domestic
49% 51%
5
Existing organization structure
2001Global Banking
GlobalEquity
GlobalMarkets
RBC CapitalPartners
Dain RauscherWessels
Corporate Finance
Mergers &Acquisitions
Equity Capital Markets
Lending & Structured Finance
Loan PortfolioManagement
Loan AdministrationSecuritization
Loan SyndicationLoan Trading
Equity Research
Equity Sales &Trading
Equity Derivatives
Foreign ExchangeMoney Market
Funding & BalanceSheet Management
Debt & CreditDerivatives
Fixed Income
High Yield
Private Equity
Mezzanine Debt
Corporate Finance
Mergers &Acquisitions
Equity CapitalMarkets
Equity Research
Equity Sales &Trading
6
New organization structure
Capital MarketServices
Global FinancialProducts
Global TreasuryServices
GlobalCredit
RBC CapitalPartners
Corporate Finance
Equity CapitalMarkets
Mergers &Acquisitions
Equity Derivatives
Foreign Exchange
Money Market
Funding & BalanceSheet Management
Private Equity
Mezzanine Debt
Effective November 1, 2001
RelationshipLending
Structured Finance
Equity Research
Equity Sales &Trading
Fixed Income
High Yield
Debt & CreditDerivatives
SecuritizationLoan Syndication
Loan Trading
Relative ValuePortfolio
Loan Administration
Mark to Market
DemarketPortfolio
7
Canadian market size
Canadian market growth
Extensive existing market share
Core strategic and structural issues
8
Canadian M&A (14 of top 20 transactions) First
Equity Underwriting 14%
Debt underwriting 21%
Equity Trading 15%
Bond Trading 13%
Syndicated Loans (agent only) 36%
Domestic market share positions as high as any in the free world
(Y2000)
Extensive market share in the domestic market
9
Reducing Canadian companies- an example
Oil and Gas Producers (TSE 300 Composite Index
Company Name Relative Weight onComposite (%)
Northrock Resources (55%) 0.05Northstar Energy 0.05PanCanadian Petroleum (13%) 0.13Petromet Resources Ltd. 0.04Poco Petroleums 0.32Paramount Resources Ltd. (51%) 0.10Probe Exploration Inc. 0.01Penn West Petroleum 0.21Rio Alto Exploration 0.26Renaissance Energy 0.50Ranger Oil 0.13Rigel Energy 0.11Reserve Royalty Corp. 0.01Talisman Energy 0.85Tri Link Resources 0.04Ulster Petroleums 0.10Vermillion Resources 0.04
Oil and Gas Producers (TSE 300 Composite Index
Company Name Relative Weight onComposite (%)
Alberta Energy 1.03Anderson Exploration 0.38Beau Canada Exploration 0.04Berkley Petroleum 0.20Bonavista Petroleums 0.05Baytex Energy Ltd. Cl A 0.05Cabre Exploration 0.04Chieftain International 0.06Canadian Natural Resources 0.51Crestar Energy 0.18Canadian Occidental (71%) 0.44Canadian 88 Energy Corporation 0.07Genesis Exploration Inc. 0.06Gulf Canada Resources 0.04Gulfstream Resources 0.03Canadian Hunter Exploration Ltd. (61%) 0.14Numas Energy (75%) 0.05Newport Petroleum 0.07
10
Reducing new company formation
IPOs – 1997 to 2001 Number Value ($ billions)
1997 106 11.6 1998 45 3.5 1999 36 4.8 2000 55 6.2
2001 (YTD) 25 3.0
Total Canadian MarketTotal Canadian Market
11
Integration of markets
Disappearance of borders
Growth is outside the country
U.S. equity performance
Access to U.S. equities market accepted fact in Canada
Our equities universe now North American, not Canadian
12
Convergence of capital markets
Lending and capital markets
High yield and equity markets
Equity markets and private equity
Convergence has more purely priced components of traditional securities -credit, option value, interest rate risk, etc.
13
The rise of structuring and customization
Convergence has created repackaging opportunities
Internal proprietary trading books provide R&D for customization
Customization and structuring provide answers to problems
Clients will pay for solutions
Need to focus cost structure away from commodity product
14
U.S. strategy synthesis
U.S. capital markets focus - purchase of Dain Rauscher Wessels
Time has come for integration
Integrated client solution driven
Broaden the DRW product line
Deepen the RBC DS product line with U.S. expertise and distribution
15
U.S. strategy synthesis
Full service provider in Canada; sustain and expand industry leading shareIndustry focused penetration in the U.S.
� energy� telecom� technology� health care
Mid-market focus in U.S. market for broad product range
� targeted megacap coverage for CAD$ and forex, and other customized product
Geographic spread of management
16
Restructuring the loan business
Large ticket loan business largely commoditized
Challenge to make this a real business
Substantial progress made in reducing exposures and cost structure over last three years
17
Loan exposure down 32%
Single names down from 1,400 to 1,000
Reduced staff by more than a third
Increased return criteria
Significant pruning of corporate loans
18
Restructuring the loan business
Split portfolio into “core” and “non-core” components - substantial reduction in client base
Fully allocate capital to core loans and impose strict minimum return criteria
Mark to market management system
Value added portfolio managed for risk-adjusted return
Total commitment to reducing loan losses
19
Non-interest expense control
2,300
2,350
2,400
2,450
2,500
2,550
2,600
2,650
2,700
1999 2000 2001 YTD0%
5%
10%
15%
20%
25%
30%
35%
40%
Core RBC DS staff countNon-interest expenses (ex. variable compensation) as % of revenues
1
1 Includes $78 million of restructuring, without is 33%
20
Recent initiatives
Structured finance capability in the U.K.
Securitization team
Credit derivatives in London & New York
High-yield in Greenwich
21
New organization structure
Capital MarketServices
Global FinancialProducts
Global TreasuryServices
GlobalCredit
RBC CapitalPartners
Corporate Finance
Equity CapitalMarkets
Mergers &Acquisitions
Equity Derivatives
Foreign Exchange
Money Market
Funding & BalanceSheet Management
Private Equity
Mezzanine Debt
2002
RelationshipLending
Structured Finance
Equity Research
Equity Sales &Trading
Fixed Income
High Yield
Debt & CreditDerivatives
SecuritizationLoan Syndication
Loan Trading
Relative ValuePortfolio
Loan Administration
Mark to Market
DemarketPortfolio
22
The RBC Capital Markets strategy
Maintain Canadian leadership position while building North American business
Mid-market U.S. focus with broad product portfolio delivered through industry expertise
Focus on structured value added solutions for clients
Continue to build global niche businesses
23
Caution regarding forward-looking statements
Royal Bank of Canada, from time to time, makes written and oral forward-looking statements, included in this presentation, the Annual Report, in other filings with Canadian regulators or the U.S. Securities and Exchange Commission, in reports to shareholders and in other communications, which are made pursuant to the “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among others, statements with respect to the bank’s objectives for 2001, and the medium to long term, and strategies to achieve those objectives, as well as statements with respect to the bank’s beliefs, plans, expectations, anticipations, estimates and intentions. The words “may,” “could,” “should,” “would,” “suspect,” “outlook,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” and words and expressions of similar import are intended to identify forward-looking statements.
By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and risks exist that predictions, forecasts, projections and other forward-looking statements will not be achieved. The bank cautions readers not to place undue reliance on these statements as a number of important factors could cause actual results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements. These factors include, but are not limited to, the strength of the Canadian economy in general and the strength of the local economies within Canada in which the bank conducts operations; the strength of the United States economy and the economies of other nations in which the bank conducts significant operations; the effects of changes in monetary and fiscal policy, including changes in interest rate policies of the Bank of Canada and the Board of Governors of the Federal Reserve System; changes in trade policy; the effects of competition in the markets in which the bank operates; inflation; capital market and currency market fluctuations; the timely development and introduction of new products and services by the bank in receptive markets; the impact of changes in the laws and regulations regulating financial services (including banking, insurance and securities); changes in tax laws; technological changes; the ability of the bank to complete strategic acquisitions and to integrate acquisitions; unexpected judicial or regulatory proceedings; unexpected changes in consumer spending and saving habits; and the bank’s anticipation of and success in managing the risks implicated by the foregoing.
The bank cautions that the foregoing list of important factors is not exhaustive. When relying on forward-looking statements to make decisions with respect to the bank, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. The bank does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the bank.