DBRS Confirms RBC at AA and R-1 (high); Trends Stable

DBRS has today confirmed the ratings of Royal Bank of Canada (RBC or the Bank) and its related entities, including RBC’s Deposits & Senior Debt at AA and Short-Term Instruments at R-1 (high). All trends are Stable.

The Bank’s ratings are underpinned by its highly diversified business model. This is reflected in its resilient performance, generating average annual ROE of 17.6% since 1994 and a minimum annual ROE over this same period of 11.9% (2009). RBC’s diversified model consists of a superior domestic franchise, growing international businesses (wealth management and capital markets) plus solid credit and financial risk profiles.

The Bank has leading or near-leading domestic market shares in retail banking, wealth management and capital markets products. The domestic businesses are diversified by product, geography and customers. RBC continues to strengthen its Canadian franchises through ongoing expansion of its product offerings, investments in its distribution network and further development of its sales culture, while at the same time driving efficiencies through automation and simplifying processes. DBRS expects these initiatives will help to maintain its leadership positions.

DBRS believes it is this strong performance of the domestic franchise that supports the Bank’s international growth initiatives. RBC continues to expand its global operations, including wealth management and capital markets, both of which are key segments of the Bank’s growth strategy. Once the announced sale of RBC Bank (USA) closes, expected to be in March 2012, the Bank will be able to redeploy the capital into businesses that have higher growth prospects and better return potential.

The pending sale of RBC Bank (USA) puts to rest one of the greater challenges the Bank has had to face over the last decade. Management acknowledged the lack of a strong U.S. retail banking brand upon which to build a franchise. More recently, RBC Bank (USA) had been restructuring its franchise in order to improve profitability. On its own, DBRS believed RBC Bank (USA) did not have the economies of scale in products and services to compete in the longer term. Although the U.S. residential builder finance business and non-performing loans remain with the Bank, as these assets are held in a legal entity outside of RBC Bank (USA), the exposure is manageable relative to RBC’s earnings and capital.

RBC’s long-term Deposits & Senior Debt rating, at AA, is composed of its intrinsic assessment of AA (low) and its support assessment of SA2 (reflecting the expectation of systemic and timely external support by the government of Canada). The SA2 results in a one-notch benefit to the senior debt and deposits and subordinated debt ratings.

Based in Toronto, Canada, Royal Bank of Canada has full-service domestic banking, full-service brokerage and bank-owned mutual fund firms in Canada. In every Canadian business in which it participates, RBC currently holds first- or second-ranking positions, with an objective to become number one in every business. The Bank’s global businesses include insurance, wealth management, capital markets and 50% ownership of RBC Dexia.

The Bank’s operations are divided into six segments: Canadian Banking, Wealth Management, Insurance, International Banking, Capital Markets and Corporate Support, which represented 51%, 13%, 6%, minus 2%, 32% and minus 1% of pre-tax earnings in H1 2011, respectively.

Canadian Banking includes domestic personal and business banking operations and certain retail investment businesses. This segment operates one of the largest personal and business banks in Canada. It services more than ten million individual and business clients through an extensive network that includes 1,209 branches (Q4 2010). Wealth Management comprises businesses that directly serve the growing wealth management needs of affluent and high-net-worth clients in Canada, the United States, Europe, Asia and Latin America, and provides asset management and estate and trust products through RBC and external partners. Insurance is a global business that provides a wide range of creditor, life, health, travel, home and auto insurance products and services to individual and business clients in Canada and the United States, as well as reinsurance. International Banking comprises banking businesses outside Canada, including banking operations in the United States (sale to close March 2012) and the Caribbean, and the 50%-owned RBC Dexia Investor Services. Capital Markets is comprised of the Bank’s global wholesale banking business, sales and trading, research and related products and services, to corporations, public-sector and institutional clients in North America and specialized products and services in select global markets.

Royal Bank of Canada is Canada’s largest Schedule I bank as measured by assets ($729 billion) at H1 2011.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodologies are the Global Methodology for Rating Banks and Banking Organizations (January 14, 2010), Rating Bank Preferred Shares and Equivalent Hybrids (June 29, 2009), and Enhanced Methodology for Bank Ratings – Intrinsic and Support Assessments (February 11, 2009), which can be found on our website under Methodologies.

• DBRS ratings for Royal Bank Mortgage Corporation, Royal Trust Corporation of Canada and Royal Trust Company (no guarantee) are based on ratings for Royal Bank of Canada.

The sources of information used for this rating include information provided by the Royal Bank of Canada, Investment Funds Institute of Canada, Bank for International Settlements, Office of the Superintendent of Financial Institutions Canada, and Bloomberg. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

For additional information on this rating, please see Banks and Banking Organisations Linking Document by clicking the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.

Lead Analyst: Brenda Lum
Rating Committee Chair: Brenda Lum
Initial Rating Date: November 30, 1980
Most Recent Rating Update: July 12, 2010