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 the Bank’s Deposits & Senior Debt at AA and Short-Term Instruments at R-1 (high). All trends are Stable, except for the Bank’s Non-Cumulative First Preferred Shares, Series W, which remain Under Review with Negative Implications. The Bank’s ratings are underpinned by its highly diversified business model, strong Canadian retail franchise and top-tier position in the global custody business.

The benefits of the Bank’s diversified business model are reflected in the Bank’s resilient performance, having generated average annual return on equity (ROE) of 17.2% since 2000 and a minimum annual ROE over the same period of 11.2% (2009). In April 2012, RBC announced that it would acquire the remaining 50% stake of RBC Dexia Investor Services (RBC Dexia) for $1.1 billion cash (with the transaction closing on July 27, 2012). This announcement came just two weeks after the Bank stated its intention to acquire the Latin American, Caribbean and African private banking businesses of Coutts (the wealth division of Royal Bank of Scotland Group). DBRS views both acquisitions as consistent with the Bank’s stated strategy of growing its Wealth Management business. After struggling to develop its retail franchise in the U.S. over the past decade, RBC disposed of its U.S. regional retail banking operations to PNC Financial Services Group, Inc. Although RBC recorded a loss of $294 million after tax on its ill-fated 2001 entry into U.S. retail banking, the disposition of the U.S. retail operation allows RBC to redeploy capital into businesses with higher growth prospects and profiles more consistent with the Bank’s long-term growth objectives, notably Wealth Management and Capital Markets.

The Bank’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 custody through the ownership of RBC Dexia, which was rebranded RBC Investor Services.

As at the end of Q3 2012, the Bank’s operations were divided into six segments: Canadian Banking, Wealth Management, Insurance, International Banking, Capital Markets and Corporate Support, which represented 54%, 10%, 7%, 0%, 26% and 3% of pre-tax earnings in the nine months ended Q3 2012, respectively. On September 11, 2012, RBC announced changes to its business segments effective October 31, 2012. Going forward, the Bank’s business segments for financial reporting purposes will be: Investor and Treasury Services, Personal and Commercial Banking, Capital Markets, Wealth Management and Insurance.

The Bank serves more than 15 million individual and business clients through an extensive network that includes 1,355 branches (Q3 2012). Prior to the business segment changes, Canadian Banking includes domestic personal and business banking operations and certain retail investment businesses. Wealth Management continues to be comprised of 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, 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, as well as reinsurance, to individual and business clients. Prior to the business segment changes, International Banking was comprised of banking businesses outside of Canada, including banking operations in the United States (albeit smaller following the March 2012 U.S. regional retail divestiture) and the Caribbean, and the now wholly owned operations of RBC Investor Services. Capital Markets is comprised of the Bank’s global wholesale banking business, sales and trading, research and related products and services for corporations and public sector and institutional clients in North America, as well as specialized products and services in select global markets.

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

The applicable methodologies are Global Methodology for Rating Banks and Banking Organisations (June 2012), DBRS Criteria: Rating Bank Preferred Shares and Equivalent Hybrids (June 2009) and DBRS Criteria: Intrinsic and Support Assessments (February 2009), which can be found on our website.

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.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

Lead Analyst: Brenda Lum
Rating Committee Chair: Kent Wideman
Initial Rating Date: November 30, 1980
Most Recent Rating Update: September 17, 2012