Royal Bank of Canada (RY)
F4Q2012 Earnings Conference Call
November 29, 2012, 08:00 a.m. ET
Executives
Amy Cairncross - VP and Head, Investor Relations
Gord Nixon - President and CEO
Morten Friis - CRO
Janice Fukakusa - CAO and CFO
George Lewis - Group Head, Wealth Management and Insurance
Doug McGregor - Chairman and Co-CEO, Capital Markets and Co-Head of Investor and Treasury Services
Dave McKay - Group Head, Personal and Commercial Banking
Mark Standish - President and Co-CEO, Capital Markets and Co-Head of Investor and Treasury Services
Analysts
Steve Theriault - Bank of America/Merrill Lynch
Rob Sedran - CIBC
John Aiken - Barclays Capital
Peter Routledge - National Bank Financial
Cheryl Pate - Morgan Stanley
Sumit Malhotra - Macquarie
Michael Goldberg - Desjardins Securities
Mario Mendonca - Canaccord Genuity
John Reucassel - BMO Capital Markets
Presentation
Operator
Good morning ladies and gentlemen. Welcome to the RBC 2012 Fourth Quarter Results Conference Call. I’d like to turn the meeting over to Ms. Amy Cairncross, Head of Investor Relations. Please go ahead Ms. Cairncross.
Amy Cairncross
Good morning and thank you for joining us. Presenting to you this morning are Gord Nixon, President and CEO; Morten Friis, Chief Risk Officer; and Janice Fukakusa, Chief Administrative Officer and CFO.
Following their comments, we will open the call for questions from analysts. The call is one hour long and will end at 9 AM. To give everyone a chance to participate, please keep it to one question and then re-queue. We will be posting management’s remarks on our website shortly after the call. Joining us for your questions today are George Lewis, Group Head, Wealth Management and Insurance; Doug McGregor, Chairman and Co-CEO, Capital Markets and Co-Head of Investor and Treasury Services; Dave McKay, Group Head, Personal and Commercial Banking; and Mark Standish, President and Co-CEO, Capital Markets and Co-Head of Investor and Treasury Services.
As noted on Slide 2, our comments may contain forward-looking statements, which involve applying assumptions and have inherent risks and uncertainties. Actual results could differ materially from these statements.
I will now turn the call over to Gord Nixon.
Gord Nixon
Thank you, Amy and good morning everyone. 2012 was a record year for RBC with net income of over $7.5 billion which was up 17% from a year ago. On a continuing basis our net income of $7.6 billion was up 9% over last year with record earnings in three of our businesses; Canadian Banking, Capital Markets and Insurance. We delivered a strong return on equity of 19.5% even with [tier] capital as we transition the Basel III which becomes expected for the Canadian Bank in the first quarter of 2013.
Looking at our fourth quarter earnings grew over $1.9 billion up 19% over last year on a continuing operations basis with Canadian Banking earning over $1 billion for the second consecutive quarter. It was a clean quarter with earnings per share of $1.25 or $1.27 when you add back amortization of intangibles. It was also up 19% from last year.
Our fourth quarter results also reflects strong fixed income trading driven by improved conditions compared to last year, strong corporate and investment banking results and solid performance from Wealth Management and Insurance. Overall, our fourth quarter and full-year results clearly demonstrate the earnings power of RBC and our ability to successfully execute our long-term strategy.
By focusing on this strategy and maintaining strict risk and cost discipline we delivered strong earnings to a period of ongoing headwinds and we extended our leadership position in Canada while building on our momentum outside of our domestic market.
As shown on Slide 4, our capital ratios remained strong and well above both internal and regulatory target. At year-end our Tier 1 capital ratio was just over 13% and our estimated Basel III pro forma common equity Tier 1 ratio was 8.4%.
Turning to Slide 5, our objective over the medium-term is to achieve top quartile shareholder returns as we believe this reflects a longer-term view of strong and consistent financial performance. We use key financial performance objectives to measure against this medium-term goal. As you can see based on our performance in 2012, we achieved all of our financial objectives. We raised our quarterly dividend twice for a total increase of 11% and ended the year at the midpoint of our dividend payout ratio.
Looking ahead to 2013, we’re maintaining the same mid-term objectives of diluted earnings per share growth of over 7% plus, return on equity of 18% plus, and strong capital ratios as measured under the new Basel III standards as well as a payout ratio of between 40 and 50%.
Before I review the performance of our businesses, I’d note that our fourth quarter and full-year results reflect a strategic realignment of certain segments that we announced back in September. You also would have seen that in mid-November, we released our historical financials under this new structure to provide the investment community with information in advance of reporting today.
To recap, we created a Personal and Commercial Banking segment under Dave McKay’s leadership to leverage our domestic banking expertise across our international operations. We also created an Investor & Treasury Services segment under Doug McGregor and Mark Standish to better serve and grow our institutional client base. And with the retirement of Jim Westlake after 17 years of service, George Lewis will assume responsibility for our Insurance segment in addition to his ongoing leadership of our Wealth Management segment.
I will now provide an overview of our annual performance in each of these segments and following Morten and Janice will comment on our fourth quarter results.
Starting with Personal and Commercial Banking, this segment now includes Canadian Banking as well as our Caribbean and U.S. Banking business.
Our Canadian Banking business delivered record earnings of $4 billion representing over half of our total earnings. These results reflect our ability to leverage our size and scale to take a disproportionate share of industry growth and profitably gain market share. I would note that in the fourth quarter, we gained market share in all of our businesses. This year we had strong volume growth of 8.5%, well ahead of the peer average with notable strength in our commercial business, and we maintained consistent margins throughout the year.
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