Awards for Excellence 2020
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Canada’s biggest bank is a regular winner of the award for Canada’s best investment bank, but in 2020 it has clocked up another accolade for the first time since 2004.
For its consistently strong financial performance across its entire franchise, a performance repeated through the awards period and one that persisted even as the coronavirus crisis took hold, this year Royal Bank of Canada is also our pick as Canada’s best bank.
For the four fiscal quarters running to the end of February 2020, before the effect of coronavirus had begun to show up in earnings, RBC averaged a return on equity of 17%, at least two percentage points above its closest peer. Revenues over the same period were up nearly 10%.
RBC’s investment banking and capital markets business is an outsized contributor to the group compared with the bank’s domestic peers. But strip it out and revenues were also up 10% over the same period.
Before the Covid-19 crisis, president and chief executive David McKay points to two challenges the bank faced. One was an economic downturn that it foresaw, given where the country was in the economic cycle – 10 years into a bull run.
“We were making a number of adjustments to our businesses to prepare for a contraction over the ensuing months,” he says. “This included making prudent decisions about the composition of our loan portfolio, building up our capital buffers and of course continuing to build on our organic growth capabilities.”
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David McKay, |
The second – and, for McKay, no less important – challenge that the bank and the entire business community face related to climate change. For a bank operating in Canada, with its natural resource-dependent economy, this is felt all the more keenly.
“We made a commitment to provide $100 billion in sustainable financing by 2025,” notes McKay. “In our first full year we made tremendous progress, funding $26 billion to various ESG [environmental, social and governance] initiatives.”
The bank also sold its first green bond in April 2019.
It is worth mentioning RBC’s US business. It is the 10th largest investment bank in that market, while its wealth management business spans 42 states.
Its City National Bank brand has expanded into markets such as Los Angeles, New York and Washington, and in October 2019 opened in Miami.
“We have always viewed the US as our second home market and are pleased with the growth there, both in our capital markets division and our growth in wealth management, particularly since the acquisition of City National Bank,” says McKay.
But he also notes that the bank is building in the UK and Europe, particularly in capital markets.
The Covid-19 crisis came alongside turmoil in the commodity markets that troubled Canada’s natural resource-heavy economy. And while supporting clients, the bank faced its own challenges, the flipside of the size and reach that in normal times would be a boon.
McKay describes the job of relocating most of its 84,000 employees around the world to work from home as the largest operational project the bank has ever conducted.
“When you couple these challenges with the personal, emotional impacts of the crisis and ensuring that we continue to serve our clients, I’m truly impressed by what our teams have done to adapt, respond and be there for our clients,” he adds.
Perhaps the clearest testament to the strength of RBC’s underlying franchises and how well it managed to retain business through the pandemic came in its second-quarter 2020 results – a period that vividly shows the momentum the bank had as it headed into the crisis.
Before provisions, its pre-tax earnings were $4.6 billion – the second best in the bank’s 150-year history. And the best quarter ever? The one right before that.
