The Royal Bank of Canada History

Company Perspectives:

Our Vision is to be Canada's premier global financial services provider, with committed people working as a team to exceed customer and shareholder expectations. Our Focus is on improving performance in each of our businesses to achieve consistent and superior returns for our shareholders. Our Strategic Priorities are to grow and diversify our revenues, improve our efficiency, and maintain a quality risk profile.

Company History:

The Royal Bank of Canada is Canada's largest financial institution. The bank maintains about 1,600 branches and offices in Canada, where it is among the leaders in consumer loans, home mortgages, personal deposits, business loans, money management, and mutual funds. Royal Bank also owns RBC Dominion Securities, Canada's biggest full-service investment dealer, and offers various types of insurance in Canada. Outside its home country, the bank has a large Caribbean retail banking network, maintains a global private banking operation, and provides business customers a variety of services, including corporate and investment banking, trade finance, correspondent banking, and treasury services.

Founded as Merchants Bank in Nova Scotia in 1864

Founded in 1864 by a group of eight businessmen in Halifax, Nova Scotia, the Merchants Bank, as it was then called, began with $200,000 in capital to support local commerce. The bank's establishment coincided with a sharp increase in the area's commercial activity, a result of the American Civil War--Halifax was a thriving center for blockade runners crossing the U.S. border.

The bank made a successful start under these conditions, and was incorporated five years later as the Merchants Bank of Halifax. Thomas C. Kinnear, one of the original founders, was its first president.

During the next few years, the bank expanded conservatively, opening branches in several more maritime towns. But from 1873 to the end of the decade, a business depression hit Nova Scotia's shipbuilding industry hard and kept the bank's growth slow.

When the business environment rebounded for a short time in the early 1880s, the bank resumed its growth plan, and in 1882 opened its first branch outside Canada, in Hamilton, Bermuda--before it had even expanded as far as Ontario domestically. Although this branch closed in 1889, the bank remained committed to international operations, opening several branches in Latin America before it was well established in western Canada.

By 1896, Merchants Bank's assets totaled $10 million. The gold rush in the early 1890s in southern British Columbia gave it the impetus to open agencies there in 1897 and 1898, especially since, with the completion of the Canadian Pacific Railway in 1885, the area seemed ripe for development.

In 1899 two more branches were established in New York and Havana. The bank took a conservative approach in developing its Cuban business and made only a handful of initial loans. But as confidence in Cuba's future grew, particularly with the formation of the Republic in 1902 and the continuing growth of the sugar industry, the bank gradually expanded, opening several branches around the country. (This business upswing came to a temporary halt when the sugar market suffered its first collapse, in 1920.)

In an effort to distinguish the bank from two other institutions with similar names, the bank was renamed The Royal Bank of Canada in 1901.

Relocated Headquarters to Montreal in 1907

The dawn of a new century heralded a period of growth and prosperity in Canada, especially in the area between Winnipeg and the Rocky Mountains. The bank grew too, opening more branches and acquiring several smaller institutions. With this growth, the bank decided in 1907 to relocate from Halifax to Montreal, where the general manager was based. The move reflected Montreal's growing importance as a financial center and the relative decline of maritime commerce.

By the following year, Royal Bank had 109 branches and $50 million in assets. This strong base provided the foundation for the bank's acquisition, in 1910, of the 54-year-old Union Bank of Halifax. Subsequent acquisitions of the Traders Bank of Canada and the Bank of British Honduras in 1912 more than doubled the number of operating branches and doubled its asset base by the end of the next year.

At the start of World War I, the Canadian real estate market had collapsed and very little capital was flowing into the country from abroad. In this uncertain atmosphere, the bank could not even promise staff who had enlisted reinstatement upon their return. Soon, however, business expanded sharply as wartime industry geared up, and the bank was forced to break with tradition and hire women.

Although the war put pressure on the Royal's day-to-day operations, the bank continued to grow, buying the Quebec Bank in 1917, the Northern Crown Bank in 1918, and two other banks in British Guiana and Nassau. By the end of the war, the Royal was the second largest bank in Canada, with 540 branches, assets of more than $422 million, and a new foreign trade department to handle its growing international presence.

The Royal Bank weathered the period of economic collapse that followed the end of World War I and, by 1925, had resumed its quest for expansion with the purchase of the Bank of Central and South America and the Union Bank of Canada. The Union Bank was the Royal Bank's largest takeover yet, and strengthened its presence in the three prairie provinces.

The bank's solid structure and leading position in the banking industry helped it survive the stock market crash relatively well, but it was not totally immune. Asset and profit levels fell, branches were closed, staff were laid off, and expenditures and the salaries of remaining employees were cut. Yet, while banks in the United States were closing in record numbers, not one Canadian chartered bank failed during this time.

By 1939, total assets were more than $1 billion, for the second time in 10 years, and the bank was ready to take advantage of the opportunities World War II offered. In cooperation with other banking institutions, the Royal actively participated in war measures, and it was instrumental in operating a ration coupon system for food and gasoline. But basically the war meant increased government expenditures for the war effort. The bank's domestic business flourished, though internationally its European branches were constrained under German occupation.

After World War II, the Royal led the way in developing the country's oil, gas, and resource exploration industries by providing banking services in remote locations. It opened an oil and gas department in Calgary in 1951, and also established banking services in cities along the British Columbian route of a massive project undertaken by the Aluminum Company of Canada. The bank continued its international expansion with the establishment of the Royal Bank of Canada Trust Company in New York in 1951 as well.

When Fidel Castro came to power in Cuba in 1959, the Cuban banking system was nationalized. The Royal Bank of Canada and the Bank of Nova Scotia were, alone among banks, permitted to operate independently, but the losses they incurred as nationalized businesses transferred their banking to the nationalized system were too heavy, and Royal Bank sold its Cuban assets to the Banco Nacional de Cuba in December 1960.

Offered New Services in the 1960s and 1970s

In 1962, almost 100 years after its founding, The Royal Bank of Canada adopted a new emblem to replace its original coat of arms. The emblem's design incorporated a lion, a crown, and a globe to symbolize the bank's position as a leading force in international banking. That same year, the bank's offices moved into a new, 42-story skyscraper now known as Place Ville Marie. The building's construction set in motion a large-scale urban development plan that turned midtown Montreal into a vital commercial district.

At the same time, the bank sharpened its focus on consumer-oriented financial services by entering the market with a product called TermPlan, a package of credit and insurance benefits. Six years later, in partnership with three other banks, the bank introduced Chargex, a credit card that allowed holders to make purchases within a specified credit limit and obtain cash advances through any of four participating institutions.

The 1967 revision of the Bank Act sparked vigorous competition among Canada's chartered banks, which had long operated under a morass of special restrictions. In removing or casing these constraints, the new act permitted banks to vie for loans, deposits, and conventional mortgages on an equal basis with other lending and borrowing institutions. By 1967 Royal Bank had written more than half of the residential mortgage loans provided by all of the chartered banks combined.

In the early 1970s, Royal Bank joined forces with five other banks to form Orion, a London-based merchant banking organization designed to enter the financial services market. Although Canadian law prohibited banks from entering this market domestically, Orion competed successfully in placing international bond issues and securities. Orion became a wholly owned subsidiary of the Royal Bank in 1981, enabling the bank to diversify its operations up to the limits imposed by Canada's banking laws and position itself for the possibility of international banking deregulation.

In 1979 Rowland Frazee, who had been with the bank for 40 years, was appointed chief executive officer. He replaced W. Earle McLaughlin, who became chairman after a popular 18-year reign as CEO.

Continued Diversification in the 1980s

By 1981, Royal Bank was the fourth-largest bank in North America, with assets of $53 billion. Although one-third of that total was attributed to its international activities, the bank had lost its early advantage in many foreign markets to other institutions. One of Frazee's first orders of business was to strengthen the bank's influence in the United States. He poured new capital into the Royal Bank and Trust Company, in New York, and increased its staff. A second Frazee priority was the development of a Global Energy Group, based in Calgary, to provide technical consultation as well as capital for energy-related projects on an international basis. To manage its newly aggressive stance, the bank reorganized into four groups, two responsible for Canadian retail and commercial business, and two to handle corporate banking and international operations.

In 1986 Allan Taylor became chairman and CEO of Royal Bank. Taylor's rise from junior clerk at the age of 16 to chairman 37 years later was a remarkable one. His appointment as chairman replaced the bank's traditional conservatism with a more entrepreneurial approach to the challenges the bank faced.

One of the first challenges Taylor met was the relaxation of rules governing the ownership of brokerage firms by banks. The Royal began negotiations with Wood Gundy, a leading Canadian brokerage firm, in the spring of 1987, some months before the law actually changed. That deal fell through, but the Royal went on to acquire Dominion Securities (later renamed RBC Dominion Securities), the largest investment house in Canada, just after the stock market crash in October that year. Although it was one of the last of Canada's big banks to enter the brokerage market, by waiting, the Royal got the best deal of all, saving a significant amount over pre-crash prices.

Focused on Fee-Based Businesses during the 1990s

Royal Bank was the second-largest bank in North America by 1991 and was seeking to defend its strong position--and further raise its profile in the United States--by acquiring a U.S. retail bank. But the bank was unable to find a suitable prospect at the right price. In 1991, however, RBC Dominion Securities was given permission to participate in stock underwriting by the U.S. Federal Reserve. Still, problems in the domestic economy in 1991 and 1992--which led the bank to set aside C$1.29 billion for loan losses in the fourth quarter of 1992--forced a retreat from Royal Bank's ambitious U.S. plans. Concentrating more on augmenting its Canadian operations, the Royal in 1991 acquired McNeil Mantha Inc., a Quebec-based investment dealer, for $22 million.

As the 1990s progressed, Royal Bank concentrated on achieving revenue growth through a focus on fee-based businesses. Much of this was growth achieved through additional acquisitions, mainly domestic. The bank moved quickly in response to a June 1992 change in Canadian law that allowed banks to own 100 percent of insurance companies and to offer travel insurance with the early 1993 acquisition of Voyageur Travel Insurance Ltd., the largest provider of travel insurance in Canada. Also acquired in 1993 was Royal Trustco for $1.3 billion, a deal that increased the Royal's assets by about $1.1 billion, or 10 percent. Royal Trustco was Canada's largest money manager, including the handling of a large family of mutual funds, and had a strong position in global private banking.

In late 1994, John Cleghorn, a 20-year Royal Bank veteran who had been president and chief operating officer, replaced Taylor as chairman and CEO. Under Cleghorn, the bank continued to acquire fee-based businesses. In 1995 RBC Dominion Securities bolstered its investment banking operation through the acquisition of Kidder Peabody's equity derivatives team. During 1996 and early 1997 the Royal made four additional significant acquisitions. In January 1996 Westbury Canadian Life Insurance Company, based in Hamilton, Ontario, was purchased, bringing with it C$90 million in annual premiums. In August of that same year, Royal Bank bought the C$47-billion-in-assets institutional and pension custody business of Toronto-Dominion Bank and Trust, then in February 1997 acquired Bank of Nova Scotia's institutional and pension custody business and its C$120 billion in assets under administration. These deals moved Royal Bank into the top 10 worldwide among securities-custody service businesses. Meanwhile, in November 1996 RBC Dominion Securities added to its already strong portfolio the operations of Richardson Greenshields Limited, acquired for C$480 million. Richardson Greenshields was a Canadian full-service investment dealer with $16 billion in private client assets.

In late 1995 Royal Bank was listed on the New York Stock Exchange in a move intended as prelude to an anticipated acquisition of a U.S. money-management business. In the meantime, the bank attempted in mid-1997 to acquire London Insurance Group Inc., the fifth-largest life insurer in Canada, but its C$2.4 billion (US$1.74 billion) offer was topped by Great-West Lifeco Inc.'s offer of C$2.9 billion (US$2.09 billion). Soon after this failure, Royal Bank entered into an agreement with HB Group Insurance Management Ltd. whereby the two companies would share technology, systems, and expertise to help Royal Bank establish and grow a property and casualty insurance business.

The Royal Bank of Canada, in a little more than a century and a quarter, grew from a modest regional bank into a major domestic and international force, with total assets of more than C$217 billion. The strong North American economy of the mid-1990s had helped Royal Bank post record 1996 net income of C$1.43 billion, a huge increase over the C$107 million of 1992. Clearly, the bank's strategy of concentrating on increasing its fee-based businesses through the careful yet aggressive pursuit of acquisitions and alliances was paying dividends. Royal Bank seemed well positioned to lead Canadian banks into the 21st century.

Principal Subsidiaries: Royal Bank Mortgage Corporation; Royal Trust Corporation of Canada; The Royal Trust Company; RBC Insurance Holdings Inc.; Royal Bank Export Finance Co. Ltd.; RT Investment Management Holdings Inc.; Royal Mutual Funds Inc.; Royal Bank Action Direct Inc.; Royal Bank Holding Inc.; Royal Bank of Canada Reinsurance (Cayman) Limited (Cayman Islands); RBC Holdings (U.S.A.) Inc.; Royal Bank of Canada Financial Corporation (Barbados); Atlantis Holdings Limited (Barbados); RBC Finance B.V. (Netherlands); RBC Investment Management (Asia) Limited (Hong Kong); Royal Trust Bank (Asia) Limited (Singapore).

Principal Operating Units: Personal and Business Banking (consisting of Personal Financial Services, Card Services, Insurance, and Business Banking); Wealth Management (consisting of Royal Trust, Mutual Funds, Private Credit Services of RBC Dominion Securities, and Discount Brokerage Services); Corporate and Investment Banking (consisting of Multinational Banking, Financial Institutions and Trade, and International Services of RBC Dominion Securities).

Further Reading:

• Baragar, Geoff, "Reflections of a Royal Banker," Canadian Business Review, Summer 1987, p. 8.
• Darroch, James L., Canadian Banks and Global Competitiveness, Montreal: McGill-Queen's University Press, 1994.
• Graham, George, "RBC to Spend C$500m on Consumer Banking," Financial Times, November 21, 1996, p. 36.
• Greenberg, Larry M., "Royal Bank to Buy Back Shares Amid Reduced Need for Capital," Wall Street Journal, September 13, 1996, p. B4.
• ------, "Shareholders' Revolt, the Canadian Way: Bash Bank Bosses," Wall Street Journal, January 16, 1997, p. B9.
• ------, "Great-West Tops Offer for London Insurance," Wall Street Journal, August 20, 1997, p. A4.
• Hartley, Tom, "Disappointing Free Trade Leads to Royal Bank's Exit," Business First of Buffalo, November 9, 1992, p. 3.
• Ince, Clifford H., The Royal Bank of Canada: A Chronology 1864-1969, Montreal: Royal Bank of Canada, 1970.
• Koenig, Peter, "Royal Flush--Or a Bank in Turmoil?," Euromoney, November 1987, p. 50.
• Maley, Dianne, "Building the Bank of Future," Canadian Banker, January/February 1996, pp. 21--25.
• McDowell, Duncan, Quick to the Frontier: Canada's Royal Bank, Toronto: McClelland & Stewart, 1993, p. 478.
• Simon, Bernard, "Each to His Own," Banker, August 1994, pp. 46--48.
• Willoughby, Jack, "Southern Exposure," Financial World, June 11, 1991, pp. 40--43.

Source: International Directory of Company Histories, Vol. 21. St. James Press, 1998.

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