The Royal Bank of Canada

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The Royal Bank of Canada

1 Place Ville Marie
Post Office Box 6001
Montreal, Quebec H3C 3A9
Canada
(514) 874-2110

Public Company
Incorporated: 1869 as the Merchants Bank of Halifax
Employees: 46,400
Assets: C$110.05 billion (US$92.31 billion)
Stock Index: Toronto Montreal Vancouver

The Royal Bank of Canada is Canada’s largest financial institution. The bank maintains more than 1,500 branches in Canada and conducts business through more than 100 facilities worldwide.

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.

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, the Royal Bank of Canada 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-today 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 ten 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 the Royal Bank sold its Cuban assets to the Banco Nacional de Cuba in December of 1960.

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 easing 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 the Royal Bank had written more than half of the residential mortgage loans provided by all of the chartered banks combined.

In the early 1970s, the 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.

By 1981, the 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 of the Royal Bank. Taylor’s rise from junior clerk at the age of 16 to chairman 37 years later has been a remarkable one. His appointment as chairman replaced the bank’s traditional conservatism with a more entrepreneurial approach to the challenges the bank faces.

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, 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.

The Royal has succeeded in reducing its net exposure to Third World debt from 200% of shareholder equity to 75% and hopes to reduce it to 25% in the early 1990s. An even greater challenge, however, will be to formulate longer-term repayment strategies to assist these borrowers in becoming economically viable again.

The Royal Bank has grown from a modest regional bank more than a century ago into a major domestic and international force, with assets over C$110 billion and more than 46,000 employees. Buoyed by its acquisition of Dominion Securities and an increasingly entrepreneurial spirit, the Royal Bank seems well positioned to lead Canadian banks into the twenty-first century.

Principal Subsidiaries:

NMRB Limited (Australia) (50%); Finance Corp. of Bahamas Limited (FINCO) (75%); Royal Bank de Puerto Rico; The Royal Bank of Canada A.G. (Germany); RBC Finance B.V. (Netherlands); Royal Bank of Canada (Bahamas) Limited; RBC Barbados; Banco Royal do Canada (Brasil).