RY: Canada's Largest Bank

The Royal Bank of Canada is the largest diversified financial service company in Canada. It provides personal and commercial banking, wealth management services, insurance, corporate and investment banking, and transaction processing services on a global basis. It has three client and geographic-oriented business segments: RBC Canadian Personal and Business, RBC U.S. and International Personal and Business, and RBC Capital Markets. While its operations focus is primarily in Canada and the United States, it does have a strong off-shore presence. Headquartered in Ontario, Canada employing over 70,000 people, the RBC group of companies reported a 19% increase in F3Q profits. The return on average equity (for quarterly for Jun '07) was 24.65% with a net profit margin of 26.37%; outshining larger peers: Bank of America Corporation (NYSE:BAC) RAE of 17.32% NPM of 29.45%, JP Morgan Chase & Co. (NYSE:JPM) RAE of 14.34% NPM of 22.39% Deutsche Bank AG (NYSE:DB) RAE of 19.66% NPM of 20.23% Citigroup (NYSE:C) RAE of 20.07% NPM of 23.84% HSBC Holdings plc (NYSE:HBC) RAE of 14.26% NPM of 21.748% Its smaller, domestic competitors with US exposure indicate a theme of strong profits with all Canadian banks: BMO Bank of Montreal (NYSE:BMO) RAE of 15.71% NPM of 26.54% Bank of Nova Scotia (NYSE:BNS) RAE of 21.98% NPM of 33.15% Canadian Imperial Bank of Commerce (NYSE:CM) RAE of 28.46% NPM of 26.79% The Toronto Dominion Bank (NYSE:TD) RAE of 21.07% NPM of 28.68% RY is one of the largest corporations in Canada (only Encana Corporation is larger revenue wise) with strong margins, excellent customer service and operational presence, a strong management team led by Gord Nixon (a life time employee of Dominion Securities, which was absorbed by RBC in 1996). RY has had very limited exposure to the troubled segments of the North American debt markets. It does not originate US subprime mortgages and is exposed to Canadian 1.1B of American subprime MBS and CDOs which represent less that 0.2% of total assets. All of their securities are still investment grade (Reuters, August 24, 2007 ? Royal Bank of Canada profit up, but stock dips). The US suprime meltdown affected unrelated debt markets and many high-quality lenders are started to see their stocks return from the correction in August. RY is not the flashiest or most interesting financial services company when compared to many of its American rivals ? it is boring and safe ? but with the recent market turmoil, this is a great place to park capital. While TD Bank's results beat RY's and the stock has slipped recently, the company is intrinsically a great long-term investment. It has recently raised dividends by nearly 10% to 50 cents/share (Canadian). With the Canadian economy showing no signs of a slow down, and RBC being the largest retail bank in the land (TD is second), business is brisk and lucrative making investment in RY a no-brainer.