RBC Investor Day

Scotia Capital, 28 October 2010

Royal Bank Investor Day - Canadian Banking

• Royal Bank (RY) held an Investor Day yesterday focusing on its Canadian Banking segment. The bank highlighted its track record of outperformance and leading market position, breadth of distribution network and cross-sell ability, and operational efficiency as key areas for the bank in light of the potential for slower volume growth and moderating economic outlook.

Outperformance and Leading Market Position

• Canadian Banking earnings have grown at a CAGR of 10% from 2005-2009 and in 2010 YTD are up 17%.

• In terms of market position, RY highlighted it was #1 in business loans and deposits (next competitor 700 bp behind), consumer lending, and personal investments, and #2 in personal core deposits.

• RY's solid operating performance and market leading position have provided RBC with one of the world's top 50 globally recognized brands (ahead of Mercedes, Pepsi, Nike, and MasterCard). RY believes that this brand stature will allow the bank to remain top of mind with consumers and help the bank achieve its 25% above-market volume growth target.

Breadth of Distribution Network and Cross-Sell Ability

• RY currently has the most branches in Canada, the largest ATM network and active online customer base, which they believe is the largest most integrated distribution network in the country. RY plans on increasing hours and days of business by 15%, opening 20 new branches in 2011, and creating new online and mobile banking functionality.

• RY believes that its scale advantage, depth of product lineup, and channel capabilities, will provide the cross-sell opportunities and sales power to acquire and deepen relationships to drive top line growth despite the industry headwinds.

• RY also unveiled a new prototype of RBC branches, which will be vastly different from the current typical retail outlet. RY's new branch concept will move tellers to the back area of the branch and use the front area to showcase new products and technology, with a goal of attracting non-customers as well as regulars into the branch.

Operational Efficiency

• RY highlighted its better-than-average efficiency ratio, which has been driven by revenue growth and spend control. RY continues to invest in driving further efficiencies and has targeted an efficiency ratio in the low 40s in the medium term, which they believe will help deliver market leading growth at a lower cost.

• RY's plan to achieve market leading efficiency is the following:
1) Simplifying its product offering, policy and procedures to enhance sales capacity by making it easier for clients and staff.
2) Streamlining internal processes to provide opportunities to significantly lower costs.
3) Optimizing internal resources to liberate sales time and enhance sales capacity.

Recommendation

• Overall, the presentations were positive.

• We believe that RY's Canadian Banking segment has a very strong operating platform and is well positioned particularly, in light of the moderating economic outlook. However, our overall near-term concerns remain RY's cost structure in Wholesale Banking given lower capital markets activity, lack of earnings out of the U.S. (retail), and low profitability of Wealth Management.

• We maintain our 2-Sector Perform rating based on decline in relative profitability and near term earnings risk.

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CIBC Investor Forum

BMO Capital Markets, 1 October 2010

Scotiabank has been upgraded to Outperform, while Royal Bank’s rating slipped to Market Perform. Greater clarity on new bank capital rules has mitigated our concern they would hinder BNS’s international growth strategy. Moreover, we believe that the bank’s international operations provide a clear growth path, relative to its peer group, after credit costs have ``normalized. While the bank does trade at a premium valuation, this valuation not only reflects greater clarity in growth prospects, but also the bank’s much better-than-expected credit performance during the last cycle and better-than-average dividend growth potential. John Reucassel is forecasting an increase in earnings per share to $3.98 in fiscal 2010 and $4.40 in fiscal 2011.

We originally upgraded RY based on its leading franchise position in domestic banking, domestic wealth management, domestic investment banking, acquisition opportunities, growing global wholesale banking opportunities and strong capital position. However, we under-estimated the volatility in trading and have over-estimated the speed of the earnings recovery in wealth management, insurance and the international businesses. Since April, the shares have been the worst-performing shares in the sector by a wide margin. While we continue to believe that the bank’s franchises will ultimately reward Royal shareholders, the current valuation may provide better relative returns elsewhere.

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Scotia Capital, 1 October 2010

Summary CIBC Investor Forum - Retail Markets

• CIBC held an Investor Forum yesterday afternoon focusing on the bank's Retail Markets division. The bank highlighted its improving core revenue trends and net income growth, citing revenue growth 2010 YTD of 9% with net income growth of 16%. This is a significant improvement from underperformances in fiscal 2008 and 2009. Net income growth was driven by positive operating leverage of 2% and lower loan losses. Credit trends continue to be positive with both credit card and personal loan losses declining.

• Revenue growth was relatively balanced from all segments with Personal Banking and Wealth Management each up 9% with Business Banking revenue up 6%.

• The bank also recapped its recent investments for growth including the purchase of Citigroup's Canadian MasterCard business and CIT asset based lending business, as well as significant branch expansion and investment in its mobile banking application and brand.

• In terms of market position, CIBC highlighted it was #1 in cards, #2 in mortgages, retail brokerage (revenue & assets) and ABMs, #3 in branch network, personal deposits/GIC (up from #4), business deposits and mutual funds. The improvement in market positioning in personal deposits/GICs is due partly to branch expansion & relocation. CIBC lagged in business lending at #4 and personal lending at #5. The gap in share on personal lending is $8 billion.

• CIBC provided a three-year target for the retail bank at $3 billion versus its $2.16 billion YTD Q3/10 annualized, representing an 11.6% CAGR.

• In terms of investing in its branch network, CIBC has expanded evening and Saturday hours at 400 branches and is building, relocating and expanding 70 branches by 2011.

• The bank acquired $2 billion in MasterCard outstanding balances and 570,000 active accounts from Citigroup. The acquisition increased CIBC's credit card balances outstanding to $15.8 billion and market share to 18.7% from 16.6%. The Citigroup MasterCard purchase is immediately accretive to earnings. The bank is not taking on credit card delinquent accounts.

• Mortgage & personal lending growth have been driven by mortgages at 7% with personal lending lagging at 2% partially due to a conservative lending approach. The bank loan growth outlook varied by product with mortgages at 4%, personal loans 5%, credit cards 2%-4% and business lending 5%-8%.

• In Wealth Management, CIBC cited it was #3 among the banks and #5 in the industry and leading in managed solutions (wrap products). Mutual fund sales performance has improved with 2010 long-term sales the highest since 2004.

• The presentation in general provided guidance on the bank's overall strategies in each of its three segments, Personal Lending, Business Banking, and Wealth Management.

• Personal and business lending are two products where the bank is underrepresented, providing opportunity for market to above-market growth.

• The presentations were positive although financial information was light. We expect improved performance from CIBC Retail Markets going forward. However, major Canadian banks are focused on retail banking and with slowing volume growth, competition is expected to remain stiff.

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