Working on your defense helps. A lot.

We like defensibility. One of the most successful football franchises in the NFL are the Pittsburgh Steelers. Not really known for their flash and pomp, but for their hard nosed, down to grind, physical football giving great returns to their fans over the years. They’re proud winners of 6 Super bowls, AFC Conference Championships, and 23 division championships to say the least.

When the chips are down, inflation is running high, consumer demand is weakening you got to get that ‘steel curtain’ defense. So when the markets are back up again, your wins are bigger as your losses are smaller. We want to talk about an old, boring dividend returning business that’s been around during the Spanish flu, the great depression of ‘29, the global financial crises of 2008, COVID and the current economic state we are in.

Royal bank of Canada, founded in 1864, by a group of maritime merchants founded a private, unchartered commercial bank for their daily business activities. In 1887, they opened their Montreal office. From 1900 - 1930, they enjoyed good growth as they opened 64 offices in Canada. In 1929, post the great depression and the biggest stock market crash in US history the bank did get affected. They were lenders to major brokerage firms. One of them: Mcgdougall & Cowens went bankrupt in October 1931. At the time, their strict lending policy and strong management skills saved the day even though faced with catastrophic amount of deposits.

Come 1954 post the Bank Act, issuance of mortgage loans was allowed for banks booming the financial sector. By 1967, the bank had written more than half of the residential mortgage loans of all banks in the country. In the global financial crises of 2008, institutional banks like Lehman brothers and Bear Sterns buckled in the face of bad mortgage loans and soft lending. RBC on the other hand, saw it’s stock cut in half but it still made no cuts in their dividend payouts.

Today, they have worldwide assets of 1.7 trillion USD and a market cap of around $150 billion. The bank operates in multiple sectors such as personal and commercial banking, investor services, capital markets and corporate support.

RBC has reported record earnings for the past 10 years. In 2022, RBC reported a net income of $21.1 billion, up 10% from the previous year. The bank has been showing consistent growth of 8-12% across all its sectors for the past 3-4 years.

According to RBC's 2022 annual report, the company delivered a net income of $21.1 billion, up 10% from the previous year. The bank's earnings per share were $11.19, up 11% from the previous year. RBC's total assets were $1.7 trillion, up 10% from the previous year. RBC's growth was driven by strong performance in its personal and business banking, wealth management, and capital markets businesses. The bank's personal and business banking business had net income of $12.1 billion, up 11% from the previous year. The bank's wealth management business had a net income of $5.8 billion, up 10% from the previous year. The bank's capital markets business had net income of $3.2 billion, up 12% from the previous year.

Here’s how the last 2 years have turned out:

RBC’s tier bank ratio, a health metric of the bank is at 12.6% vs American banking goliath Bank of America at 11.2%. Canada’s banks are fiscally strict and known to be more responsible which is just positives that RBS inherits as they give a strong dividend yield of 3.8%.

Let’s talk about their upside -

• A overall stable economy with well established institutions and stable society makes Canada one of the safest places to invest money.

• Investor sentiments are extremely positive about the long term prospects for this bank.

• Canada is a highly regulated country when it comes to banks and Royal Bank of Canada is well equipped to handle future economic downturns.

Here are some downsides -

• A slowdown in economic growth could lead to lower demand for the bank's products and services.

• Increased competition from other banks and financial institutions

• The bank's exposure to the energy sector could be a risk if oil prices decline.

• The bank's exposure to the Canadian housing market could be a risk if house prices decline.

Nevertheless, the bank appears to be positive about the way they handle the coming economic downturn.