Royal Bank of Canada - Comparative Advantage - Case Study Example

Royal Bank of Canada Student’s name Institution Overview The Royal Bank of Canada is regarded as schedule 1 under Canada’s Bank Act, in which, its charter is constituted. The formation of the bank took place in 1864, formed as a merchant’s bank, and incorporated under the merchant’s Incorporation Act. The bank's name was changed in 1901 and 1990 to the current name. The headquarter of the bank is located in the Royal Bank Plaza in Toronto (Buzzell, Gale, & Sultan, 1975). The Royal Bank of Canada operates under the brand master name RBC. It is one of the largest banks in Canada in terms of assets and market capitalization. Additionally, in North America, the bank is a leader in diversified financial services, it offers individual and business banking, administration of wealth venture banking, protection, and exchange preparing, inside a worldwide reach. The bank is a key employer in the region with approximately 74,000 employees, both in full and part-time basis who offer services to public sector, institutions, personal and business clients in Canada, the US and other 56 countries in the world. There are numerous business segments in the bank, which include the following: Wealth management; the bank serves both high net and ultra-high net customers inside its workplaces in major monetary focus in Canada, US, UK and Asia. All with comprehensive investment suite. Under this category, there are also asset management products and services that are directed to personal and institutional customers through a third party and direct distribution channels. Insurance; the bank offers an extensive variety of life, health, travel reinsurance, and wealth solutions. These products are offered through the proprietary distribution channels that comprise of field sales. The reinsurance markets are also operated by the bank outside Canada. Capital markets; This is another operational area of the bank and it offers private companies, public companies, central bank and governments with a wide range of services and products. In the North American region, there is a full suite of products offered by the bank, namely; investment and corporate banking, debt and equity distribution and origination among others. Commercial and personal banking; these services are operated by Canada, US Caribbean and they comprise of business banking, personal banking operations, auto retail and financing investment business. RBC comparative advantage Comparative advantage alludes to the economic law on the capability of any economic performer to offer services and products to the market at a lowered opportunity cost as compered to other economic players (Carroll, 1989). The Royal Bank of Canada has a large local market share comprising of a wide range of banking business operations. There are different types of products and services that are provided by the bank such as commercial and personal banking operations. In the local market, the bank is among the major dominant retailer and commands 22% market share of banking business, top investment and wealth management. In an international strategy point of view, which mainly consist of the bank presence in the US, it has managed to offer financial services and products to businesses and individuals. The bank has a retail network within the Caribbean and offers a selection of financial services, as well. Internationally, the bank is not the leader like in the domestic market, and over the past years, the bank has sold a large number of its US retail and business operations. In the previous decade, the bank changed its global system from needing to be a player in the business supplier of money related administrations in the US to a less focused leading provider of certain financial services to a target market. This shift in strategy drew more attention towards the development of capital markets and wealth management in the world. The financial crisis of 2008/09 may have triggered the strategy change, a move, that followed the development of the US retail banking operations into a RBC banking business segment. There are numerous aspects that help the bank to maintain a capability to produce its services and products in a lowered opportunity cost. Internationally, the bank’s branches enjoy fiduciary powers when conducting investment management, as well as, custody activities for a particular group of clients (Ratnovski, & Huang, 2009). Additionally, other bank partners are included in the matter of venture administration. For instance, in the US, these affiliates are expected to register with the SEC as the advisors in investment matters and operate under the Investment Act of 1940. The Act and the rules therein regulate the registration and investment activities of the consultants. Despite the fact that the administration of these counsels is like that of the specialist merchants, the lead norms is high due to the advisor's fiduciaries’ status (Woods, Dowd, & Humphrey, 2008). The limits on fiduciary, limits the adviser’s capability to use affiliates, and it is forced to manage conflict of interest, with line to, the business conduct. RBC Capital structure The share capital authorization in the bank comprises of numerous common shares that are not limited, there is no nominal and unlimited number of first, and seconded preferred shares, devoid of, nominal and classes to be issued with a maximum consideration. The following is a summary of the RBC share capital compared to the Bank of Montreal. Common Shares In RBC, the common r shares holders are qualified for a vote in all shareholders gatherings, in spite of, the gatherings where just holders of a particular class other than normal shares are allowed to vote. Common shares holders get profits in accordance with the leading body of chief's assertion and subject to the inclination of the favored shares. For this situation, a typical shareholder gets the rest of the property after liquidation or twisting up, that happens, after installment of any extraordinary obligations. Due to Bank of Montreal common shares, the capital of the bank that is approved involves a boundless number of common shares without the ostensible boundless thought (Pérignon, & Smith, 2010). In this case, the common shares holders are permitted to take part in voting of all shareholders meetings and like in RBC; they do not take part in voting where a specific group of shareholders is expected to take part. Again, they receive dividends as per the board of director’s declaration, and in subject to, the holders of the preferred shares, and they receive the remaining property after all debts and other deductions are made. Preferred Shares These shares are issued now and again in an arrangement where such rights and benefits can be dictated by the top managerial staff and in accordance with the Bank Act and its by-laws. In 2015, the bank issued the Non-combined initially preferred shares arrangement C-1 and C-2, in return of, extraordinary national preferred stock. The principal non-aggregate preferred shares arrangement W are a concentration to the approval by the director, in line with, the Bank’s Act and the Toronto stock exchange approval. They can be redeemed or exchanged for common shares by the bank. It is notable that the first lot of preferred shares is an entitlement to the preference over some second preferred shares (Lynn, 1999). This is also seen, in the case of, common shares and whatever other shares that are positioned junior to the initially favored shares, as for the profit installment. Moreover, italso includes property appropriation for the situation of liquidation. Because of the arrangement, C preferred shares do not include the non-practicality unexpected capital arrangements,s making them non-convertible into common shares. These shares do not qualify as regulatory capital once the dividends declared are not paid fully. The bank is required to declare any form of additional dividends on this kind of shares. The preferred shares can be issued occasionally without the set rights and benefits, in accordance with, the Bank ordinances. These sort of favored shares will be qualified for inclination over the regular shares and over some other sort of positioning junior shares on dividends payment and property distribution during liquidation. One thing to note is that, in RBC, transfer of preferred shares must be approved by a holder of the first and second shares. This kind of approval has to be done in writing showing the required amount of the outstanding preferred shares attained in each class (Fuller, 2010). In addition, in any meeting, the holder of majority shares of every class of preferred shares is expected to be 51% of the shares and qualifies for vote. However, in case of a meeting adjournment, the majority vote is not required. In the case of Bank of Montreal, the capital authorized bank capital comprises of a boundless number of class A and B preferred shares that do not have an ostensible esteem in arrangement, regarding the boundless thought. The issuing of class B preferred shares should be possible using a foreign currency. In the Bank by-laws, the top managerial staff has a probability of making plans to issue class A preferred shares once or in various arrangements to all rights, and other factors considered depending on the decision that they make (Erkens, Hung, & Matos, 2012). The preferred shares of Class A are equally ranked to all other class A, and B preferred shares series with the preference entitlement of the common shares. According to the Bank Act, an approval must be granted by the class A preferred shares holder in order to be able to make some other class of shares with an equivalent or better rank than the class A preferred shares. Shareholders ought to allow this endorsement as set in the shareholder's endorsements (Fleisher, & Bensoussan, 2003). In another case, there is no shareholder approval that is required to issue and create extra class A preferred shares or those of an equivalent rank on the creation or issuing date, paid or planned to be paid in terms of dividends. Voting rights is a crucial issue when it comes to the share capital of any company, in this case, as compared to RBC holders of class A preferred shares who can take part in voting on certain matters or as it's required by the law. This Bank’s Act presents restrictions to the beneficial ownership of bank shares. It is notable that there is no single person who can claim to be a key shareholder in case the bank’s equity is $12 billion and above (Weber, 2012). A person or a group is considered to be a major shareholder under the common control by owning 20% responsibility of any kind of shares or 30% of the non voting shares. Noteably, it is not possible for any person to earn a substantial interest in any bank shares without having an approval from the Minister of finance. However, once an individual or group owns more than 10% of a certain class of shares, it is possible enjoy a substantial interest in the bank. Performance with regards to the market valuation in stock market Royal Bank of Canada common shares exchanges on the Toronto stock trade, New York stock and SIX Swiss trade in Switzerland. The preferred shares separated from the initially preferred shares arrangement C-1 and C-2 exchanges the Toronto stock trade. The depositary shares that represent the bank interest of the first preferred shares series of C-1 and C-2 are exchanged in the New York stock trade. This information is shown in the table below and indicates the value range and exchanging volume of the common shares in TSX, and in addition, the US market over the preiods indicated. The prices are as presented based on the data collected form TSX and NYSE database. Table 1: RBC Common shares in TSX and NYSE Month (TSX) NYSE High Low Volume High Low Volume NOV 2014 83.87 79.68 34,890,231 73.80 69.95 9,412,605 DEC 2014 83.71 76.63 67,506,904 73.62 65.88 18,375,742 JAN 2015 80.90 71.74 66,741,753 69.15 56.40 36,934,647 NOV 2015 77.18 73.68 45,247,007 58.45 55.24 28,312,891 According to the above table, it shows that the volume of shares traded between December 2014 and October 2015 is higher compared to the TSX market. The high prices fetched by the shares in 2014 and 2015 in the TSX market is higher compared to the prices fetched in the NYSE market. On the other hand, the volume traded on the TSX market is higher compared to the NYSE market. This clearly indicates that the performance of the Bank in the domestic market is cooperatively higher compared to the international market. The bank seems to enjoy a large market share in the domestic market compared to the international one. Table 2: Preferred shares(Series) Month W AA High Low Volume High Low Volume NOV 2014 25.45 25.13 69,953 25.62 25.25 73,722 DEC 2014 25.39 25.10 101,576 25.62 25.26 72,753 JAN 2015 25.43 25.11 100,913 25.60 25.05 77,282 NOV 2015 23.86 22.80 118,431 25.00 24.78 121,476 The above table shows that the RBC preferred shares are enjoying a price range that is close and the volume of shares traded had small differences. It implies that the preferred shares are not common among the shareholders in both domestic and international markets. In the case of the depository shares, the trading volume and price range is as shown in the table below. This is only for the NYSE market. Table 3:The Depository shares Month C-1 C-2 High Low Volume High low Volume Nov 2015 25.62 24.15 614,984 30.00 28.07 31,402 The table above shows that the depository shares Series C-2 volume traded was significantly higher compared to that of series C-1. It is noteable that both RBC and Bank of Montreal exchange price and volume for the common shares on the Toronto stock trade and NYSE for exchanging are almost similar. Again, in the case of the extraordinary preferred shares, they are traded in the two markets, as well as, and the differences observed in the high, low and volume parameters are almost similar.However, there are certain variations in the Volume and prices of shares traded in both markets, for instance, the traded volume in the TSX market is higher compared to the one traded on the NYSE (Stanley, Capital, & Suisse, 2007). These variations imply that these two banks have an upper hand or control when it comes to domestic market share, as compared to the international market. In conclusion, RBC has broad powers that enable it to invest in securities. However, it has limitations in making substantial investment or having control over a particular type of entities (Charan, 1990). Growth in this kind of investment results from direct and indirect benefits enjoyed through voting of shares that characterizes more than 25%of the equity of a shareholder in the bank. Apart from this observation, this research paper has managed to note that RBC is among the leading banks in Canada and it enjoys a large domestic market share compared to an international one. This can be confirmed by the trading price and volume of the common, preferred, depository shares on the two major markets in Canada and US. References Buzzell, R. D., Gale, B. T., & Sultan, R. G. (1975). Market share a key to profitability. Harvard business review, 53(1), 97-106. Carroll, W. K. (1989). Neoliberalism and the recomposition of Finance Capital in Canada. Capital & Class, 13(2), 81-112. Charan, R. (1990). How networks reshape organizations--for results. Harvard Business Review, 69(5), 104-115. Erkens, D. H., Hung, M., & Matos, P. (2012). Corporate governance in the 2007–2008 financial crisis: Evidence from financial institutions worldwide. Journal of Corporate Finance, 18(2), 389-411. Fleisher, C. S., & Bensoussan, B. E. 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