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Gordon Nixon, CEO of Royal Bank of Canada, speaks to reporters following the company’s in Calgary.

JEFF McINTOSH/The Canadian Press

Royal Bank of Canada chief executive officer Gordon Nixon has a pretty simple answer when it comes to what the secret is to being a successful Canadian bank CEO: Compounding.

"However one does it strategically, if you can grow your bank at somewhere between 7 per cent and 10 per cent a year, basically your value doubles every five years," he said in an interview looking back over his 12-year tenure at RBC, which he announced recently would end next year. "If you look at Royal Bank over the past 15 years, that's exactly what we've done."

It is hardly the most exciting answer. But the man has a point.

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It's something to keep in mind for the incoming chief executive officers of three of Canada's largest financial institutions. As David McKay gets ready to assume the CEO chair from Mr. Nixon next year, Bharat Masrani gets set to take over Toronto-Dominion Bank and Brian Porter settles in as head of Bank of Nova Scotia, what Mr. Nixon's track record shows is that growth doesn't have to come by leaps and bounds or from transformative acquisitions.

Looking back back over Mr. Nixon's career, there is not a big purchase that stands out. There is simply a steady stream of relatively low-risk acquisitions, nothing that would even come close to betting the bank. Some worked. Some did not. But RBC marched forward. In 10 years, it may be hard to say exactly what Mr. Nixon's tenure was all about, except for the fact that earnings more than tripled.

In his tenure, RBC did roughly 80 deals, according to Bloomberg. One of the biggest transactions was a sale that got RBC out of the U.S. consumer banking business. The total value was $18-billion. Most people who don't cover banks all day long would have a hard time naming any of the things RBC bought.

If there is a temptation in being a bank CEO, surely it is to try to do too much. There is always cash pouring in that could be spent on acquisitions. Anyone who gets to the top chair must have ambition, and be keen on making things happen.

There must be a constant itch to do something to answer the grumblings among other business people that running a bank in an oligopoly isn't that hard to do and what is it exactly those guys do all day to earn their $10-million a year?

And then you get to the top chair and face the fact that most anything a bank boss can buy is going to dilute the returns from the core business of Canadian banking, which is about as good as it gets anywhere in financial services. Giving the cash back to shareholders through dividends and buybacks, while often the right thing to do, is pretty boring. There must be a constant nagging inner voice saying do something big, something memorable. But the best course of action most days is probably to say no, and to keep trying to get better at what you already do.

RBC could have bought more. It had the firepower. It looked at U.S. firms in the crisis, and passed. Instead, the bank focused on a strategy of steadily becoming a broader beast with more productive business lines. Additions were small in the grand scheme of the bank. Sometimes they were just teams of people.

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Mr. Nixon's way is not the only way. Ed Clark, who is retiring next year as CEO of TD Bank, did fewer deals but bigger ones, running up a tab about twice as big as RBC's on the acquisition trail. Mr. Clark has used takeovers to create a U.S. banking arm that is unprecedented in its scale for a Canadian bank, but as of yet unproven in its ability to generate compelling returns.

TD and RBC are now about the same size when measured by assets. However, TD's return on equity has been steadily declining. It was 14 per cent in the year ended Oct. 31. RBC's return on equity, a benchmark measurement of bank management, has been going the other direction and was 19.4 per cent in the most recent year.

Mr. Nixon has overseen annual earnings growth to $8.4-billion, from $2.4-billion. Earnings growth lately has easily outpaced TD's, which to be fair still brings in more on a per-share basis.

"The power of compounding is pretty important," Mr. Nixon says. "When I looked at what our role is, strategically, people can get there in different ways, but if you can deploy your capital and you can grow your company at a reasonable rate consistently, compounding works magic."

That magic arguably gets harder to work when a bank is the size of RBC. That doesn't take the pressure off Mr. McKay, the incoming CEO.

"Dave McKay's job is quite simple. We want $16.8-billion five years from now."

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