Royal Bank Of Canada

All participants, please stand by. Your conference is ready to begin. Good morning, ladies and gentlemen. Welcome to RBC's conference call for the second quarter 2020 financial results. Please be advised that this call is being recorded. I would now like to turn the meeting over to Nadine Ahn, Head of Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Speaking today will be Dave McKay, President and Chief Executive Officer of Rod Bolger, Chief Financial Officer, and Graham Hepworth, Chief Risk Officer. Then we'll open the call for questions. To give everyone a chance to ask questions, we ask that you limit your questions and then review. We also have with us in the room Neil McLaughlin, Group Head, Personal and Commercial Banking, Doug Dusman, Group Head, Wealth Management, Insurance, and INPS, and Derek Nelner, Group Head, Capital Markets. As noted on slide one, our comments may contain forward-looking statements which involve assumptions and have inherent risks and uncertainties. Actual results could differ materially. I would also remind listeners that the bank assesses performance on a reported and adjusted basis and considers both to be useful in assessing underlying business performance. With that, I'll turn it over to Dave.

Thank you, Nadine, and good morning. Thanks for joining us in what is unprecedented and challenging times. We do hope you and your loved ones are keeping safe and well. Before I move into my comments on the macroeconomic environment, I do want to say how proud I am of our employees for all they've been doing throughout the crisis to bring our purpose to life by supporting our clients and our communities. We move quickly to support our clients, including granting payment relief to over 490,000 clients so they could redirect their money to where it's most needed. our various client relief programs represent over $76 billion of loans outstanding. Graham will speak more on these programs later in the call. As the situation evolves, the regulatory, monetary and fiscal actions taken by policymakers globally has helped provide stability and support to the economy and to the financial system. As Canada's largest financial institution, we also have an important role to play in helping lessen the financial impact of the crisis on our clients while helping to restart our economies. In Canada, we've been working closely with the government in implementing various federal programs, and we provided access to $4.5 billion in available funding to over 115,000 clients through our SEVA program. And given Canada's relatively strong fiscal position, the country's finances are well positioned should further actions be required. In the U.S., we provided over U.S. $3.5 billion of funding to our clients through the Paycheck Protection Program. I'll now provide some highlights of our financial performance. Today, we reported earnings of $1.5 billion, and a quarter where we recorded a provision of $2.8 billion, which I will speak to shortly. We carried our strong momentum from the last quarter into Q2 and North American equity markets hit all-time highs in late February. However, as the COVID-19 pandemic spread, the expanding public health crisis led to increased concerns around the global economic outlook, culminating in elevated market uncertainty in March. We supported our clients through these volatile markets as they drew down on their credit facilities in light of liquidity concerns. The severe correction in global markets and widening credit spreads in particular negatively impacted our results this quarter, including unrealized mark-to-market losses in a number of portfolios. This was partly offset by elevated client activity related to significant volatility across asset classes. In contrast, macro outlook concerns, low equity valuations, and elevated volatility meant companies largely sat on the sidelines when it came to mergers and acquisitions. As credit markets opened up in April following a significant intervention by central banks, we saw a significant uptick in investment-grade debt issuance. Since mid-March, capital markets has been a book run on over U.S. $150 billion of global investment-grade issuance and has led over 80% of corporate debt transactions in the Canadian market. Our source of strength and stability for clients is reflected in the significant growth of consumer and business deposits and strong volume growth in our wealth franchises in Canada and the US, particularly at Citi National. We've also seen an acceleration of digital banking adoption, including all-time high volumes in direct investing. Rod will speak more to these trends later in the call. More recently, we've started to see a cautious reopening of certain economies, including those in Canada. However, significant uncertainty remains on the severity and duration of the global economic downturn as a result of elevated unemployment, low oil prices and disrupted supply chains. With that background, I want to focus my comments on the strength of RBC's financial position. Our balance sheet remains strong, giving us a solid foundation to face these risks head on. We have confidence in our prudent risk management and diversified business model. We have a proven ability to organically generate capital averaging over 17% return on equity over the last three fiscal years. And in the quarter of significant external stresses, we generated pre-tax, pre-provision earnings of $4.6 billion, the second highest in our 150-year history. We also paid $1.5 billion in dividends to our shareholders while growing our book value. While the economic downturn caused by the outbreak of COVID-19 was unexpected, we've been preparing for the potential of a recession for the shorter term. Our focus in the last few years has been on driving market-leading organic growth while building up capital buffers, as opposed to acquisitions or ramping up share buybacks. Furthermore, over the last two years, we've made a conscious decision on the composition of our loan portfolio, including prudently managing our corporate loan book, growing our residential mortgage portfolio and maintaining both underwriting limits and strict discipline on not originating non-prime unsecured retail credit. We are confident in a robust balance sheet underpinned by a strong 11.7% CT1 ratio, which is 270 basis points or $15 billion over the current regulatory minimum, even after increasing provisions and providing exceptional support to our clients. We took prudent action to bolster our alliance for credit losses to $6 billion given the economic outlook and our expectation of a prolonged recovery. Our stress test suggests that even under a severe pandemic scenario, our capital levels remain above current regulatory minimum levels and we remain well positioned to continue paying our dividend. While our corporate clients have been drawing down on lines and accessing capital markets, Our retail clients have cut discretionary spending on debit and credit cards by over 20% as social distancing took hold in the beginning of March. Physical distancing measures have also impacted the Canadian housing market with sales activity retrenching, although house prices are largely unchanged. Although any recovery in the housing market will be gradual at first, we believe the risk of a sharp near-term price decline is low. Despite rising unemployment levels, we remain confident that our prime Canadian retail portfolios will continue to perform well, with the combined power of our client relief programs and the government-led initiatives providing support to our clients. Even though the Canadian retail mutual fund industry had its toughest month ever in March, as markets experienced extreme corrections, RBC Asset Management continued to grow its leading market share in Q2, with a strong performance in February and a recovery in and April. In other parts of the bank, activity levels have never been higher. We are benefiting from our significant investments in technology over the last number of years to provide alternative ways to deliver products and services to clients. We have seen a significant growth in digital banking volumes with mobile sessions up 20% from last year as we ensure our clients' day-to-day financial needs continue to be met. We have also seen increased e-transfers and digital sales. and direct investing recorded all-time high volumes during the quarter. We are also proud to note that RBC has been ranked number one in overall customer satisfaction among Big Five retail banks in the J.D. Power 2020 Canadian Retail Banking Satisfaction Study. After delivering very strong results in Q1 2020 and early into Q2, we entered this period of heightened uncertainty from a position of strength. While much has changed in the past eight weeks, is also important to focus on what has remained the same. We remain committed to creating long-term value for our clients and our shareholders. We will continue to leverage our strong balance sheet, our leading scale and distribution capabilities across our franchises to prudently and efficiently support our clients. And we believe our past investments in building unique capabilities such as Borealis AI, Insight Edge, and MyAdvisor will significantly differentiate us in the future. and enable us to deliver even more value for our clients. Several of our ventures are also well-positioned to support our clients, including Owner, which helps entrepreneurs manage their businesses and build their brand online, and Dr. Bill, which helps reduce the stress and complexity of medical billing for physicians. Our entire leadership team is focused on how RBC can emerge from this differently and stronger in the future. And with that, I'll turn the call over to Rod.