Royal Bank Of Canada

Good morning, ladies and gentlemen. Welcome to RBC's conference call for the first quarter 2022 financial results. Please be advised that this call is being recorded. I would like to turn the meeting over to Asim Imran, Head of Investor Relations. Please go ahead, Mr. Imran.

Thank you, and good morning, everyone. Speaking today will be Dave McKay, President and Chief Executive Officer, Nadine Ahn, Chief Financial Officer, and Graham Hepworth, Chief Risk Officer. Also joining us today for your questions, Neil McLaughlin, Group Head, Personal and Commercial Banking, Doug Guzman, Group Head, Wealth Management, Insurance, and INTS, 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 its performance on a reported and adjusted basis and considers both to be useful in assessing underlying business performance. To give everyone a chance to ask questions, we ask that you limit your questions and then re-queue. With that, I'll turn it over to Dave.

Thank you and good morning everyone. Thanks again for joining us. Today we reported earnings of $4.1 billion. our second highest on record, underscoring the strength and scale of our franchises. Net income was up 6% from last year, and we generated positive all-bank operating leverage while continuing to invest for growth. Pre-provision, pre-tax earnings were up 10% year-over-year, benefiting from robust client-driven volume growth in Canadian banking and City National, strong wealth management results, and record investment banking revenue. These were partially offset by continued moderation in our trading revenue and the impact of lower spreads. Our 17.3% return on equity, combined with a strong capital ratio, enabled us to deploy capital in a balanced manner to support client-driven growth and long-term shareholder value. Our capital position supported $1.7 billion in dividends to our largely Canadian shareholder base as well as almost $9 million of share repurchases. In aggregate, we returned nearly $3 billion to our shareholders for a total payout ratio of 72%. We also deployed our balance sheet across our businesses to support our clients' needs and ambitions, resulting in organic RWA growth of $14 billion in the current quarter. We ended this quarter with a robust CT1 ratio of 13.5%. representing $13 billion in excess capital over an 11% level. This provides significant flexibility to continue investing in talent and technology to accelerate the deployment of capital for organic growth opportunities, and I will speak more to this strategy in a moment. Our strong capital position also enables further share repurchases, as well as providing us optionality to acquire quality franchises in growth segments that align with our current strategy and geographic footprint. Looking forward, we have a consistent and clear focus on creating client and shareholder value and a disciplined, balanced approach to capital deployment as evidenced by our 15% year-over-year growth in book value per share this quarter and a 9% compounded annual growth rate over the last three years. Before I speak to our growth opportunities, I want to touch on the macro environment. We continue to experience market and economic volatility driven by heightened geopolitical risk, continued supply chain disruption, acute labor capacity shortages, energy market imbalances, and resulting high inflationary conditions. However, the underlying economic drivers are still strong. As we move past the Omicron peak, we can look to record household savings, over $200 billion in Canada alone, driving consumer spending on goods and services, renewed immigration, driving demand for housing, increased business investment into just-in-case inventory strategies, and building new digital capabilities. Recent hawkish central bank commentary around the concerning level of inflation and North American economies reaching full potential suggest imminent rate increases and an acceleration of quantitative tightening programs. While the prospect of benchmark rate increases has driven volatility in equity markets, we are well-positioned to benefit from rising interest rates, which Nadine will speak to later. However, we have also seen the yield curve flatten significantly over the last three months. This, combined with tight labour markets and economies reaching full potential, suggests we are closer to mid- cycle economic growth than early stages of an economic recovery. As it relates to Canadian housing, we continue to monitor supply, demand, and balances across the country. We have long argued the supply side of the market must be made more responsive to demand. We encourage policymakers at all levels of government across all jurisdictions to continue working together to implement policies that address the longer-term problems of limited supply which are driving house price inflation and creating a risk to the long-term competitiveness of the Canadian economy. I'll now expand on an increasing number of client-focused opportunities to drive a creative, organic growth across our core businesses. Our leading scale enables us to invest concurrently in technology, sales capacity, and client value, positioning us to deploy capital to drive revenue growth while increasing productivity, which Nadine will speak to later. and we will continue to leverage the significant investments we have made across our businesses over the last number of years. In Canadian banking, mortgages were up 11% year-over-year, adding nearly $9 billion this quarter alone. We expect strong Canadian mortgage growth to continue in the high single-digit range, driven by renewed levels of immigration, pent-up demand met by increased supply, and our continued investment in expanding our mortgage sales force to capture this opportunity. On a payment side, overall consumer spending in late January and through early February was up 15% over pre-pandemic levels, as restrictions continue to ease across Canada. We expect the continued reopening of the Canadian economy to drive increased credit card spend and, in time, a steeper recovery in revolving credit card balances. Our investments to enhance digital capabilities in these businesses resulted in over 55% of all new credit cards being sold digitally this quarter, and our mortgage retention rates are exceptionally strong at 90%. We have also invested in a set of integrated banking and investment solutions to provide even more value to our clients, including last year's launch of RBC Vantage. In addition, investments made to enhance our client value proposition continue to attract new clients. We are seeing increased engagement with our digital payment and investment products, including MyAdvisor, which now has nearly 3 million clients, up from 2 million in just one year. In the last two years alone, we have gained over 80 basis points of market share in core checking deposits and nearly 50 basis points of market share in mortgages. and a gross number of retail clients added in the last four years have contributed nearly $1 billion of revenue to our Canadian banking franchise. We also expect stronger growth in commercial lending from higher credit line utilizations driven by our clients' desire to rebuild inventory levels and adjust business models in light of the persistent supply chain disruptions and labour shortages. We are expanding our commercial account management teams and reimagining our products and services to capture this changing client value chain, including growing Owner and RBC Venture and RBCX, our platform to help entrepreneurs scale up tech and life science and verticals. Turning to City National, average loans excluding Triple P loans grew 15% from last year, with retail loans up 25%. Loan balances have increased to $56 billion, nearly two and a half times the levels from when we acquired this high-quality growth franchise in fiscal 2016. We are in the process of further investing in Citi National's technology and operational infrastructure for the next phase of growth, including deploying improved commercial lending and mobile banking platforms. Looking forward, we expect City National to continue to generate strong, accretive growth through our multi-pronged strategy. This includes expanding private banking capabilities through mortgage-led growth and growing our mid-market commercial division. These strategies alone have added $6 billion in loans over the past two years. Furthermore, City National's leading entertainment franchise, supported by our film track acquisition, is well positioned to benefit from the industry trend of increasing investment in original content and programming. Turning to our broader wealth and asset management franchises across North America, we're continuing to drive growth in these high ROE businesses, building on our current momentum. Canadian and U.S. wealth management AUA increased 18% and 14% year-over-year, respectively. And RBC Global Asset Management increased 9% from last year to nearly $600 billion, with over 80% of AUM outperforming the benchmark on a three-year basis. Looking forward, we will continue to expand our existing team of over 2,000 advisors in Canadian wealth management. Our differentiated technology advantage and investment expertise help drive strong advisor productivity. generating revenue per advisor that is over 20% above the Canadian industry average. In U.S. wealth management, we remain focused on organically scaling our platform by adding experienced advisors and leveraging our investment in new products and technology. Investments we made in new securities lending products resulted in strong lending growth of nearly 3 billion U.S. dollars over the past year. This new portfolio generated nearly 80 million U.S. dollars of revenue in 2021 alone. Since the start of fiscal 2019, we have hired financial advisors who are expected to bring in over 60 billion U.S. dollars of AUA. These advisors are attracted to our client-first culture coupled with our leading integrated technology platform. Our growing investments in people and technology has resulted in considerable momentum in our capital markets franchise, as demonstrated by our record corporate investment banking revenue of $1.4 billion this quarter. We have strengthened our talent in key verticals, including adding managing directors in U.S. investment banking, especially in the technology and healthcare sectors, as well as our M&A group. These investments have propelled RBC Capital Markets to ninth in the Global League tables. and position us to win increasingly attractive mandates going forward in some of the most active sectors. We are also helping our clients execute on their own sustainability strategies. We've provided $84 billion in sustainable finance in 2021, up from $73 billion in 2020, building towards our target of $500 billion by 2025. And AIDEN, our AI-based electronic trading platform, has continued to gain traction supporting our global markets clients during these volatile times. We believe these investments have structurally enhanced the earnings power of capital markets franchise, and we expect to continue to drive pre-provision, pre-tax earnings above $1 billion per quarter through 2022. Our investment banking pipeline remains healthy, given the near-term economic outlook and an increased desire from clients to accelerate their own growth strategies. In this context, we will look to continue to deploy capital into capital markets, including support for our underwriting commitments as our global plans continue to rely on us as an innovative and trusted partner. To sum up, we have started 2022 with continued strong momentum across our largest franchises. Our results reflect significant investments in our people, technology and products, and services to deliver differentiated value for existing clients and to continue attracting new client relationships. We have a clear focus on driving long-term shareholder value and will continue to deploy capital in a balanced manner. Nadine, over to you.