Royal Bank Of Canada

Good morning, ladies and gentlemen, and welcome to RBC's conference call for the second quarter 2022 financial results. Please be advised that the call is being recorded. I would now 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 of 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 do ask that you limit your questions and then re-queue. With that, I'll turn it over to Dave.

Thank you, Asim, and good morning, everyone. Thank you for joining us today. Today we reported earnings of $4.3 billion with earnings per share up 7% from last year. Revenues were modestly lower year over year, largely due to moderating capital markets revenues given unfavorable market conditions. This was partly offset by strong client-driven volume growth in Canadian banking and Citi National and solid wealth management client activity. Expense growth was only 1%. Before I share context on our earnings this quarter, I want to acknowledge the increasingly complex macro and geopolitical environment. As Russia's invasion of Ukraine drives on with devastating effects, we continue to stand with the people of Ukraine and, consistent with our purpose, are supporting the humanitarian relief efforts in the region, as well as the Ukrainian diaspora in Canada. From a macro perspective, while I noted last quarter that we were closer to the mid-cycle economic growth, the ongoing impact of Russia's invasion has added further complexity to existing challenges. From elevated inflation, a rapid tightening of monetary policy, supply chain disruptions, and shortages in energy, labor, and housing supply. Central bank actions are having a profound impact on both bond and equity markets, and in turn impacting capital markets activity. Central banks are facing increasingly difficult decisions in how to manage monetary policy to constrain inflation without impacting economic growth. Given low unemployment, rising wages, and elevated liquidity, we believe the key ingredients are in place to help mitigate any sustained slowdown. In this context, I will now speak to our proven business model, which generated a strong 18% ROE this quarter, underpinned by the strength of RBC's financial position our diversified revenue streams, and a balanced growth in capital deployment strategies. These help drive significant book value per share growth of 15% from last year. Our balance sheet remains strong, giving us a solid foundation to grow at all points in the cycle. Our internal capital generation combined with a strong CT1 ratio of 13.2% enabled us to deploy capital in a balanced manner, allocated relatively equally between $20 billion of client-driven RWA growth, $1.7 billion of dividends, and nearly $2 billion of share repurchases. And this morning, we announced an $0.08 or 7% increase in our quarterly dividend. We also expect to take advantage of changing market conditions to complete our accretive normal course issuer bid in the second half of the year. With a strong foundation, we are well-positioned to continue executing on our key strategic priorities, including working to close the acquisition of Bruin Dolphin, which its shareholders approved earlier this week. This proposed transaction meets our criteria of acquiring high-quality franchises which provide value-added, complex advice to a growing client base in a structurally attractive market. We look forward to combining our complementary businesses and offering a breadth of wealth and banking products, advice, and services to clients. while adding yet another sustainable growth vector to both our wealth management and UK franchises. We also deployed our capital to drive balanced growth in our diversified loan portfolio, where year-over-year growth was split equally between the retail and wholesale sectors. Our commercial real estate portfolio is a good example of how we drive balanced growth. The $12 billion year-over-year growth in the portfolio was not limited to Canadian banking, but well diversified across geographies and segments, including capital markets and city-nationals. We expect our CT1 ratio will remain strong, above 12.5%, even after accounting for continued share buybacks and the proposed acquisition of Bruin Dolphin. Our capital strength continues to provide us the flexibility to deploy our capital in a balanced manner. While we did release a sizable portion of our COVID-related reserve bills, Graham will speak to the prudent increase in our reserves related to the increasingly challenging macroeconomic environment, even as we operate with low unemployment and client liquidity at elevated levels, with delinquencies and PCL on impaired loans at low levels. Our results illustrate the importance of having diversified revenue streams. We expect the benefit of higher interest rates will more than offset some of the near-term headwinds in our market-sensitive businesses. The roughly $75 million benefit to Canadian banking from the recent Bank of Canada rate hikes is reflective of the strategic investments we have made in our core deposit franchise over many years, including last year's launch of RBC Vantage. In the last two years alone, we have gained over 70 basis points of market share in core checking accounts. As Nadine will speak to shortly, rising short-term rates should provide a significant revenue lift across our businesses, benefiting from both increasing deposit margins in Canadian banking and our wealth management and custody franchises, as well as higher asset yields at Citi National and our wholesale businesses. Our results this quarter also highlighted the balance within our various market-sensitive businesses. The strength of our investment management, mutual fund, and corporate lending platforms partly offset pressures and origination activities in trading revenues. Expense growth was well contained at 1% year-over-year, in part due to natural built-in hedge of a variable compensation. As market-sensitive revenues decrease, so does this large part of our cost base. I'll now expand on trends we're seeing across our core businesses. In Canadian banking, residential mortgage growth remains strong, up 11% year-over-year for the second straight quarter, and we continue to invest in further improving the home-buying experience for our clients. With housing activity slowing as interest rates rise, we expect mortgage growth to slow in the second half of the year and come in at the high single-digit range for the year. We anticipate the slowdown in mortgage growth to be offset by higher growth in commercial lending and credit cards, especially as utilization and revolve rates continue to increase off their recent lows. Credit and debit card transactions were 30% above pre-COVID levels in April, with strong momentum carrying into May. Global airlines and credit card networks are noting higher travel bookings, and we are seeing increasing visits to restaurants and hotels. In our market-leading business banking franchise, loan growth was up 10% from last year, as we saw increased confidence from business leaders. We also saw the benefit of our past investments in our business, including adding bankers and growing our RBCX platform. Recovery to pre-pandemic commercial utilization and card payment rates from current levels will not only add to Canadian banking loan balances, but also drive further margin expansion, potentially adding nearly $200 million of additional revenue over time. However, the best way to drive growth is to continue growing our $14 million client base, as we have been doing through differentiated products and services, including going beyond banking through innovative solutions. including RBC Ventures and our strategic partnerships with WestJet, Petro Canada, and Rexall. Turning to wealth management, we believe the diversity of our portfolio and the quality of our advice are strengths in these volatile markets. In Canada, RBC Dominion Securities has the number one market share for high and ultra-high network clients. Canadian Wealth Management, AUA, was up nearly $35 billion, or 7% year-over-year. And despite the volatile environment, we continue to attract experienced investment advisors while also seeing very limited attrition rates. RBC Global Asset Management includes the largest retail mutual fund company in Canada. Despite volatile market movements in both equity and bond markets, long-term net sales were $9 billion this quarter. In the U.S., we have multi-pronged growth vectors. including the sixth largest U.S. wealth advisory firm ranked by AUA, where we continue to add to our advisory base. We're attracted to our technology and brand. At Citi National, wholesale loan growth was flat relative to last year, or up 14% excluding Triple P loans, benefiting from our growing teams and the build-out of our mid-market lending platform. Retail loans were up 25% year-over-year, largely due to strong growth in our jumbo mortgage strategy. And as I noted earlier, the proposed acquisition of Bruin Dolphin will further diversify our revenue stream by expanding our footprint in the UK. Although capital markets revenue is lower than in recent quarters, pre-provision, pre-tax earnings of $1 billion highlights the resilience of our diversified business in light of a challenging market environment. Our lending business had a second consecutive quarter underpinned, sorry, second consecutive record quarter underpinned by increased demand, including acquisition financing mandates, as well as more favorable yields. And we gain market share in global investment banking year-to-date, reflecting our continued investment in the business. As I have noted recently, we are strengthening our talent in key verticals, having hired approximately 20 managing directors year-to-date, and will look to continue to hire throughout the rest of the year. This is in addition to the 25 MDs hired last year. It's also important to highlight our balance between growth and prudent risk management. Despite volatile market conditions, we have had zero days of trading losses over the last two years. While market conditions are proving to be a cyclical headwind, we still expect capital markets to continue to grow in 2023 as markets stabilize. In conclusion, our continued investments in our people, technology, products, and services are creating more value for our clients and driving strong volume growth and client activity across our businesses. We remain well-positioned to perform through the cycle given our strong balance sheet, diversified business model, and balanced capital deployment strategy, including returning capital to our shareholders. And Nadine, it's over to you.