Royal Bank Of Canada

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

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 is Neil McLaughlin, Group Head, Personal and Commercial Banking, Doug Guzman, Group Head, Wealth Management, Insurance, and INTF, 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, Austin, and good morning, everyone. Thank you for joining us today. Today we reported earnings of $3.6 billion, a solid quarter driven by continued strength in our personal and commercial banking businesses, both Canada and the US, where we benefited from double-digit volume growth and strong tailwinds from rising interest rates. Our market-sensitive businesses reported a challenging set of results against the backdrop of one of the toughest environments for financial markets. This was underpinned by increased uncertainty, heightened volatility, lower asset valuations, and widening credit spreads, impacting client sentiment and activity. Spence growth was relatively flat from last year as a built-in hedge of lower variable compensation offset higher spend as we continued to invest in the client experience. Our results also included a prudent reserve bill given the range of potential macroeconomic outcomes, including the likelihood of a recession across North America. While we closely monitor early warning indicators, both gross impaired loans and PCL on impaired loans remain low as our clients continue to demonstrate resilience despite rising costs. I will now offer my thoughts on the operating environment to provide context for our results this quarter. The macro environment remains uncertain, characterized by a number of challenges, headlined by persistently high inflation. Supply chain constraints are being exacerbated by rising geopolitical tension. COVID-related tail risk in Asia tight labor markets, and more recently, droughts related to climate change. While inflationary pressures appear to be peaking, we expect aggressive monetary policy to continue as central banks try to rein in demand-driven inflation by raising borrowing costs. This pushes us even closer towards the end of an economic cycle. These factors alone are not likely to drive a severe downturn. That would also require higher unemployment and we believe the current strong job market is a differentiating factor relative to the beginning of prior downturns. Although there is high leverage in the system, our clients are entering the cycle with stronger liquidity than in prior ones, including healthy corporate balance sheets and increased personal savings across FICO bands in Canada. Consumer spending also remains robust. Despite the complicated macroeconomic backdrop, We are operating from a position of strength across our capital, liquidity, and allowance coverage ratios. I'm confident our competitive advantages will drive premium growth going forward. Our premium return on equity was a source of strong internal capital generation and double-digit growth in book value per share. Our priorities in deploying our capital have not changed. We remain focused on building on our momentum and driving accretive, organic growth, which I'll speak to a little later. As part of our commitment to delivering long-term value for our shareholders, we bought back over 10 million shares while paying $1.8 billion of dividends this quarter. We remain well-positioned to execute on key strategic priorities via acquisitions should they meet our strategic and financial requirements, and we are looking forward to working with our new colleagues following the anticipated close of Bruin Dolphin Acquisitions later this year. Finally, we are comfortable with operating at a higher capital ratio at this point in the cycle, We believe this is the prudent thing to do given the uncertain environment. Our liquidity coverage ratio provides a $66 billion buffer over the regulatory minimum, and we expect to continue to fund the majority of our organic loan growth in our personal and commercial banking businesses through our large client deposit base. I will now speak to trends we're seeing across our largest segments, including the benefit from higher rates. In Canadian banking, We saw double-digit year-over-year growth across mortgages, commercial lending, and credit cards, with deposits up 9%. Higher interest rates provided a $225 million benefit to year-over-year revenue growth, partly due to the strength of our core deposit franchise. Our strong market share in this key product provides us with a strategic advantage to deepen our client relationships and built a strong base to profitably grow our loan book. We feel good about the stickiness of these deposits, given our client value proposition, led by our market-leading RBC Vantage offering. Average retail deposit balances are approximately 30% higher than pre-pandemic levels and remain stable across all risk tiers, with the exception of our super prime group, which have moved cash into higher-yielding offerings. The dynamics of our mortgage business were also strong this quarter, with acquisition volumes still higher than pre-pandemic levels. and we expect mortgage growth to slow over the coming quarters given the decline in housing activity and prices and a return to a more balanced sales-to-listing ratio. Notwithstanding macro factors, mortgage profitability should be supported by deepening client relationships around this anchor product and a variable mortgage specialist cost base. Commercial loan growth was broad-based this quarter, including in manufacturing, logistics, and business services, along with a recovery in auto floor financing. While commercial clients remain concerned about labor shortages and the cost of capital, we are seeing confidence start to tick higher, with revolver utilization rates also starting to recover. Growth in credit card balances continue to be underpinned by transactors as our clients continue their discretionary spend at a healthy pace, with total spending 30% above pre-pandemic levels. We have also started to see solid growth in revolver balances in recent quarters. And over time, we expect upside growth from card revolver rates and commercial utilization rates recovering towards pre-pandemic levels. As the largest bank in Canada, we often ask ourselves, how does a market leader grow? And we believe the most profitable avenue of growth is to organically add new clients by providing differentiated value propositions through our leading distribution channels, including our growing sales force. This quarter, we are adding to our growth engine by further expanding the client acquisition funnel. With immigration levels expected to rise to record levels, we've announced a collaboration agreement with ICICI Bank Canada, which attracts a substantial proportion of newcomer population from South Asia into Canada. As part of our agreement, ICICI Bank Canada will refer all newcomer clients to RBC over time, making it easier for them to open a bank account upon arrival. With this partnership, we will offer longer-term value to these clients by deepening our relationships through our leading mortgage investments and credit card businesses. Additionally, we will soon launch Avion Rewards. This is the next generation of value proposition for a proprietary loyalty program, reimagining it as an end-to-end commerce experience to drive further client engagement. Avion Rewards will deliver everything Canadians have grown to appreciate about our market-leading program, with a new shopping companion called Avion Shop+, seamlessly integrating offers, product searches, price alerts, and the ability to pay with points. We have an exciting pipeline of innovations that will continue to attract new clients and consolidate relationships. Turning to wealth management, the diversity of our portfolio and the quality of our advice continue to be strengths in these volatile markets. This quarter highlighted the balance across our various businesses within our wealth management segment, Tailwinds from higher interest rates in our U.S. and Canadian businesses more than offset the impact of lower markets on fee-based revenue streams. Despite market volatility, Canadian wealth management also benefited from net new assets in the quarter, as well as over the last 12 months. This speaks to the holistic nature of our wealth management solutions and the strength of our client-advisory relationships. Earlier this quarter, RBC Dominion Securities ranked highest amongst Canadian bank-owned investment brokerage firms for the 16th year in a row, according to the Investment Executive Brokerage Report Cards. Moving to RBC Global Asset Management, where assets under management have a more balanced mix of equities and fixed income relative to a more traditional 60-40 allocation, The decline in AUM was largely driven by the somewhat unusual occurrence of North American equities and bond valuations selling off at the same time, largely driven by rising interest rates. However, Canadian long-term retail net sales remained positive over the last 12 months as our clients continued to look to us for actively managed investment strategies. In the U.S., we reported strong revenue growth and earnings growth. driven by margin expansion and diversified loan growth at Citi National. We are effectively leveraging our multi-year investments in this business, including technology, infrastructure, treasury management, and sales capacity, including commercial and private bankers. Our strategy is further supported by the availability of lower-cost sweep deposit balances from U.S. Wealth Management. The results of our capital markets platform this quarter do not reflect the strength of this premium franchise. nor the potential of its performance going forward. Results were impacted by an industry-wide decline in fee pools, along with a disruption in high-yield and broader credit markets. While leveraged finance remains a strategically important business, supporting our strategy of deepening client relationships, our market shares remain steady at 3% to 4%. It continues to be a higher ROE product where we have generated positive revenue net of marks in every fiscal year since we entered this business over 10 years ago. More broadly, we continue to strategically invest in our capital markets business. This includes adding senior coverage teams and key verticals with a particular focus on advisory and equity origination businesses where we have gained market share year to date. Although the environment saw muted activity, client dialogue remains robust, underpinned by upcoming financing needs and secular trends around energy transition, technology disruption, and reshoring. Our backlog remains healthy, So conversion of this pipeline may be extended as clients remain cautious as valuations reset. Despite difficult financial conditions, we remain committed to supporting our clients in managing their risk and meeting their financing needs. In closing, we have entered this period of uncertainty with momentum and from a position of strength underpinned by our strong capital, liquidity, and allowance coverage ratios. Our leading client franchises are operating prudently and efficiently at scale. and we're well-positioned to take market share through the next point in the cycle. We remain committed to delivering more value to our clients and to creating long-term value for our shareholders. Let me now turn the call over to Nadine for more details about our quarter. Nadine, over to you.