Royal Bank Of Canada

Good morning, ladies and gentlemen. Welcome to the RBC's conference call for the fourth 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, sir.

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.

Thanks, Awesome, and good morning, everyone. Thank you for joining us. Today, we reported fourth quarter earnings of $3.9 billion. Net interest income increased over 20% from last year, underpinned by higher interest rates and client demand. Higher net interest income was partly offset by headwinds in our market-related capital markets and wealth management businesses as macro and geopolitical uncertainty pushed our clients towards a risk-off stance. Our results were also impacted by higher PCL on performing loans, and an end of year true up in capital markets variable compensation. Looking back at the 2022 fiscal year, RBC delivered earnings of nearly $16 billion and revenue of nearly $49 billion. Both are the second highest on record as we supported our clients financing needs. We met all of our medium term objectives as we generated ROE of 16.4% while ending the year with a strong CT1 ratio of 12.6%. Part of our commitment to delivering long-term value to our shareholders, we ended the year with an 80% total payout ratio, including paying out nearly $7 billion of common share dividends while buying back over $5 billion of stock. And this morning, we announced a 4 cent or 3% increase in our quarterly dividend. Before I discuss the strategic initiatives that will drive our growth over the coming years, I will provide my perspective on the macro environment. Elevated uncertainty continues to affect asset valuations and market volatility, which in turn is impacting investor sentiment and client activity in both public and private markets. While strong labor markets paint a favorable picture and inflation appears to have peaked, we maintain our cautious stance on the outlook for economic growth. This caution stems from elevated housing and energy prices, political and geopolitical instability, a pressured manufacturing sector, and an aggressive monetary policy stance by central banks. Although higher interest rates are needed to preserve long-term economic stability, the lagging impact of monetary policy combined with strong employment and significant liquidity in the system has likely delayed what may end up being a brief and moderate recession. With this context, I will now expand on RBC's many organic growth vectors that position us to succeed. in all credit cycles. We believe our competitive advantages are underpinned by our strong balance sheet and continued investments to enhance the client value proposition. I will start with our Canadian banking business. Our clients are at the center of everything we do. We are proud to note that RBC was yet again ranked number one in overall customer satisfaction among the big five retail banks by J.D. Power. while also being recognized with the J.D. Power Canada Award for Best in Customer Satisfaction for a Mobile Banking Application. We added a record 400,000 clients this year, more than the last two years combined. Given the value-added initiatives that we have in place, we are well positioned to attract even more clients next year. Our partnership with ICI Bank Canada to create a seamless banking experience for newcomers to Canada is expected to attract approximately 50,000 clients as immigration levels reach record highs. Continuing on the theme of international connectivity, RBC recently launched SwiftGo, a new solution that enables Canadian businesses to send cross-border payments of up to $10,000 in foreign currencies. Our deposit and payments franchise, which we have built over two decades, is one of the crown jewels of the bank. It is a source of low-cost funding to grow Canadian mortgages, credit cards, and business lending. And we believe our largely deposit-funded balance sheet will be a key driver of profitability in a rising rate environment, a topic Nadine will discuss further. Deposits are a core relationship product and a foundational reason why clients have consolidated their relationship with RBC at a rate that is 50% higher than the pure average. This success is partly built on the broader money-in continuum, helping our clients make the best decision between savings and investments in a volatile interest rate and market environment. RBC Vantage further incentivizes this consolidation of our strong client relationships. Over 1.5 million Canadians have adopted this expanded continuum of offerings. We also remain a leader in residential mortgages. growing this anchor product by over $30 billion this year. Our focus is to deliver a better home journey experience for clients while building an advanced end-to-end process to take out costs. While mortgage origination volumes have declined from recent peaks, given rising interest rates and supply-demand imbalance, they remain in line with pre-pandemic levels. We expect mortgage growth to be in the mid-single digits next year. the near-term outlook for commercial lending appears to be more constructive. We are confident growth will continue over the next couple of quarters, given post-pandemic client recovery plans and investments. We expect to see particular strength in the agriculture and consumer discretionary sectors. Regionally, commercial growth is expected to continue primarily in the Greater Toronto Area and the Atlantic provinces. We are also looking to build our position as the largest of the big five Canadian banks in Quebec, where we are honoured to team up with the Montreal Canadians, highlighting our commitment to the province. RBC's new loyalty collaboration with Metro will launch with a co-branded credit card for Quebec consumers in 2023, adding to our national partnerships with Petro Canada, Rexall and WestJet. We also continue to expand and move up the acquisition funnel, Earlier this year, we announced an expansion of our healthcare strategy with the acquisition of mdbilling.ca, a cloud-based platform that simplifies medical billing for Canadian physicians, joining our investment in Dr. Bill. This is an addition to Owner, an RBCX venture, which has helped launch over 30,000 new Canadian businesses in 2022 alone, of which half opened an RBC small business account. Additionally, we continue to invest in talent and digital capabilities. We added nearly 1,800 employees in Canadian banking this year, including client-facing roles such as mortgage specialists and commercial account managers. Turning to our wealth management business, our diverse set of wealth and banking capabilities are well-positioned to deliver customized client value propositions. This is now truly a global platform with scale in Canada, the U.S., and the UK. Despite market volatility, Canadian Wealth Management added $20 billion of net new assets this year, highlighting the strength of client relationships, trusted advice, digital capabilities, and a wide range of solutions. RBC Dominion Securities was ranked number one amongst bank-owned advisory firms in the most recent Investment Executive Brokerage Report Card. We hired more than 25 experienced investment advisors last year and are looking to hire at least a similar level next year. Our U.S. wealth management business supports over $510 billion of assets under administration, positioning RBC as the sixth largest full-service wealth advisory firm in the U.S. Advisor recruiting is a key source of growth having recruited more than 100 advisors, driving more than $18 billion of expected AUA growth. Similar to our Canadian strategy, we've been adding banking products to support the needs of our U.S. clients. Our lending portfolio now represents $9 billion. Our broader U.S. strategy is further supported by suite deposit balances. We also welcome Bruin Dolphin, one of the largest discretionary wealth managers and the UK and Ireland. Adding yet another secular growth platform in an attractive market, we will look to replicate our North American strategy and extend tailored banking capabilities in the future. Net interest income was up from last year across our global wealth management businesses, more than offsetting lower fee-based revenues. Testament to the strength of the platform, RBC Global Asset Management was yet again recognized for its outstanding investment performance at the 2022 Canada Leper Fund Awards. While AUM has declined amongst a tough backdrop, RBC GAM is a significant profit generator with a pre-tax margin of over 50%. Citi National is now approaching almost $100 billion in assets. Given its outsized growth over the years, our focus is increasingly on improving both the profitability and technology infrastructure and framework of the bank. Nonetheless, we expect higher net interest income to more than offset expense growth in the coming year. Turning to our insurance segment, which continues to generate high ROE earnings and provide diversification against credit and interest rate risk, RBC Insurance is the largest bank-owned insurer in Canada, serving 5 million clients and holds a leadership position in individual disability. Moving on to our investor and treasury services platform, earlier this year, we announced the signing of a memorandum of understanding with a view for Cassis to acquire our European asset servicing activities and its associated Malaysian Centre of Excellence. This transaction will allow us to increasingly focus on our Canadian asset services franchise and our home market where we're investing to develop new capabilities and optimize our operations. Capital markets generated $3.6 billion in pre-provision pre-tax earnings in 2022, not far off our expectations of generating $1 billion of pre-provision pre-tax earnings per quarter in a more normalized environment. Starting with our global markets platform, we are focusing on delivering our full product suite, while at the same time investing in solutions, execution, and capabilities to better support our clients with aspirations to move up the league table. We recently launched Aiden Arrival, the next algorithm on our AI-based electronic trading platform, which has continued to gain traction supporting our clients during these volatile times. Shifting now to corporate investment banking, RBC Capital Markets has moved up to ninth in the global league tables from 11th last year, Our focus continues to be shifting revenue streams towards higher ROE advisory and activities while deepening client relationships. We also benefit from having broad-based, strong relationships with both public market corporates and private capital sponsors. Our success is also built on our investments in people. We will look to add to the 50 managing directors we have hired over the last two years, particularly in the technology and healthcare sectors. Looking forward, Our pipeline is healthy, but we expect some challenges in converting on deals as clients opt for a more cautious approach in response to the challenging market conditions, including rising financing costs and access to markets. Across our businesses, a key pillar of our climate strategy is to play a role in the just, orderly, and inclusive transition to net zero, including helping clients execute on their own sustainability strategies. We remain committed to providing $500 billion in sustainable financing by 2025 and continue to build towards this goal. In accordance with our NVIDIA commitment to achieve net zero in our lending by 2050, we recently published our interim emissions reduction targets for three key high emitting sectors, namely oil and gas, power generation, and automotive. In conclusion, we made significant strides in our organic growth story. You also would have heard of our excitement in welcoming our colleagues from Bruin Dolphin, and yesterday we announced the acquisition of HSBC Canada, with an implied consideration of approximately $12.5 billion net of the locked box agreement, or less than nine times fully synergized 2024 earnings. And given expense synergies and potential revenue opportunities, this transaction is financially compelling. It also offers the opportunity to add a client base in the market we know best, It also positions us as a bank of choice for commercial clients and international needs, newcomers to Canada and affluent clients who need global banking and wealth management capabilities. Nadine, over to you.