Royal Bank Of Canada

All participants, please stand by. Your meeting is ready to begin. Good morning, ladies and gentlemen. Welcome to RBC's conference call for the first quarter 2023 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, 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 and Insurance, 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, Asim, and good morning, everyone. Thank you for joining us. Today, we reported first quarter earnings of $3.2 billion. or $4.3 billion, adjusting for the Canada recovery dividend and other items. Our results are a testament to our diversified business model, underpinned by momentum from client-driven growth across our largest segments, as well as the benefit from higher interest rates. Our performance this quarter also reflected record capital markets revenue driven by strong global markets results, as well as market share gains in investment banking. It is what has been a difficult industry-wide environment for advisory and origination activities. Reported expense growth was elevated to 17% year-over-year. However, as Nadine will speak to shortly, expense growth included a number of notable drivers this quarter. Expense growth over the last 12 months has reflected strategic investments in client-facing roles and technology to enhance our value proposition in infrastructure, including artificial intelligence capabilities. A credit to these investments, RBC was recently ranked number two amongst global banks in a recent benchmark of AI maturity in business. While we're seeing the benefits of our strategic investments in talent and technology, the entire leadership team is committed to moderating expense growth from these elevated levels and driving efficiencies across the bank. Our results were also impacted by higher PCL this quarter. Although PCL and impaired loans remain well below historical averages given strong employment and consumer balance sheets, we expect them to continue increasing from cyclical lows. Correspondingly, we have added to our Stage 1 and 2 reserves this quarter an important pillar and holistic strength of RBC's balance sheet, which includes strong capital and liquidity metrics, including our low-cost Canadian deposit base. We ended the quarter with a CT1 ratio of 12.7% and expect to maintain a CT1 ratio of at least 12% up to and following the close of our proposed acquisition of HSBC Canada. Our outlook includes a regular cadence of twice-a-year dividend increases while also deploying capital to support further organic growth. We continue to be well-positioned to deliver premium return on equity and compounding strong book value growth. This is underpinned by prudent growth in our many high ROE businesses, including Canadian personal banking, global wealth and asset management, and investment banking. Before I provide context on our performance and growth strategies, I will speak to what remains a complex and fluctuating macro and market environment. While central banks have successfully reigned in peak core inflation, strong services demand, labor shortages, and the reopening of China's economy still present a challenge to getting firm control within stated target ranges. While interest rates may be peaking, they may remain higher for longer as tight labor markets and other supply imbalances keep inflation high and constrain economic and market activity. The difficulty for central banks is forecasting the lagging impact that higher rates have on the economy while also trying to assess the impact of further rate increases to control inflation. Furthermore, the global economy remains susceptible to geopolitical shocks and regional political deadlocks. Overall, evaluating all the moving parts, we do forecast a softer landing characterized by a modest recession, largely underpinned by the impact of rising debt service costs on the consumer. This phenomenon has already been felt in the Canadian housing market, where home resales and prices have corrected since their peak last year. Regardless of where we are in the cycle, RBC remains well-positioned to support our clients while executing on our diversified growth trajectory. Starting on slide five, I will speak to these growth trends across our largest segments. I will then spend time focusing on our Canadian retail and global full-service wealth advisory businesses, which provide higher OE through the cycle diversified revenue streams. Turning to our Canadian banking business, where we earned record revenue of $5.3 billion this quarter, with strong volume growth highlighted the strength of our client franchise. We added $28 billion of mortgages over the last 12 months, up 8% from last year. And while mortgage origination activity has slowed from recent highs, it remained in line with pre-pandemic levels, offsetting a slowdown in activity our retention rates are approximately 90% and mid-term attrition rates at five-year lows. Looking forward, we continue to expect annual mortgage growth slow to the mid-single digits, given deteriorating affordability. In contrast, credit card balances were up 13% year-over-year, largely due to higher client spending, particularly in restaurants and travel. While balances have now surpassed pre-pandemic levels, partly due to lower payment rates, revolving balances remain below Q4 2019 levels. Business loans were up over 15% from last year. While utilization rates on revolving facilities remain below pre-pandemic levels, term lending for capital expenditures has been strong. We are seeing broad-based growth across sectors, including consumer services, manufacturing, and auto finance. Our global wealth management franchise generated record revenue this of $4.6 billion this quarter, partly due to the success of our full-service advisory businesses, which I will speak to. RBC Global Asset Management, AUM, increased over $25 billion from last quarter as equity markets picked up from the beginning of the fiscal year. Despite increased market volatility, RBC GAM remains an important high ROE profit generator for the bank. Loan growth at Citi National remained both diversified and robust, of 20%, excluding the impact from PPP loans. Going forward, we expect loan growth to moderate from these heightened levels, particularly in the jumbo mortgage space, where refinancing activity has pulled back. Capital markets also generated record revenue, surpassing $3 billion for the first time. Pre-provision, pre-tax earnings of $1.4 billion highlight the increasingly diversified nature of our revenue streams. This strong performance was underpinned by record results in global markets across most regions, driven by excellent execution on robust client activity through volatile market conditions. Looking forward, we continue to identify growth opportunities in global markets, including in FX, an area of strength for HSBC Canada as well. Corporate investment banking results were down 11% from last year amidst challenging markets, And while investment banking revenues were down 39% from very strong results last year, they outperformed global fee pools, which were down 55%. Consequently, RBC Capital Markets ranked 7th in global lead tables this quarter, moving up one spot to 9th looking at the last 12 months. Looking to the future, we continue to focus on diversifying revenue streams across higher ROE advisory and origination activities. We've been actively hiring managing directors across industry verticals and geographies, while also expanding our client coverage. These have been factors in our move up in global lead tables. With asset and uncertain macro and geopolitical backdrop, volatility across asset classes and higher financing costs remain the biggest challenges to M&A activity. I will now double-click on our differentiated and award-winning Canadian retail franchise. where we welcome the further 130,000 clients this quarter on top of the 400,000 clients added throughout fiscal 2022. We continue to benefit from a number of strategic partnerships with partners such as ICICI Bank Canada, but also leveraging investments made in our distribution network, including digital channels. Nearly 60% of credit cards and almost 40% of core checking accounts are now open digitally. Our success is underpinned by a clear focus on doing what is right for the client. This is why we do not have a minimum balance requirement on our core checking account. Our continuum of offerings combined with our insights and advice allows us to help our personal banking clients make the best decisions based on the prevailing macro backdrop. In 2021, the continued low interest rate environment made it attractive for clients to shift liquidity into investment products such as mutual funds. In contrast, a significant increase in interest rates over the last 12 months has resulted in a shift of our core checking and savings into GICs and other high-yielding products. Personal GIC balances are up over $40 billion from last year, with nearly $15 billion this quarter alone. While we recognize the tradeoff to near-term margins, we attach greater long-term value to retention, deepening relationships, and keeping our clients within the RBC value propositions. For example, clients enrolled in our highly successful Vantage product are twice as likely to cross-sell into credit cards and three times more likely to stay at RBC. Furthermore, the profitability of our mortgage clients is two times higher when retained for the second term. The execution of our client-focused strategy is reflected in strong revenue growth. Despite clients moving to lower-spread GICs, revenues in a personal bank and investments business were higher than last quarter. Turning to slide seven, I will now speak to the strength of our global full-service wealth advisory platform, where we now have in-market scale in three of the world's largest asset pools. We are seeing the benefits of our diversified revenue strategy, with recent rate hikes driving strong growth in net interest income in both Canadian wealth management and in U.S. wealth management. This offset the impact of unfavorable markets on fee-based advisory revenues and transactional revenues this quarter. We are looking to expand our relationships with RBC Brew and Dolphin clients by offering core private banking, lending, and payments products and services. This would leverage learnings from our successful U.S. wealth strategy, which has seen growth in securities lending. We expect this to accelerate revenue growth in our businesses, adding to our fee-based revenue streams, which I will now discuss. RBC Dominion Securities continues to strengthen its number one position in Canada, adding net new assets this quarter, with Canadian AUA up over $20 billion quarter over quarter. Our position of strength is driven by a set of self-reinforcing competitive advantages underpinned by winning advice, digital capabilities, and holistic suite of solutions for our growing base of Canadian wealth planning professionals. Canadian Wealth Management remains a highly profitable business, leveraging its scale to generate pre-tax margins in the mid to high 20s. It is also important to have scale in the U.S., one of the largest fee pools globally. Our U.S. business added over $20 billion of AUA this quarter, adding to its position as the sixth largest full-service wealth advisory firm in the United States. Since early 2022, we've recruited 110 advisors who are expected to drive nearly $20 billion of assets under administration. This recruiting will remain a key source of growth. We'll also look to continue to leverage increasing RBC brand recognition in the US to drive organic client growth. RBC Brew and Dolphin is one of the largest discretionary wealth managers in the UK and Ireland, operating in a market with significant structural changes, including moving from defined benefits to defined contribution plans. This market is expected to increase from approximately 3 trillion pounds today to 4 trillion pounds by 2026. In conclusion, we look to continue executing on our through-the-cycle organic growth story while maintaining a strong balance sheet across capital, credit, and liquidity ratios. Furthermore, we look to deepen existing client relationships and attract new clients as we anticipate welcoming HSBC Canada's colleagues into RBC. Nadine, I'll now hand it over to you.