Royal Bank Of Canada

All participants, please stand by. Your conference is ready to begin. Good morning, ladies and gentlemen, and welcome to RBC's conference call for the third 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.

Good morning, everyone, and thank you for joining us. Before we begin, I want to acknowledge the tragic events in the Northwest Territories, B.C. and Hawaii, with the ongoing wildfires. Our care and concern is with all those in these areas, and we're supporting community relief efforts, and we're here to help affected clients and employees. Moving now to our results, today we reported third quarter earnings of $3.9 billion, or adjusted earnings of $4 billion, up 11% from last year. Pre-provision, pre-tax earnings were up 7% year over year. Revenue grew 19% to $14.5 billion as our performance yet again demonstrated the strength of our diversified business model, which produced revenue growth across our businesses. Personal and commercial banking revenue increased 7% from last year. Capital markets had another strong quarter with over $1 billion in pre-provision, pre-tax earnings, gaining share across global markets and investment banking amidst declining fee pools. Wealth management revenues were up 10% from last year, and insurance revenue net of PVCAE was up 22% year-over-year. Expenses were up 23% year-over-year, largely due to the acquisition-related costs, FX, and share-based compensation. Excluding these items in growth and variable compensation, expenses were up 9%. We also added a further $120 million of PCL on performing loans this quarter, and we remain well provisioned for a softer economic outlook. We ended the quarter with a CT1 ratio of over 14% while maintaining a diversified funding profile. Our strong balance sheet and premium ROE are important elements of our value creation model. Before I provide updates on our growth and cost strategies, I will speak to what remains a complex and challenging environment from a macro, operating, and regulatory perspective. On the macro front, consumer spending remains resilient. At the same time, it appears the magnitude of interest rate hikes is having its intended effect of reining in persistently elevated inflation. The increase in the price of goods and services has slowed to 2% and 4% respectively. While immigration levels in labor markets also remain strong, we are seeing evidence of slowing labor markets as evidenced by slowing wage growth, lower job postings, and an increase in Canadian unemployment. Consequently, our base case forecasts a softer economic outlook. We expect slowing growth and lower inflation due to the lagging impact of monetary policy combined with a slowdown in China and elevated climate and geopolitical risks. The length of time central banks will have to be in a hold pattern before decreasing interest rates will be a key determinant of the impact on consumers and businesses and the economy. We are operating in a structurally uncertain macro backdrop. Furthermore, the operating environment is changing at a faster pace than we've seen for over a decade, particularly in the U.S. banking sector. U.S. banks are facing increasing regulatory and funding requirements, which are exacerbated by quantitative tightening and other actions, taking liquidity out of the U.S. banking system. Nearly $2 trillion sits in the Federal Reserve's overnight reserve repurchase facility, including a significant increase in usage by money market funds. A higher cost of doing business is reducing profitability for U.S. regional banks, led by higher funding costs and pressure to reduce lending capacity to protect capital and liquidity. City National is not immune to these factors, with both loan growth and profitability being impacted by the higher cost of attracting deposits and continued investments in its operational infrastructure. While we expect these cost pressures to continue for City National, we expect to derive future benefits from its asset-sensitive balance sheet. Furthermore, we are well positioned to benefit from our diversified U.S. business mix, including our top 10 capital markets and wealth management platforms, which generated over 90% of U.S. pre-tax pre-provision earnings over the last 12 months. Given the current operating environment and economic backdrop, I will now speak to the actions we are taking to optimize structural efficiencies to support our strategy of creating long-term value. While we have a strong foundation to do so, we have not been satisfied with our recent operating leverage, and so we've heightened our focus on expense control. We have acted by slowing discretionary spend, prioritizing investments, and moderating hiring to benefit from natural attrition. Our actions to date have resulted in a 1% reduction in FTE, excluding the partial sale of RBC Investor Services and our summer student program. We expect to further reduce FTE by approximately 1% to 2% next quarter, through attrition and targeted reductions. We will continue to monitor the changing landscape and are ready to accelerate further tactical actions as deemed appropriate. In addition, we are also maintaining our discipline around capital allocation, as highlighted by the partial sale of RBC Investor Services. We remain focused on driving the bank forward, including the planned acquisition of HSBC Canada. The transaction, once approved and closed, is expected to drive attractive financial returns, while positioning RBC as a bank of choice for newcomers and commercial clients with international needs. We're also investing to create even more value, including leveraging our leading Borealis AI Institute to expand our capabilities in artificial intelligence. We're expanding in-market use cases in credit adjudication, cybersecurity, client offers, and through our AIDEN trading platform. I will now speak to key growth drivers across our segments, starting with Canadian banking, our largest business. We had our best-ever quarter for new-to-RBC client acquisition, with record volumes from newcomers and new partnerships, including ICICI Bank Canada. Personal deposits were up 14% from last year, Our stable, low-cost, low-beta deposit franchise allows us to efficiently fund our loan growth. Our attractive funding structure is also expected to provide a relatively smooth revenue stream, which Nadine will speak to shortly. We continue to see a shift in deposit mix towards term products as new and existing clients continue to value our higher-yielding offerings. We also continue to enhance our franchise by expanding our offerings and partnerships. an important part of our client-centric model. We're excited to be the official financial services partner of the 2024 Taylor Swift Heiress Tour in Canada. Earlier this quarter, we launched our new loyalty partnership with Metro in Quebec, while also opening our innovative ShopPlus platform and having on rewards to all Canadians. Many of our Canadian banking clients are members of our internationally recognized award-winning program. and we expect to grow this membership base by 50% in the next three to five years. On to mortgage growth, which moderated to 5% from last year, and we expect industry origination activity to continue along this trend. We remain focused on the trade-offs between spreads and new mortgage originations as intense pricing competition is limiting expansion and asset betas. We will remain disciplined and to ensure new originations continue to meet internal hurdles of economic value. Business loan growth remains strong, up 14% from last year, as we continue to see balanced growth, including solid growth in agriculture and supply chain sectors. With inventory levels remaining below pre-pandemic levels, there is a continued runway for growth. Moving to our global diversified wealth and asset management franchises, which are key contributors to our premium return on equity. Starting with Canadian Wealth Management, assets under administration were up 7% from last year, increasing to a record level of approximately $550 billion. On slide 30, we provide new disclosures on our leading advisor productivity, which remains significantly higher than peer averages. U.S. Wealth Management, AUA, was up 7% from last year, to a record level of approximately $575 billion US. We also added over 20 new advisors this quarter, a key source of growth. RBC Global Asset Management, AUM, increased 3% from last year, despite unusual conditions where market outperformance was heavily weighted towards a narrow band of US technology stocks. Our clients chose us as a trusted advisor largely due to our performance and investment expertise. Nearly 85% of our AUM have outperformed the benchmark on a three-year basis, a challenging period for markets. Furthermore, we are confident that our leading money in franchise is well-positioned for any client-driven reversal of GIC inflows back to investment products. We added to our alternative product suite this quarter by launching the RBC Global Infrastructure Fund, which exceeded commitment targets. Capital markets had a strong quarter, as we benefited from the growing strength of our diverse business model. While industry-wide fee pools remained muted, our businesses showed continued momentum and delivered market share gains to drive out performance. Our cross-platform teams are building on their valued position as trusted advisors to our clients across geographies and products. In corporate banking and investment banking, we continue to advance the globalization of our business and deepen our sector and product coverage of our franchise. These investments are reflected in our participation in key mandates across diversified industry groups, translating us into a move to ninth in global league tables on a year-to-date basis, up from tenth last year. Going forward, we are seeing increased client conversations and the buildup of a healthy pipeline. In global markets, we also delivered strong market share gains across several core products and focused areas for accelerated growth. Our strong market share in the spread business worked well for us this quarter. Furthermore, investments we have made in our macro business have also positioned us to support our clients. We are pleased that the strategic investments in talent and technology and the changes we have made to our organizational structure are producing results. In conclusion, our investments in our people, technology, products, and services continue to create more value for our clients that are driving strong volume growth and client activity across our businesses. We also remain committed to delivering more value for our shareholders by efficiently allocating investments and capital within our stated risk appetite. Nadine, over to you.