Royal Bank Of Canada

All participants, please stand by. Your conference is ready to begin. Good morning, ladies and gentlemen. Welcome to RBC's conference call for the first quarter 2024 financial results. Please be advised that this call is being recorded. I would now like to turn the meeting over to Asim Imran 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 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.

Thanks, awesome. Good morning and thank you for joining us today. Today we reported first quarter earnings of $3.6 billion today. or adjusted earnings of $4.1 billion. Our results benefited from higher fee-based revenue and wealth management, including strong flows in our advisory businesses and solid performance in asset management. Broad-based, client-driven volume growth in Canadian banking, more than offset escalating competitive growth in Canadian banks, more than offset escalating competitive pricing pressures. Capital markets reported strong pre-provision, pre-tax earnings of $1.3 billion, as we continue to gain market share. Importantly, core expense growth continued to decelerate, demonstrating our ongoing discipline, which Nadine will speak to shortly. The strength of our diversified earnings stream more than mitigated the increase in provisions from credit loss in our commercial real estate and Canadian unsecured retail portfolios. As Graham will speak to later, we expect PCLN impaired loans to remain within the guidance we provided last quarter, remain confident, in our risk management framework, including our prudent and consistent underwriting and our rigorous monitoring and stress testing processes. Furthermore, our strong capital position and prudent allowances position us well for any further deterioration in credit quality. We added $133 million of PCL on performing loans this quarter, increasing our ratio of allowance for credit losses to 64 basis points, up 11 basis points from pre-pandemic levels. The strength of our balance sheet is further underscored by our robust CT1 ratio of 14.9%, up 220 basis points from last year. Additionally, our liquidity coverage ratio was 132% this quarter, translating to a $94 billion surplus above the regulatory minimum. Our balance sheet strength, diversified business model, and franchise scale position us to continue delivering value for our clients and shareholders through a wide range of monetary and economic scenarios. Flowing inflation suggests central banks are close to achieving the soft landing they've been aiming for. However, trends are diverging across geographies. Canada is lagging peers in growth in GDP per capita, partly due to a slowdown in spending on discretionary goods and services, including on an inflation-adjusted basis. RBC's card transaction data suggests average growth in our non-auto retail sales has continued to moderate, slowing consumer demand and rising unemployment points plus softening in Canadian economic backdrop. In contrast, the U.S. is showing continued strength in labor markets, above-average wage growth, a resilient U.S. consumer, and higher corporate profits, suggesting the effect of federal funds rate may remain higher for slightly longer. Nonetheless, we expect more sustained decline in inflation measures to push both U.S. and Canadian central banks to follow recent global examples and pivot to a more dovish stance this year. Bifurcation and trends suggest the Bank of Canada should move on rate cuts earlier than the U.S. Fed. The uncertainty around monetary policy points to 2024 being somewhat of a transitional year as markets consider the impact of interest rate trajectories and rising geopolitical tensions on equity markets credit quality, capital market revenues, and client preferences. With this context, I will now speak to Q1 revenue growth drivers and an outlook across our franchises, where we continue to gain share in key areas. Starting in Canadian banking, where we continue to benefit from our long-term scale advantages, we reported strong growth in our high-quality deposit franchise, which is the foundation for building premium loan growth and deepening existing client relationships. P1 2024 was a record quarter with net new-to-bank clients up 29% year-over-year due to our distribution strengths, technology investments, and innovative client value propositions, including RBC Vantage and partnerships with Canadian industry leaders. With interest rates remaining higher than pre-pandemic levels, we continue to support our clients' preference for shifting their assets into term deposits, especially within the higher net worth cohorts. Commercial loan growth remained strong, up 14% from last year, with balanced growth across sectors, particularly amongst our existing clients. While our clients remain optimistic, we expect lower CapEx investments in anticipation of slower economic growth. Growth in our leading Canadian credit card franchise was up 13% year-over-year, as higher revolver balances significantly outpaced increases in transactor balances. In contrast, mortgage growth declined to 3% year-over-year as a strong retention rate offset continued pressure on home prices. While we anticipate some continued recovery of housing resell activity, we expect mortgage growth to remain in the low single digits through 2024 as we remain disciplined on pricing and spreads amidst intense competition. Turning to our wealth management segment, where combined assets under administration across our Canadian, U.S., and international wealth advisory businesses have grown to nearly $1.6 trillion. Assets under administration in our leading Canadian wealth management business were up 12% from last year, increasing to a record level of nearly $600 billion. Assets under administration in our U.S. wealth management platform, including the sixth largest wealth advisor in the U.S., increased 12% year over year to nearly U.S. $600 billion, or over Canadian $800 billion, which is a record. While higher markets are a key driver of client asset growth, our Canadian U.S. wealth advisory businesses generated $16 billion and $12 billion of net sales, respectively, over the last 12 months. We believe there's significant opportunity for continued growth, and we will continue to invest in advisor recruitment across North America. In contrast, net interest income in our wealth management businesses were impacted by similar trends seen in Canadian banking, namely a shift from deposits into higher-yielding products. RBC Global Asset Management's AUM increased 6% from last year, benefiting from higher markets. Canadian retail net outflows this quarter were less than 1% of opening AUM, outperforming the industry, which has faced a challenging backdrop over the last year. We are confident that our leading franchises are well positioned to capture money in motion back into investment products following a shift in the interest rate outlook and resentment, particularly when it comes to fixed income strategies, which is one of our core strengths. There are early signs of these trends, with RBC's retail long-term net flows turning positive in January for the first time since February last year, led by fixed income mandates. Furthermore, RBC GAM delivered over $4 billion of long-term institutional flows this quarter, which is a testament to our deep client relationships. Demand for ETF products was also strong, as RBC iShares Alliance led the industry with long-term net sales of $5 billion for calendar Q4. Capital markets reported pre-tax, pre-provision earnings of $1.3 billion, the second highest since 2021, and well above our $1.1 billion run rate guidance. Corporate investment banking revenues were up 3% from last year. Our investment banking business ranked eighth globally in the first quarter, with our market share of 2.3%, up 30 basis points from where we ended fiscal 2023, with share gains across all our products. We are benefiting from the successful execution of past strategic investments and talent, combined with a focus on increasing banker productivity. Our pipeline remains healthy, and we're engaging in increased dialogue with corporate clients. Furthermore, we expect private equity activity to ramp up as sponsors sit on significant levels of uninvested client funds. That said, due to evolving market conditions, including an uncertain macro and regulatory environment, it's hard to predict when deal completions will sustainably rebound. Global markets also had a solid quarter. While overall revenues were down compared to a very strong prior year quarter, we grew origination and secondary client volumes consistent with our strategic focus for the business. We also did not experience any trading loss days this quarter, a reflection of the strong market risk management culture. We also recently launched our U.S. cash management business, and we will look to provide a progress update at the end of this year on the value provided to both clients and to RBC's funding profiles. I will now speak to two areas of interest, namely our planned acquisition of HSBC Canada and the recent developments at Citi National Bank in the U.S. Starting on slide seven, we are excited to have received approval from the finance minister. We have targeted a March 28th close. Following this close, we expect our CT1 ratio to be approximately 12.5% by the end of the quarter. With this transaction, RBC will be better positioned to be the bank of choice for commercial clients with international needs, affluent clients needing wealth management capabilities, and newcomers to Canada. Furthermore, we look to deepen existing client relationships and build new client relationships. We continue to expect approximately $740 million of expense synergies. Given the nature of the concurrent financial and operational close and convert transaction, we expect nearly 25% of the expense synergies to be realized in the second half of 2024 and 60% by the end of year one of the transaction, largely related to shared service and IT systems. Given the timing of the close, we now expect nearly 80% of the cumulative expense synergies to be realized in 2025, with the remainder in the first half of 2026. We expect to provide further updates on the earnings power of the combined platform on our Q2 earnings call after the expected close. On to slide eight. Citi National has grown considerably since we acquired the bank in early 2016. One of our top priorities over the last couple of years has been to execute against extensive and detailed action plans, including investing in the appropriate risk and control infrastructure, as well as new leadership. Looking forward, our focus at City National is to deliver a more normalized level of net income in 2025, including costs associated with an enhanced operational infrastructure. This includes optimizing its balance sheet to enhance spreads, enhancing its funding profile, creating efficiencies, and redeploying capital to focus on multi-product clients. To close, we've had a strong start to fiscal 2024. as we continue to execute on our client-focused strategies, including welcoming new clients and colleagues in a few weeks' time from the planned acquisition of HSBC Canada. Amidst ongoing macroeconomic uncertainty, our balance sheet remains strong. At the same time, our diversified revenue streams across businesses and geographies and prudent cost control position swell to continue driving a premium ROE and organic capital generation throughout the economic cycle. Nadine, over to you.