Royal Bank Of Canada

All participants, please stand by your conferences ready to begin. Good morning, ladies and gentlemen, and welcome to the RBC 2024 Third Quarter Results Conference Call. Please be advised that this call is being recorded. I would now like to turn the meeting over to Asim Imran. Please go ahead.

Thank you, and good morning, everyone. Speaking today will be Dave McKay, President and Chief Executive Officer, Catherine Gibson, Interim 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, Asim. Good morning, everyone, and thank you for joining us. Today, we reported third quarter earnings of $4.5 billion, or adjusted earnings of $4.7 billion, underpinned by strength across our largest businesses. Canadian banking net interest income was up 26% year-over-year, or 11%, excluding the impact of HSBC Bank Canada, which I will speak to shortly. These results were driven by higher interest rates and strong volume growth. Asset management and wealth management revenue growth was underpinned by over 15% growth in fee-based assets over the prior year, as well as higher transactional revenues. Capital markets reported revenue of $3 billion while generating pre-tax, pre-provision earnings of $1.2 billion as we continue to win market share in key products amidst rising fee pools. Our continued focus on improving productivity drove all bank operating leverage of 2%. Pre-provision, pre-tax earnings growth was 16% year-over-year or 8% excluding HSBC in adjusting for specified items. Credit quality remains strong. reported a return on equity of 15.5% or adjusted ROE of 16.4% on the foundation of common equity tier one ratio of 13%. Strong earnings generated a significant 70 basis points of capital this quarter or 26 basis points net of dividends in RWA growth. This is more than what we earned in the first half of the year, underscoring the capital-generating power of our diversified business model. Our premium ROE positions us to continue deploying our growing capital base towards client-driven RWA growth and returning capital to shareholders while maintaining appropriate capital buffers. As always, we look at the intrinsic value of our business when determining the level of buybacks. As we remain well-positioned to compound growth and book value per share, which was up 11% year over year, we expect an increasing level of buybacks over the coming quarters to continue providing long-term value to our shareholders. I will now provide an update on the recent acquisition of HSBC Canada, which contributed earnings of $239 million, or adjusted earnings of $292 million, excluding specified items. Results this quarter benefited from the accretion of purchase accounting marks, $90 million of cost synergies achieved, and $156 million of underlying earnings, including higher than expected Stage 3 PCL. Having realized annualized run rate savings to date of approximately 50% of our stated target, we are confident we will achieve our expense synergy goal of $740 million per year. We also remain impressed by HSBC Canada's fundamentals, including the strength of the franchise and the balance sheet we acquired. Employee and client engagement is high, and our combined sales force continues to rebuild lending origination pipelines, which had narrowed ahead of our extended close. While still early, we see encouraging client activity and opportunities for revenue synergies across the enterprise. HSBC Canada retail clients are being referred to our Canadian wealth management business and are now benefiting from our deep investment management and planning capabilities. Existing RBC retail clients are also benefiting from new product and service capabilities, including foreign currency accounts. Our combined commercial banking clients are poised to benefit from the upcoming expansion of our trade finance and global cash management offerings. Before discussing our business results in greater detail, I will provide my perspective on the macro environment where the U.S. has outperformed a softening Canadian macro backdrop. In Canada, higher interest rates and rising unemployment are impacting consumer spending and business investment. This, in turn, has led to a moderating non-shelter inflation and lower GDP per capita. Contrast, U.S. inflation remains above the targeted range. However, there are signs that the restrictive interest rate policy is stabilizing super core inflation measures. While the U.S. labor market remains resilient, declining job openings and rates of attrition point to some weakening. The short-term divergence of monetary policy between the Bank of Canada and the U.S. Federal Reserve is expected to narrow ahead of expected and accelerating U.S. interest rate cuts with positive implications for yield curves. While there's a higher degree of geopolitical uncertainty and volatility, our diversified businesses are well positioned for the macro-driven shifts in the operating environment. We expect to see the benefits of lower short-term interest rates and capital markets activity, constructive equity markets, availability of credit, improved debt serviceability, and the flow of money from deposits into investments as we continue to provide our clients with valued advice and solutions amidst a complex backdrop. We're also delivering on our strategic priorities across our largest businesses and geographies, including expanding our funding and transaction banking capabilities. Starting with Canadian banking, where core deposit growth remains central to our client acquisition strategy, while one quarter doesn't make a trend, total banking account deposits grew faster than GICs on a sequential basis. Furthermore, we're beginning to see retail clients augment their portfolios with diversified investments, such as mutual funds. We remain well positioned to retain and capture this money in motion following the ongoing shift in the interest rate outlook and client sentiment. Within personal banking, total deposits were up 21% from last year or up 8% excluding HSBC Canada. We're having our strongest year-to-date acquisition volume with new to bank checking acquisition up over 20% year-over-year. driven by value propositions such as RBC Vantage, strong client acquisition in the newcomer segment, and partnership referrals. Our leading digital channels continue to deliver award-winning experiences to our clients, a key indicator of client satisfaction, which in turn is important to the health of our franchise. We're proud that RBC ranks number one in customer satisfaction in both the JD Power 2024 Canada Banking App Mobile Satisfaction Study and the Canada Online Banking Satisfaction Study as well. Our proprietary loyalty program also won multiple awards this quarter at the Loyalty360 Awards, including the Platinum Award for Brand-to-Brand Partnerships, a foundational element of Avion Rewards. Credit card balances were up 13% year-over-year, or 11% excluding HSBC Canada. While Canadians are spending less, Our total client spend was up 7% from last year, including higher airline spend. Mortgage growth was up 12%, or a modest 3%, excluding HSBC Canada. We remain disciplined in our approach as we look to strike a balance between consistent through-the-cycle growth and spreads amidst intense competition. Houseful, an RBCX venture, provides a differentiated growth channel as we look to move up the client acquisition funnel in our client's home buying journey. In our leading commercial banking franchise, deposits were up 25% year-over-year, or 12% excluding HSBC Canada. Business loans were up 43% from last year, or 14% excluding HSBC Canada, largely from increased activity from our existing clients. We are seeing gains in market share across all segments, and priority industries that our clients benefit from the recent investments in our frontline capabilities and coverage teams. Turning to capital markets, where we reported pre-provisioned pre-tax earnings of $1.2 billion this quarter, or $4 billion year-to-date, above our annualized guidance of $1.1 billion per quarter. We generated $3 billion in revenue this quarter, with half of this coming from the U.S., our second home market, and an important element of our growth strategy. Investment banking revenue was up 36% from last year, benefiting from a recovery in global fee pools and a more than 40 basis point gain in market share, notably in M&A. We are seeing also early signs of success and client wins in a recently launched U.S. cash management platform, where we will look to add further capabilities. RBC Clear was awarded the Best Overall Bank for Cash Management United States from the Global Finance Magazine 2024 Awards. Global markets reported $1.4 billion in revenue this quarter, down 1% from last year as our equities business was impacted by legislative changes to the dividends received deduction under Canadian federal measures. Looking forward, we have a robust M&A pipeline as our continued investments in people, product capabilities, and client coverage combined with an increasingly constructive environment is driving more active client dialogue amidst secular trends. However, market volatility could slow the velocity for moving deals from announcement to close. In contrast, this market volatility can continue to act as a constructive tailwind for our sales and trading businesses, a demonstration of the strength of our diversified platform. Moving to our wealth management segment, assets under administration in Canadian wealth management were up 20% or nearly $100 billion from last year, increasing to a record level of over $650 billion. RBC Dominion Securities, part of our Canadian wealth management franchise, was named the highest-ranked bank-owned investment brokerage in Canada in 2024 Investment Executive Brokerage Report Card. This is the 18th year in a row that RBC has won this prestigious honor. Assets under administration in our U.S. wealth management platform also reached a record, up nearly $74 billion, or 13% year-over-year, to a record AUA of nearly $650 billion U.S. dollars. Furthermore, loans and deposits in our U.S. wealth management franchises reported strong year-over-year growth this quarter. Our U.S. wealth management advisory business was the second largest contributor to U.S. dollar results. RBC Global Asset Management's assets under management increased $100 billion, or 18% from last year, to an all-time high as well, benefiting from robust equity markets and increasing inflows to higher-yielding fixed-income funds as interest rates begin to decline. RBC GAM also gained market share in retail mutual funds as it generated positive net sales in a quarter where it appears the industry is tracking to net redemption. In conclusion, we continue to execute against our stated strategies to generate premium ROE and growth. As part of the journey, we recently announced a few key executive appointments. First of all, I would like to thank Doug Guzman for his leadership and for the pivotal role he has played leading RBC Wealth Management from strength to strength and insurance over the years. In addition, we look forward to welcoming Erica Nielsen, Jennifer Publicover, and Shonamato Gauchi to the next quarterly call as group heads of personal banking, RBC Insurance, and commercial banking, respectively. We will also continue to invest to drive diversified growth across client segments and sources of funding while maintaining our focus on efficient capital allocation, prudent risk management, and improved productivity. Furthermore, as it relates to our broader U.S. footprint, we are focused on improving the connectivity across our three platforms. Catherine, over to you.