Royal Bank of Canada at RBC Capital Markets Canadian Bank CEO Conference
Jan 14, 2015 AM EST
RY.TO - Royal Bank of Canada
Royal Bank of Canada at RBC Capital Markets Canadian Bank CEO Conference
Jan 14, 2015 / 01:35PM GMT
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Corporate Participants
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* Dave McKay
Royal Bank of Canada - President and CEO
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Conference Call Participants
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* Darko Mihelic
RBC Capital Markets - Analyst
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Presentation
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Darko Mihelic, RBC Capital Markets - Analyst [1]
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Okay. So just from a order of business, I just wanted to introduce Dave a little bit here. President and CEO of RBC, obviously. He was previously the Group Head Personal & Commercial Banking where he was responsible for RBC's banking businesses in Canada, the United States and the Caribbean. Prior to this, he served as Group Head of Canadian Banking, Executive Vice President of Personal Financial Services and Senior Vice President of Financing Products, respectively. He started his career at RBC in 1988 and has held progressively senior roles in Canada and Japan in retail and business banking, group risk management and corporate banking. And he was appointed to the CEO on August 1, 2014.
So, thanks for joining us this morning.
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Dave McKay, Royal Bank of Canada - President and CEO [2]
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Great.
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Darko Mihelic, RBC Capital Markets - Analyst [3]
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And I'm going to just quickly--.
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Dave McKay, Royal Bank of Canada - President and CEO [4]
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I'm your first test case, am I, of the new format?
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Darko Mihelic, RBC Capital Markets - Analyst [5]
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Yes, this is the new format.
The first slide is oil and gas exposure and it's going to be the first slide for all of our banks today. And one of the things that we'll note with some of the data that we put up on the slide is you have an energy portfolio of $9.6 billion and you have an undrawn energy exposure of $22.2 billion. But I think energy is a very all-encompassing word. And I think that for the purposes of today, it would be good to at least start off with maybe you can define what exactly is in those portfolios for people because this is a direct exposure.
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Dave McKay, Royal Bank of Canada - President and CEO [6]
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And it's the most topical component of our economy and our business discussion across the country and across North America and globally. And as you look at energy prices and hitting in the lows they have over the last five or six years, it certainly has a disproportionate impact around the country and some positives, some negatives across the country. But overall, energy represents roughly 5% of Canadian GDP. So while we're focused in our discussion on what's going to happen in Alberta and a bit of Saskatchewan, even a little bit in Newfoundland, there are other parts of the country that will certainly benefit from lower oil prices, lower gasoline prices, demand from the US. So very different impacts across the country.
When you look at that undrawn exposure, as you said, we define -- our energy portfolio include utilities. We have roughly 50% of that undrawn exposure. So if you take out half of that undrawn exposure, you're down to kind of three components. You've got an exploration and production component, which is roughly half of that again. You've got your oilfield services. Drilling and services are roughly 10% to 12% of that. And the remainder of that is your refining, integrated refining and distribution, which is lower volatility, more stable as they move that through the value chain. So as you look at that breakdown -- so we're only talking about half of that exposure, Darko.
When you look at the biggest chunk of that, exploration and production, of that undrawn exposure 70% is investment grade, so high-quality counterparties, diversified counterparties. And it's roughly split 50/50 or maybe 60/40 US and Canada so there is some geographic diversification. If you look at the US exploration and production companies, while they tend to be a little bit higher levered than Canadian, they are hedged out at least year, if not two years.
So when we look at the impact of oil today, it's really not a question of how low oil is today, it's where is oil in December, where is oil early next year as far as E&P. They're cutting costs. They're cutting project spend. So they have a -- it's in the hedging and the ability to manage those costs. I think really the issue isn't what is the price today; what is the price 6 to 12 months from now. The Canadian E&P producers, which is about 40% of our portfolio, while they have less hedging activity of their revenue stream, they are less levered, for sure, so inability to manage that cash flow through a cycle.
So that is the essence of the E&P portfolio and its diversification. Certainly drilling and services are more impacted, particularly when the E&P producers start to cut projects. It impacts their cash flow and we monitor that portfolio very, very carefully. So when you think about the overall impact of that, there is an ability to mange through the next year and I don't think you're going to see any major negative credit risk manifest itself in 2015.
How do we manage this portfolio? We have a lot of experience. We have a very strong energy team, as you know, well know. We're very active in the sector. We've got great experience managing through a cycle and there's a number of tools we use. First of all, we manage these single names very carefully. We use our watch list smartly. We'll probably be more sensitive to putting clients on the watch list and putting extra care and attention against those names just to make sure we're covering them very, very carefully.
We stress our portfolio at a number of different points. We stress for prolonged downturn in oil price. We've stressed at $65, we've stressed at $60 for a 2-year downturn. And we've very comfortable at those levels over a prolonged period. And we're going to re-stress our portfolio now for a $45 oil price over a prolonged period and I think that's just prudent in the way we manage and the way we think.
So when you sum it all up, it's not this exposure that you reference in your slide. It's half of that. And the way you break it down between E&P, Canadian and US and the portfolios, I think we feel we can manage this and we're going to watch it carefully.
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Darko Mihelic, RBC Capital Markets - Analyst [7]
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And maybe a couple things that -- I guess the one area that we've heard from other banks discuss is the services portfolio.
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Dave McKay, Royal Bank of Canada - President and CEO [8]
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Yes.
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Darko Mihelic, RBC Capital Markets - Analyst [9]
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And that would be first area, quote-unquote, of direct concern, 10% to 12%. Would the -- are those investment grade and what should we be thinking about with respect to that slice of the pie?
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Dave McKay, Royal Bank of Canada - President and CEO [10]
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It's a big miss; it's small. But if you look at the overall energy portfolio and you look at the revenue stream and the profit stream that the business has, that energy portfolio, including E&P, drilling and services, refining and distribution is roughly 10% of our overall drawn exposure, $6 billion of drawn exposure against a $60 billion drawn portfolio globally and roughly 9%, 10% of our revenue stream. So we've got significant ability to absorb that type of volatility.
There's no doubt that the drilling and services is the riskiest of it, of all the counterparties that we deal with, but we manage it prudently. And it's overall -- that 10% is a relatively small and manageable part of the portfolio.
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Darko Mihelic, RBC Capital Markets - Analyst [11]
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And when we talk about a stress test, what do you mean by prolonged period of time? How long is that, a year or two?
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Dave McKay, Royal Bank of Canada - President and CEO [12]
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We're stressing out beyond a year.
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Darko Mihelic, RBC Capital Markets - Analyst [13]
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Beyond a year?
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Dave McKay, Royal Bank of Canada - President and CEO [14]
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A sustained downturn, into two years.
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Darko Mihelic, RBC Capital Markets - Analyst [15]
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And you mentioned that you stress it at $65 to $60 and then I guess you're doing it again now around $45.
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Dave McKay, Royal Bank of Canada - President and CEO [16]
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Yes. And we declared -- and even we talked about it Q4, about a $60 sustained downturn. It is within our risk appetite to manage that type of profile.
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Darko Mihelic, RBC Capital Markets - Analyst [17]
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And then maybe switching gears a little bit, thinking about the indirect impact. So now we're thinking about the other loans that you have in Alberta. And one of the things that we note, about 23% of your Canadian loans are actually in Alberta. So now we're talking about mortgages, credit cards, the whole swath. Can you discuss the indirect impact? And are you capable or -- I'm sure you're capable of doing it, but have you guys looked at stressing for low oil for Alberta and what happens with these other type of loans?
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Dave McKay, Royal Bank of Canada - President and CEO [18]
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Absolutely, absolutely. And here's how we manage the retail portfolio. We have some unique capabilities; not just in Canada, but globally, and how we think about it. The first thing we do is we leverage our holistic customer relationship. So because we have such strong deposit penetration and core checking penetration, investment penetration and credit penetration to our customers because we cross-sell at a ratio at a significant premium to our peers, we have an infrastructure base to understand the cash flows of a customer well before they get into trouble.
So all our credit models are cash flow based. And because we see the checking account and we see the payrolls coming into a checking account or deposits from an independent entrepreneur, we model those and we watch for those cash flows and we watch for cash flow disruption from that customer. So well before there's a missed payment, and sometimes it's a year before there's a missed payment, we see cash flow disruption in the consumer account.
We feed that information back into our origination strategies, we feed that information into our account management strategies, and we feed that information into our collection strategies. So we have upwards of a year's notice when a customer could get into trouble and we reach out to them and we have a discussion. And the farther you can get ahead of a problem, the more options you have to manage that and it's been so successful for us through the last cycle.
So if you look at our credit performance through the 2008, 2009, 2010 recession, while we had the fastest growth going into the recession, we had the best credit performance through the recession. So it's a great proof point that we are very, very good at managing credit. And it comes down to this cash flow management and getting an early warning sign and tweaking your adjudication models, so if that customer comes in asking for more credit because they lost their job we know it. The credit bureau hasn't said a thing yet. They haven't missed a single payment. If you're using the credit bureau you're blind to this, but if you're using cash flow you can see.
So I think how we manage, how we triage, I think gives us a strategic advantage. We stress the portfolio continuously, so we're looking at stress on prices. We stressed at a 25% downturn in prices, we've stressed at a 50% downturn in prices in the Alberta market. We're comfortable with our profile. And got a strong credit book and we haven't seen any signs of deterioration. As I said, because a number of producers are hedged you're going to really see that manifest itself in the portfolio in the short term.
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Darko Mihelic, RBC Capital Markets - Analyst [19]
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And it's extremely early days.
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Dave McKay, Royal Bank of Canada - President and CEO [20]
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It's very early days.
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Darko Mihelic, RBC Capital Markets - Analyst [21]
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You haven't seen -- have you seen anything--?
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Dave McKay, Royal Bank of Canada - President and CEO [22]
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Well, your first trigger is you're going to see it when we see -- well, we'll see the cash flow that you won't see, but you'll see job loss and unemployment, so that's your first trigger and that's the most highly-correlated driver of credit loss in any sector of the economy. And we're all going to watch unemployment and job loss very, very carefully. Unless they cancel projects, there will be people laid off, how they get absorbed into the rest of the economy. I mean the economy was overheating in some shape or form so a cooling may have some benefit over a medium term, short to medium term.
So we're going to watch those variables very carefully, but we've got the strategic tool of seeing the cash flow disruption well before the rest of the market sees it. So I feel very comfortable we can manage that. And it'll manifest itself over time and we don't see any signals right now.
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Darko Mihelic, RBC Capital Markets - Analyst [23]
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Is there any one area where you might be relatively overexposed? And can we think about -- like for example credit cards or should we worry about home equity lines of credit? Should we worry about auto loans? Is there anything you can tell the audience today about your exposure in those -- what I would think -- even construction lending as an example. Those would be things that I would think of that would be more or less concerning, if Alberta were to slip into a recession because of the oil. Can you give us any thoughts on that?
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Dave McKay, Royal Bank of Canada - President and CEO [24]
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I think given the margins you've got in the credit card business through yields, gross yield's up 13%, net yields with low interest rates today at 11%, you've got significant margin to absorb. Our credit -- I mean our average credit losses are less than 300 basis points, so we've got 4 times coverage of our credit losses today. So I do not worry about the credit card portfolio in any shape or form. We've got significant margin there to absorb that volatility. On the auto side we're secured by an asset, albeit a depreciating asset, so you've got to watch that portfolio very carefully.
We've got a strong credit portfolio, but we're not overexposed to that market. We haven't focused just on Alberta and driven our credit portfolio there to a greater degree than anybody else. We have national credit standards so we haven't loosened our credit standards in Alberta because it was booming. We think through a cycle. So we didn't loosen our credit standards because we thought there were good times. We adjudicate credit through an entire cycle with the objective of creating shareholder value through a cycle. So we think about where the expected losses are at the worst point of the cycle and we set our credit strategies to make sure that we're profitable at the worst part of the cycle.
So a very, very important component of your overall strategy to adjudicate consumer credit is how do you think through the cycle and that's how we adjudicate. And we don't changed based on good and bad times. So our credit models have been consistent and unchanging now for the entire cycle and that gives us a lot of comfort that we haven't overreacted in good times and therefore we'll have to deal with a problem in difficult times.
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Darko Mihelic, RBC Capital Markets - Analyst [25]
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Can we flip this on its head?
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Dave McKay, Royal Bank of Canada - President and CEO [26]
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Yes.
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Darko Mihelic, RBC Capital Markets - Analyst [27]
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What about Ontario and Quebec? Everybody talks about the benefit. Is there anything you can tell us about a potential benefit to Royal because of low oil and low Canadian dollar?
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Dave McKay, Royal Bank of Canada - President and CEO [28]
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I certainly think our commercial franchise will benefit. We're seeing more activity, more opportunities for our Canadian commercial customers to bid on business in the US. The weaker dollar's certainly going to help. Greater demand as the US economy moves closer and closer to running at capacity. You'll see greater opportunity in central Canada. I expect to see more drawdown of operating lines as they compete and win that business.
So we think it's positive for central Canada. It's positive for employment and positive for our franchise, particularly our strength in commercial with almost 27%, 28% market share. So I think we're quite excited about that and that's how the rest of the Canadian economy balances out. You will see challenges out west. You will see projects slow down and GDP slow, but you'll see some pickup in Canada net/net. I think most economists, and including our own, are forecasting a net positive to the Canadian economy and you'll see that in Quebec and Atlantic and Ontario, maybe a bit in Manitoba.
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Darko Mihelic, RBC Capital Markets - Analyst [29]
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Okay, thank you. I think maybe we'll flip to the next--.
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Dave McKay, Royal Bank of Canada - President and CEO [30]
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Do you want me to comment on that little credit blip there? That was one account where there was a fire at a facility and it doesn't signify any type of upward trend in credit concerns. The line would be flat to zero, nil for energy without that one account. And as I said, it was an unfortunate fire at their facility that shut it down and caused cash flow disruption.
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Darko Mihelic, RBC Capital Markets - Analyst [31]
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Okay. Thank you very much for that. The next slide that we're going to discuss is expenses. And it seems like it's been a theme now for a long time for Canadian banks to try and battle the expense bulge. And I think we've seen some progress, but can you perhaps update us on where you see the expense run rate going and how we should think about it for RBC?
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Dave McKay, Royal Bank of Canada - President and CEO [32]
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I think we're really proud of our management of expenses. As you heard me say probably 4 or 5 years ago, we set a target of 42% or less productivity ratio in the retail bank, which was half of our organization. And as we approach that, 43% in Q4 and we believe we can drive it down further, we set that in the context of a rate environment that we thought would be 150 to 200 points higher which, as you know, our balance sheet has strong upside opportunity to higher rates.
So when we set 42%, we thought we'd have the tailwind of a 200 basis point lift in rates on our core checking business, on our core commercial deposit, DDA account business. We've had none of that and we're fast approaching that 42% without the benefit of that, which is demonstrating our ability to take out costs continuously, quarter by quarter, year by year. It's built into our DNA.
I still see significant, excuse me, opportunity to drive the productivity ratio lower through technology and through a constant focus. I mean our strategy is not to have a revolution every five years and wake up with a cost challenge and have to drive it lower with a shock to the system. Our strategy is an evolution. We constantly focus on taking out costs quarter by quarter, year by year, investing in technology, and I'll give you a few examples of that. And we've shown fantastic improvement, particularly compared to our peers, in driving it below 43% towards 42%. If you add a rate increase on top of that you're probably going to see us reforecast that in the near future down much, much lower. So we see further opportunity without a rate increase to improve cost structure. And obviously, a rate increase will have a big impact on our overall cost structure of our retail bank.
So we're positive. When you look at the retail credit transformation, we've deployed that. We've automated a number of routines. We see significant opportunity to continue to digitize our organization. I mean the offsetting force to that is we do worry about cyber security. We're worried about malicious attacks. We have to balance that journey with security and cost takeout, but it's something that we're managing very, very carefully.
But digitizing our organization, we have a number of programs running out -- rolling out this year that are going to take out cost on the digital side. And we're not moving as much paper. We've taken out 20 million documents traveling across this country a year by digitizing, creating a much better customer experience, a self-serve customer experience. And there's a lot more work that can be done against our cost structure. I think this is still a 10-year journey of using technology to take out cost and it's really exciting.
So I think on the retail side that's certainly a significant opportunity in front of the industry to use technology to completely transform our business, and I feel confident we'll continue to drive it even without a rate increase beyond the low 40s.
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Darko Mihelic, RBC Capital Markets - Analyst [33]
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Now you mentioned if we got a rate increase you'd have to reforecast. Have you -- is there anything you can share with us? I mean if we had a rate increase this year of 100 basis points do you think that we could get to 40%, maybe below 40% in terms of efficiency--?
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Dave McKay, Royal Bank of Canada - President and CEO [34]
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We'll quantify that for you in probably our next Investor Day, but we're thinking about that now.
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Darko Mihelic, RBC Capital Markets - Analyst [35]
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Okay.
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Dave McKay, Royal Bank of Canada - President and CEO [36]
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Where do we think it's going to take us. Repricing betas of your deposit book is always a variable that you're unsure. We have history of repricing beta and it's been -- we have a very low repricing beta in Canada, but how does that world change going forward with LCR and all the different liquidity metrics that we need to manage. So we're in a different environment because of regulatory and repricing betas, but we're still very confident there's a significant lift there.
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Darko Mihelic, RBC Capital Markets - Analyst [37]
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And what about at the all bank level? So you've talked a lot about the regional. What about at the all bank level? Is there opportunities is other businesses?
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Dave McKay, Royal Bank of Canada - President and CEO [38]
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Certainly. If you look at our wealth operation and our gross margins, particularly in the United States, we have an opportunity to improve our margins in the US wealth business. And we're very focused on managing that account base. It's a very similar journey that we took in Canada where we focused on higher and higher net worth clients. We tried to serve some of the affluent clients and the lower-end affluent clients in different channels and more cost effective channels. And that was a very successful journey that our Canadian wealth business lent. And we're just taking that very same playbook and we're bringing it to the US. We can improve our margins by focusing on higher affluent clients, greater asset bases and using that expensive cost structure to serve that client and looking for a different service model for the lower end of that customer base.
So it's a proven model for us and we're trying to execute that in the US. There's certainly opportunities there. On the capital market side it's part of their DNA. They're always looking for cost savings using technology and managing that cost structure. I mean a big part of our cost increase year over year has been the effect of the US dollar appreciation on our Canadian dollar expenses. So that's been a big chunk and you'll see that trend probably continue over the next fiscal year the same way as the Canadian weakness increases our cost base certainly translated.
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Darko Mihelic, RBC Capital Markets - Analyst [39]
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Is there any quantum you could share in terms of the all bank level of efficiency ratio or operating leverage? Is there something you could share with us today in terms of--?
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Dave McKay, Royal Bank of Canada - President and CEO [40]
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We don't really target an all bank as much as we target that specific retail side, which is so important to the strategic capability of the organization. The cost structure is important to manage in the other businesses, but being the lowest cost producer, having that margin to compete on price, using that efficiency ratio is really a part of the strategy of the retail bank and that's why we focus on setting those targets so clearly. Because it's critical to the ongoing strategy to be a low cost producer, to leverage your scale, to absorb those regulatory costs that you referred to, to absorb those technology costs. I mean we're well ahead of the technology development curve of our peer group, having invested in a new credit system, having invested in new commercial systems. And we've deployed a lot of that cost structure. And as you heard on our commentary on our Q4 call, we feel that's embedded into our run rate and we don't see a need to significantly increase our run rate in technology. We're fine where we are.
So I think that is a real positive message, that we got ahead of that development curve. It's having a benefit. You're seeing us drive our cost structure down and we're at a good place in our technology spend. So I'm very, very positive about getting ahead of that curve; not only from an embedded in our run rate, but from the scarcity of technology resources and the cost of those technology resources. As the market comes to bear on them at the same time, tries to build the same things, it's going to get very expensive.
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Darko Mihelic, RBC Capital Markets - Analyst [41]
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Okay. Maybe we can flip over to the next slide that I've chosen for -- this is the unique slide to RBC, which is we discussed as your wholesale segment. And a couple of things that I know when we look at the 2014 numbers, which was a very good year for the RBC cap market--.
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Dave McKay, Royal Bank of Canada - President and CEO [42]
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Exceptional year, yes.
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Darko Mihelic, RBC Capital Markets - Analyst [43]
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Well over -- or over $2 billion of earnings is a very good growth rate. But as you look through the numbers, one thing that pops out at me is we had 12% growth in revenues and we had loan loss provisions go down to $44 million from $188 million, which was a real big decline. So can we talk about the sustainability of loan losses coming in this low for this business unit and the revenue growth, particularly in this low oil environment? So if you can walk us through how you think of it, that would be great.
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Dave McKay, Royal Bank of Canada - President and CEO [44]
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I think the capital markets business, despite a weaker fourth quarter, had an outstanding year as you referenced, making over $2 billion and driving most of the aspects of their business in a positive way. And there are a number of moving pieces. In that $2 billion we absorbed a fairly significant funding valuation adjustment. We absorbed some of the cost of starting to transition our global arbitrage trading business to comply with Volcker. But we had tailwinds as far as a very strong US lending market and very strong FIC credit revenues.
So there were a lot of positives, a lot of negatives. And we had low PCL and very positive credit profiles. So there's a number of moving pieces that may or may not present themselves. I would say my overarching comment is we feel very good about the business going into Q1. There's strong deal flow in the market still and strong lending opportunities in the marketplace, particularly with the strong US economy. We have long-term hopes for Europe, but probably not in 2015. But we're still in seating long-term investment there.
So we feel positive about the business. They will have to absorb some of those puts and takes overall, but I do think they can maintain their earnings level and move forward from there. I don't -- we feel very good about the business and its capability to continue to perform at that level.
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Darko Mihelic, RBC Capital Markets - Analyst [45]
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Is it reasonable to think of double-digit kind of earnings growth for this business unit?
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Dave McKay, Royal Bank of Canada - President and CEO [46]
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Over an exceptional year last year? No, I think that's -- that would be a very high expectation for the business coming off a record year.
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Darko Mihelic, RBC Capital Markets - Analyst [47]
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Right.
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Dave McKay, Royal Bank of Canada - President and CEO [48]
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I would say double-digit growth on top of $2 billion would be the best outcome that we could hope for.
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Darko Mihelic, RBC Capital Markets - Analyst [49]
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Okay.
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Dave McKay, Royal Bank of Canada - President and CEO [50]
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But I do not expect a step back, either. I expect some growth on top of where we are.
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Darko Mihelic, RBC Capital Markets - Analyst [51]
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Okay. Alright, that's useful.
I've got a couple questions here from the audience, so I'll just--.
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Dave McKay, Royal Bank of Canada - President and CEO [52]
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Yes, fire away.
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Darko Mihelic, RBC Capital Markets - Analyst [53]
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Throw them out at you.
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Dave McKay, Royal Bank of Canada - President and CEO [54]
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Yes. You have to read the handwriting?
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Darko Mihelic, RBC Capital Markets - Analyst [55]
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I don't know who wrote this, but I have to read some handwriting here. Are you still considering acquisitions in the payment space in the US? And if not, what would make you reenter the US P&C market?
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Dave McKay, Royal Bank of Canada - President and CEO [56]
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We are -- we're not really thinking about acquisitions in the payment space in the US, per se. We would make acquisitions in that space to gain technology to help the overall Canadian franchise; technologies enabled, mobile payments enabled, wearables that furthered an overall Canadian retail consumer and wealth experience. We don't really look at acquisitions to enter the US payment space on the P&C side of the thing so I don't think that's a current part. We'd like to disrupt over time, potentially organically through partnerships, but not necessarily through acquisition.
You've heard me say very clearly that we do not have aspirations to reenter the market in the mass US consumer space. We exited that market for a reason. We see it's a challenged market. It's very difficult to drive a hurdle ROE in that marketplace. It's a very competitive marketplace, one that is going to go through a significant amount of disruption from technology. It's difficult to take your strong deposit base and lend it.
So for those reasons, we felt there was a better owner of our US mass consumer franchise and we sold that over three years ago. And we wouldn't have any aspirations to reenter that business in that shape or form, or acquire scale or acquire significant investment. And it's structurally a very difficult business to make money. So those are the reasons we exited
We still view our current US franchise as exceptionally strong and great growth platforms and platforms to lever a stronger US economy. So we've got a very strong US capital markets operation. We earn over $1 billion in our US capital markets operation. We've growth our sector coverage. We've strengthened our teams. We've used our balance sheet to build relationships and we cross all those relationships into ECM and DCM mandates. And we're really positive about our ability to continue to do that in a strengthening US economy. So a very strong platform to leverage US institutional and corporate customer relationships.
We also have a Top 10 wealth management platform in the US and an ability to improve the cost structure there and ability to capitalize on the growth in affluent and high net worth customers in the US, which is the fastest growth segment of the US market. So we have a franchise that's been recognized as a top service franchise and a top advisory franchise by J.D. Power and ability to ride that growth curve in the US. And the area that's emerging for us that we feel very good about is our US asset management business and their ability to cross-sell our capabilities of BlueBay, Global Equity, some global Asian FIC capability into US institutional relationships.
We recognize that we do have some product caps into the US institutional market, particularly in alternatives, real estate alternatives. We would consider deploying capital to close those gaps, Global Equity. So as we watch the emerging needs of US institutional customers and those we want to serve, we would like to fill in those gaps. So, those are areas that we'd certainly consider.
And the last piece is we would love to find an ability to cross-sell private banking services into that US affluent high-net worth customer. Whether we do that organically or try to find a piece that fits, we would consider it.
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Darko Mihelic, RBC Capital Markets - Analyst [57]
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And one other question from the crowd is can you talk about the Caribbean? So presumably if you could just speak to your view on it, the core--.
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Dave McKay, Royal Bank of Canada - President and CEO [58]
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I was just there with our team.
I feel very good about the Caribbean turnaround. We've invested an enormous amount of effort turning that business around. Two years ago when we really started changing the strategy we had over 6,500 employees in that business. We're well below 5,000 employees in that business today. We've taken out cost significantly. We've improved our market offer and our price structure in our key markets. We've really focused on those core markets where we think we can have a long-term franchise.
And when you think about what makes a successful retail franchise, you have to have brand. You have to have market presence, which means you need enough branches in the right places to have a credible franchise, which we certainly do. And you have to have a strong market offer and we have all those ingredients. We have those ingredients in Canada, obviously, but we have those ingredients. We've got a very strong brand in the Caribbean. We've got -- certainly we've got market leadership capability in the Bahamas, in Cayman, in Barbados, in Trinidad, the core markets that we're focused on right now.
So we have a strong retail franchise that should win. We're operating in a very challenging economy. But with that cost takeout we fell strongly that -- and you've heard me comment on that, that we will have a strong rebound in the Caribbean performance in fiscal 2015. We are confident of that. We've done the hard work necessary to turn that franchise around and I am confident you'll see that in 2015, the fruits of all that work.
Lower oil prices really helped the Caribbean. One, they import all their oil and it's a very expensive component of their overall cost structure so they're a big beneficiary of lower oil. Two, lower oil drives down travel costs and makes it more affordable for their core markets, which is US consumers and European consumers who travel to those markets. So price points are coming down, cost structure's coming down in those economies and this is a -- they're one of the biggest beneficiaries of cheaper oil. So there are some positives finally starting to creep into the economic outlook of the region from that perspective, albeit it's still challenged.
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Darko Mihelic, RBC Capital Markets - Analyst [59]
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Well, I thank you for playing ball with my slides and taking all these questions.
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Dave McKay, Royal Bank of Canada - President and CEO [60]
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Yes.
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Darko Mihelic, RBC Capital Markets - Analyst [61]
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So maybe what I'll do is just ask you, with all these investors and shareholders in the room and listening on the webcast, what would your main message be to the shareholders today?
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Dave McKay, Royal Bank of Canada - President and CEO [62]
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I think when you look at your investment thesis on Royal, you're looking at a very strong, diversified, universal bank financial institution with an ability to capture growth where we see core growth happening, with a strong corporate and wealth franchise in the US to capture US growth in key sectors there, with a very, very strong retail franchise, capital markets, and well franchised in Canada captured growth here, and an emerging capability in Europe to capture longer-term secular growth in the US and in European institutional corporate and high-net worth customers. So, a very, very strong franchise.
Also, a franchise, particularly in North America, extremely well positioned to capture the demographic shift and the shift in core bank services to the customer is going to matter. We're seeing a secular shift from credit-centric customers to savings, deposit and investment-centric customers. And I think when you look at what feeds a high-net worth customer franchise, strong commercial capability, strong retail capability all feed a strong high-net worth capability. And we've got that market leadership in commercial, we've got the market leadership in retail with number one market share in every category except one, tied for the only category that we're not number one in.
So when you look at the ability to capture investment growth, to capture this demographic shift in needs of boomers, we are exceptionally well positioned with a partnership between our wealth business, our commercial business, our retail business and our wealth businesses to capture that secular shift in the Canadian economy and in the US economy. And that is where demand is going to be and where growth is going to occur.
So a great capability to do that along with, as I pointed out, that strong ability to leverage the US economic growth. And well positioned for a rise in rates. As we have taught our retail checking and deposit capability, combined with our core commercial deposit capability, we've got a very strong low beta core checking deposit franchise that is well positioned for a rise in rates. And the timing of that obviously uncertain, but certainly something that we've invested heavily in.
And where you see us investing, why do we give away iPads to track new core checking customers? Because of our very strong cross-sell ratios. With market leading cross-sell ratios we can invest $400, $500, $600 in attracting a new core checking customers at these low rates because we sell 2, 3, 4 services to that customer in the first 12 months. And our cross-sell ability and our ability to have broad, deep relationships with our core customers allows us to invest more in attracting those customers.
And you've seen a very strong focus from RBC in both the core checking on the consumer and commercial and we've seen significant market share gains and lift that has longer-term financial benefits to our franchise; not just from cross-sell, but from a rate increase and that's where we've been really focusing our attention. That's why you see us with such strong incentives in the marketplace. Where if you don't have that cross-sell ability, it's very difficult to invest $500 or $600 in a customer up front. If you can't cross-sell them, you can't make the numbers work.
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Darko Mihelic, RBC Capital Markets - Analyst [63]
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Okay. That's it for the time with you today, Dave.
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Dave McKay, Royal Bank of Canada - President and CEO [64]
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Thank you.
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Darko Mihelic, RBC Capital Markets - Analyst [65]
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So thanks very much for participating.
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Dave McKay, Royal Bank of Canada - President and CEO [66]
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Enjoy your day. Thank you very much, everyone.
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Darko Mihelic, RBC Capital Markets - Analyst [67]
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Thanks.
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