Royal Bank of Canada at Scotiabank Financials Summit

RY.TO - Royal Bank of Canada
Royal Bank of Canada at Scotiabank Financials Summit
Sep 09, 2015 / 02:00PM GMT 

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Corporate Participants
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   *  Dave McKay
      Royal Bank of Canada - President & CEO

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Presentation
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Unidentified Participant   [1]
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 Our next speaker this morning will be Mr. David McKay. He is the President and Chief Executive Officer of RBC. Dave joined the bank in 1988 and was appointed to his current position in February 2014. Isn't that the right date there, I think it was August, wasn't it? Yes, some bad info. Thanks for being here.

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 Dave McKay,  Royal Bank of Canada - President & CEO   [2]
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 Good morning.

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Unidentified Participant   [3]
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 So we've started our conversation this morning by observing the dichotomy that the Canadian banking sector has had this year. On one hand, business as usual in terms of operating performance, most members of the group, including Royal are on path for another year of record earnings. On the other side of the coin, the share prices haven't performed particularly well. And that's because, at least this is what I've heard, markets are forward-looking and the expectation is that growth rates are going to slow.

 So a big question to get started. The key factor for banks almost always is credit quality. So when we think about the slowdown in economic growth both domestically and globally, is the bank anticipating a significant turn in the credit cycle and the accommodating credit cycle that you've enjoyed? And secondly, irrespective of that point, slower economic growth, lower interest rates, lower commodity prices, what steps are you taking to ensure that you're able to continue to deliver solid financial results for your shareholders?

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 Dave McKay,  Royal Bank of Canada - President & CEO   [4]
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 That could take the next half hour, but I'll try to be brief.

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Unidentified Participant   [5]
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 The clock is ticking [almost already here].

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 Dave McKay,  Royal Bank of Canada - President & CEO   [6]
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 So let's talk about the Canadian economy. And really as all of you likely know, it's a tale two tapes. For non-energy sector, the economy is performing relatively well, somewhere between 1.8% and 2% growth.

 So if you look at the credit books, our credit book in particular, it's really a reflection of the Canadian economy and that unemployment is stable. We saw good job creation at the last round of numbers.

 So you look at the consumer book outside of Alberta, it's strong, the commercial book, very liquid customers, our deposit book's growing at a faster rate than our lending book. There's a real conservatism on the commercial side. So as you look at the Canadian economy, and the relatively benign credit books all the banks have, it's really a reflection of the Canadian economy.

 So we're expecting further strengthening of the non-energy sector over the coming year and it is going to pull the Canadian economy into positive growth, we expect, the latter part of this year. So really a tale of two tapes.

 You do have obviously the very difficult operating environment in Alberta in the energy sector and that has not manifested itself in credit deterioration so far. Certainly the consumer side has shown to be quite resilient even though unemployment has crept up to 6.5%. The energy sector has worked hard particularly in Canada to manage cash flow, raise equity where possible and to manage through a difficult scenario. So I think obviously very resilient economy, we are not expecting though a major credit cycle.

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Unidentified Participant   [7]
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 On the most recent conference call, there was a lot of conversations about stress tests, and what that could do to provisions. Just looking at the numbers from Royal, currently you are provisioning in and around 23 basis points. I think the stress scenario that your CRO talked about was in the 40 to 50 range.

 If I go back to 2009, the bank got off to about 95 basis points. But you had a business in the US that is no longer with you that contributed a big chunk of that.

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 Dave McKay,  Royal Bank of Canada - President & CEO   [8]
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 Real estate lending for the prominent part.

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Unidentified Participant   [9]
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 So that 40 basis points to 50 basis points scenario, is that one in which unemployment, which has hung in actually very, very well in Canada this year, moved significantly on the unsecured side or is this more a reflection of your energy producer portfolio?

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 Dave McKay,  Royal Bank of Canada - President & CEO   [10]
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 We certainly believe in the short term, it is more of the latter, and it's an energy producer portfolio stress. The contagion to the rest of the economy appears to be quite limited as central Canada is finding new markets.

 Certainly a strong US market with a weaker dollar is slowly having a positive effect on GDP and while we haven't seen it manifests itself into job creation in manufacturing, certainly in exports is starting to show some positive signs of growth. So overall, I think Canadian economy, services driven, ag, manufacturing is balanced and the contagion from that should be somewhat limited, but certainly it's quite difficult within that operating environment.

 When we look at our business model, the other question you asked is me is what levers can we pull? Looking at the diversification of our model, and you start with a Canadian franchise, we have the top banking franchise in the country. Whether you look across the consumer, commercial client, corporate institutional client, we are positioned geographically balanced across the country by customer segment and by business to capture growth wherever it occurs in this economy. Whether it's the corporate institutional marketplace, the consumer marketplace; whether it's Ontario, Quebec, BC, maritimes we have a top franchise in every single market across every business line to capture that growth. So that is a unique capability that we feel is well positioned to gather growth in this marketplace irrespective of where it occurs.

 Where we're seeing it today, very strong GTA and strong western part of Canada, particularly obviously in BC, that's doing exceptionally well. We also are very well poised to capture growth in the US marketplace. We made significant progress that we talked about in our US capital markets franchise. We're seeing opportunities we didn't see five years ago. It's a very active M&A marketplace and corporate marketplace. We've built that franchise and we are going to complement the franchise now with the build-out of what I'm most excited about is a high net worth affluence strategy in the US. That really unlocks the value of our single service wealth manager in the US and its large client base.

 And one thing I've learned in 30 years of banking is that to drive higher ROEs in this business, you need a multi-product relationship with a customer. And I can point to just about every franchise in any business in any market that has a single service client has a single-digit ROE. So you've got to penetrate that client wallet with multi-products to drive that ROE to the targets that we have of 18% plus.

 And it's certainly one of the challenges we've had with our US wealth franchise in a single-service advisory, wealth capability, we're missing out on the largest part of that financial wallet, which is private banking, mortgage consumer lending, commercial banking. And the City National Franchise rounds that out and creates for us what we think is a very exciting growth platform.

 In any slowing market, the second thing I would say is cost. Cost is very much a part of our DNA. If you look at the retail bank over the last four or five years, we've grown by 40% yet our costs are roughly the same particular FTE. So we've really driven our cost structure very aggressively and we've not used one-time shocks to the system, but certainly managed our FTE and reallocated resources to grow that business and create operating leverage.

 So where does our cost opportunity lie going forward in the short term and the medium term? I think first and foremost, we have a significant cost opportunity within our wealth franchise, particularly you can see where our operating margins are in the low to mid 20s, we want to certainly improve that to the high 20s and 20% improvement.

 Digitization is a path to that where you look at the manual processes and the back office processes and our wealth franchise is probably a decade behind the retail banks. So enormous opportunity to improve the customer experience, employee experience and take out cost in that business.

 And we have a long-term secular opportunity within the retail bank to continue to digitize the business. We've done a lot of great work, leveraging our retail credit transformation project and the online mortgage and the mobile mortgage and digitized back office that we put into place about a year and a half ago, which is running very well. You know, levering that to take out costs. We've eliminated over 20 million paper documents in our systems. We collect signatures electronically upfront.

 So we put the infrastructure in place to really start to lever a more digitized lower-cost business model and that will be a long-term secular opportunity for the organization. So managing costs, but it's really well positioned to capture growth in North America.

 And then the third platform that we're excited about more for the longer term is really looking at a similar customer franchise that we have in the US, corporate institutional high net worth, and being very patient around building that in the UK and select European markets. We've got a good base of capital markets franchised there. We're expanding sector coverage. We've got a strong asset management capability with BlueBay and our own RBC asset management capability in London.

 We have a high net worth customer base. So again, we're serving very similar to the US on an advisory basis only. We don't have a product to cross-sell into that wallet. So we'd love to build that capability. So very significant opportunity over time I think to build out a European franchise that looks quite similar to the US franchise that we're very excited and call our second home market right now.

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Unidentified Participant   [11]
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 So you give me a few things to unpack there. Let's get a little bit more targeted on wealth management. I think top of the house view, Royal Bank and Canadian P&C is the 800-pound gorilla, always has been. Capital markets, the US build out the Canadian strength has been very good for, I'd say, four or five years now.

 The man in the middle, so to speak, is wealth. And I'll say it from my perspective, it feels like it's taken a long time to get the margins in the aggregate business moving. When you took the seat last August, I think relatively quickly afterwards we heard about the shutdown essentially of the Caribbean business, there's been some pruning in Europe. What has to happen to move wealth from the low 20% pretax margins to the high 20%s? What's the components that get you there?

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 Dave McKay,  Royal Bank of Canada - President & CEO   [12]
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 So a couple things. One, the international wealth strategy that we decided to, for the most part, exit has been a significant drag on our earnings as we've disclosed, quarter-to-quarter. And unlike some organizations that would take a large charge upfront; we've managed within our operating costs over time and not taking that charge upfront, so it has been a drag.

 The strategic decision to exit, it's not a long-term client that we want to serve. The cost structure to serve that client has increased exponentially and the risks of making a mistake are unacceptable. The regulatory and reputational risks of making a mistake is something you just don't want to bear. So when you put all those together, you're not making money.

 That business used to make upwards of 20% of the global wealth management business. So repositioning out of that has earned a lot less in more recent times because the cost structure has changed against that business. But it's been a difficult one to exit as you de-market clients who have been with you 30 years, you have trust relationships that takes time and effort.

 The decision strategically was easy, the execution has been a year and a half of a really hard work and we're at 75% of the way through that now. And Q4, we expect to [come to the rest], so that has been a drag. But I do accept the premise that we have to do better job managing our cost structure within wealth management.

 We pursued a number of strategies that built up costs that have produced less than the results that we wanted. We are re-examining some of those strategies and we do think through digitization, through a re-examination of the fundamental cost structure of the business that there is opportunity for us to streamline this business and get it back to the growth trajectory that we expect out of this. It's a long-term growth franchise for us.

 But when you look at the components of wealth, our global asset management business is performing extremely well and it is about 70% of the profit of that business. It's a global business; it's a high performing businesses, it's an efficient business, and we're really happy with how it was performing.

 The Canadian wealth franchise is also a market leading franchise, generating about 40% of the profitability of the industry and roughly 20%, 25% of the AUA in the industry. So it really is a wonderful business that's growing through the acquisition of key teams, organically very, very well. And our challenge is to cross-sell to a greater degree into that client base, which we're focused on.

 There is a unique secular opportunity as many of those wealthy business owners retire and that wealth transfer as they sell their business and how to manage that and capture the buy and sell side of that is a huge opportunity over the next 5 to 10 years in our economy, in the Western economy. And one that we feel with our commercial franchise and our Canadian wealth franchise, we're very well positioned to capture and that should improve again the operating efficiency as we grow our share of wallet with that customer.

 And then the US wealth franchise, as we talked about really needs the benefit of a City National to come in and open up that share -- that customer wallet and cross-sell there. So those are the three main components in exiting the wealth that we expect better performance out of this business.

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Unidentified Participant   [13]
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 And just to be clear, when you say you US wealth, you are talking about the old Dain Rauscher business that was acquired 15 years ago.

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 Dave McKay,  Royal Bank of Canada - President & CEO   [14]
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 I am.

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Unidentified Participant   [15]
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 It's a retail brokerage business. And in your view, has the issue there been and then lack of scale? Is the AUM per advisor low, revenue per advisor low, what has been --?

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 Dave McKay,  Royal Bank of Canada - President & CEO   [16]
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 That is a good question. Actually when we benchmark ourselves against the wire houses and the Tier 2 broker dealers in the US, there were Northern Trusts of the world, which -- where we sit. It's not so much the fact that we've got significantly less AUA per advisor or the economics around our advisory business are off-scale. We look at our operating margin in that business, we are in a range -- we are under-performing a little bit against some of the peer groups, but not significantly.

 Where we underperform is the rest of that client wallet. When you look at what Morgan Stanley and others like Northern Trust are cross-selling NII and revenue-based products around jumbo mortgages, credit cards, private banking capabilities, commercial banking. That's where there is a significant gap. So back to the start, when you have a single-service relationship with a customer, you're not -- you are sub optimizing your profitability. The key for us, there is some marginal potential to improve operations on the advisory side. The real side is getting the lending, deposit, private banking side, commercial banking side of that relationship where you can significantly boost your ROE and your profitability. We weren't able to do that, we didn't have that capability in the US marketplace and City National fills that capability set for us. So that's the strategy against that customer.

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Unidentified Participant   [17]
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 And when we sat here a year ago, you had, as I said, just taken the seat and lot of speculation, okay, Royal says, we're out of US regional banking; we are not out of US banking. A few months later, there is City National on the tape.

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 Dave McKay,  Royal Bank of Canada - President & CEO   [18]
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 It is not a regional bank, it's a private bank.

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Unidentified Participant   [19]
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 It's not a regional bank.

 And let's put this with your current wealth franchise. When I look at the mix of business of City National, if I'm not mistaken, it is about 80% NII in the revenue line, 75%, 80%. How does the end -- from what you've disclosed, the plan is to have Russell Goldsmith in charge of all of Royal's US wealth.

 So I don't know how much you can talk about this, let's not talk about it from his position, let's talk about it from yours. How does the client base the existing City National franchise fit with what you have in US wealth? Do the two marry well together?

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 Dave McKay,  Royal Bank of Canada - President & CEO   [20]
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 They do, but there's not 100% overlap which is good. So when you look at the type of client that Russell serve, Russell serve an entrepreneurial commercial client across key sectors such as entertainment, healthcare, technology, real estate. So an entrepreneurial customer, where he's banking both sides of that customer relationship, commercial side of the relationship, private banking side of the relationship and the advisory wealth side of the relationships through their advisory franchise. So that's been a very powerful franchise.

 Their customer base overlaps with the top component, a high net worth component of our existing wealth franchise. So we have a combination in the US of a [mass] -- an affluent high net worth customer franchise and that top sector of that overlaps perfectly with Russell's. So we -- over time we would debate how far do you bring Russell's offering down market or do you keep it there and do you cross sell into the affluent, mass affluent part of our existing franchise with a different service offering and leave the City National-branded private bank offering at the top end.

 So it very much is the top component of that business, which is great, and the opportunity is significant for the City National franchise. As you look at the number of relationships that they can grow would be a significant growth trajectory alone for them in addition to all the other core strategies that we're excited about City National.

 Growing their balance sheet, which is they've slowed because of concentration of risk around sectors, single-name limits that will unlock the leveraging our capital markets franchise to cross sell into there. Using jumbo mortgage as more as an attraction product and kind of mimicking the First Republic strategy that's been enormously successful in the US market. Unlocking the suite deposits that we have in our broker/dealer franchise in US that we can't use against existing capital markets lending books.

 So there is a significant synergy trail that we've been working on for two years pre-acquisition. So we know exactly what we're executing and we spent the last six months with Russell's team just planning against all these synergies organically to go out and execute.

 And we feel confident that we will earn a very good economic return for the shareholders on this business and provide a long-term platform for growth in a very attractive marketplace that we think is a low credit risk as customer pays their bills.

 If you look at loss rates on jumbo mortgages in the customer segment that we're targeting is 1 basis point to 2 basis points. It's exactly like the Canadian marketplace, very different from the mass market mortgage in the US. They're concentrated in a number of MSAs, but you don't need a large branch network. You don't need storefront, corner expensive branches to go after this. This is a light footprint office.

 It's all about talent and you put your NII into top talent in this business, not into physical infrastructure as much. You need certainly some branches to create marketing and a visible presence, but you deliver this network through people on the ground calling on high net worth customers as you know.

 So all that is attractive to us, low credit risk, low regulatory risk, low physical footprint, great brand (multiple speakers).

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Unidentified Participant   [21]
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 Rate sensitivity.

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 Dave McKay,  Royal Bank of Canada - President & CEO   [22]
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 And obviously the reason the premium was so high is that if you look at where City National was trading before we even started talking to them, they have enormous asset sensitivity and it's kept the duration of their book, very, very short. And if you go back and look at their investor presentations, pre-acquisition, they disclosed the asset sensitivity to higher rates. And if you see how that stock traded, and the asset sensitivity to Yellen's comments, it's enormous. So we're very, very excited about this franchise in a rising rate environment and that component of the contribution to growth.

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Unidentified Participant   [23]
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 The strategic fit makes a lot of sense and I think we've talked about this in the past. The market has seen RBC significantly improve efficiency in what I'll call two lower profile segments, investor and treasury services in Caribbean.

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 Dave McKay,  Royal Bank of Canada - President & CEO   [24]
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 Yes.

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Unidentified Participant   [25]
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 Easier said than done. But that kind of efficiency improvement in wealth I think would go a long way in terms of both the earnings power and the perception for the stock.

 Let's move to another topic because time is always our enemy. As I said, City National made a lot of sense strategically. Where the fit is getting a few more questions these days is around capital. So that transaction is supposed to close in fiscal Q1.

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 Dave McKay,  Royal Bank of Canada - President & CEO   [26]
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 Yes.

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Unidentified Participant   [27]
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 And from the numbers you've given us on a pro forma basis, your CET1 right now would be around 9.4%. You've got a couple of quarters to go. By my math, you're closer to 9.6%, 9.7% at close. So biggest bank in the country, perhaps some global designations coming before the end of the year. How does a 9.7% ratio, which would be by my math, the lowest in the sector fit with those characterizations of Royal?

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 Dave McKay,  Royal Bank of Canada - President & CEO   [28]
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 So if you look at -- we've been very clear where our capital targets are and trying to build a buffer into the high 9%s, mid-to-high 9%s obviously, but closer to high 9%s. And we felt comfortable with that capitalization, it comes back you look at diversification and risk on your book.

 Ignoring the whole G-SIFI conversation, which I'll touch on next -- so certainly, the plan is as you look at our internal capital generation capability and the earnings stream that we have, we are able to build at least 30 basis points, 35 basis points of capital through retained earnings every quarter in a normal growth environment. Sometimes, that's -- in the recent quarters it has been a little bit less than that because we are experiencing a significant growth in our US capital markets business. Growth that -- opportunities that we hadn't seen in the past to talk of the strength of our franchise and our ability to lead left and will be joint book runners on very significant transactions that we hadn't seen.

 So we're seeing great growth that's suppressing some of that capital build, but certainly an internal generation ability of 30 or so basis points or 20 basis points a quarter kind of builds nicely into high 9%, 10% over a couple of quarter on an organic basis in a normal growth environment.

 Then, if you look at G-SIFI, and I don't ?- I'm not sure what's going to happen, we're probably going to hear over the next couple of weeks from our regulator before the formal disclosure by Basel, I think sometime in October with the G-SIFI list, but it's based off of our October 31, 2014 balance sheet translated into euros that's less favorable. And I haven't heard, we don't know where we are but hypothetically if we're to meet G-SIFI, if you look at the rules of G-SIFI, it's the higher of your D-SIFI requirement or G-SIFI.

 Well Canadian banks are being treated for the most part as G-SIFIs with their D-SIFI buffers. So the equivalency is there already that we are already being treated as a level 1 G-SIFI. And for comparison purposes across the world, we're already capitalize as G-SIFI, so you could make a very strong argument, which we do to our regulators, that we're already capitalized at that rate in the high 9%, 10% range, therefore premium is not warranted. But that remains at the discretion obviously of the regulator.

 If we're surprised and there is an increase, we've got a number of tools internally to manage capital to organically build into that. First we would expect the regulator to come to you and say, you have got time to build that, let us come up with a plan, when do you think you are going to get there? We would never expect to have a shock to the system where requirement is short-term.

 So we expect to negotiate a plan to get there hypothetically. We have a number of tools internally and we think about the scenarios to say if we had to, hypothetically what are our options in front of us and management has a number of options to manage this towards those targets. We've constantly looked at the efficiency of your capital whether we are going to pull back capital that's earning low returns from other businesses, we have that discipline. We can pull a number of levers to manage to a hypothetical situation.

 But again, our expectation is that we're capitalized at D-SIFI, G-SIFI levels now and it's not [warranted]. We would expect to see higher supervision, more reporting capabilities, certainly an ongoing tighter relationship with our regulator. But our risks haven't changed just because we have G-SIFI label. The regulator knows us very well today, we work very well with our regulator. The risks haven't changed because this label has been put on us.

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Unidentified Participant   [29]
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 I mean, to your point, I want to switch topics because there is -- I do want to touch on technology with you in particular. But you have some interesting assets at your disposal.

 And let's be clear, the City National deal is 50% stocks, 50% cash and you touched on it, whether it's FX, whether it's pension, there has been a few off the field items that have affected the capital ratio. But if there was a way to avoid this designation and all the extra scrutiny that comes with it, and you could divest of a business that you cleaned up and maybe isn't core to what you do. Why isn't that something that would be given more a consideration?

 Because it seems like it hasn't been -- divestitures or additional capital raises has been something I feel like you've talked down. Should shareholders be expecting some kind of external capital event from Royal as these scenarios play or a divestiture of an asset?

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 Dave McKay,  Royal Bank of Canada - President & CEO   [30]
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 We would not divest of a core operating asset just to try to lower our G-SIFI status because we are already capitalized at that G-SIFI level, so we're not going to take it down materially from where it is. So that would be the wrong decision.

 As I came back to, we feel as a management team, we have a number of significant levers that we can manage the situation while having to make an aggressive move of selling a core operating asset like our investor treasury services, which admittedly increases your G-SIFI score materially because of your assets under custody.

 But we spent a lot of time cleaning up that business, it's going to make over CAD600 million this year. We're excited about the customer acquisition opportunities in that business. It's complementary to our capital markets, institutional franchise and our GAM franchise. So it does fit.

 And though it has probably the highest marginal score to it, it is a core asset and we don't need to do something that aggressive because we've got a lot of other tools from organic build to things that, you know, I can't disclose in detail. But we feel as a team we've got a number of tools to manage this in a prudent way over the short term. And it's not something I'm losing sleep over.

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Unidentified Participant   [31]
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 Fair enough. And I probably misinterpreted you when you said we've got a lot of tools. I think you're talking more balance sheet factors --

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 Dave McKay,  Royal Bank of Canada - President & CEO   [32]
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 Repurposing capital.

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Unidentified Participant   [33]
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 As opposed to divestitures.

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 Dave McKay,  Royal Bank of Canada - President & CEO   [34]
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 Of something that significant, exactly. There wouldn't be for reasons of avoiding G-SIFI because if we fundamentally believe in my first statement, they are already capitalized at a G-SIFI level, our capital ratio is not going to come down much either. So we're just knocked off a bunch of earnings without saving capital.

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Unidentified Participant   [35]
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 You're right. It's never been the strategy of this bank to shrink to greatness, so that's one thing to keep in mind.

 Let's wrap things up with a topic that you've spoken quite eloquently about for a number of years now. And that's the threat/opportunity that's arising from technology. We're certainly hearing a lot about mobile wallets, we're hearing about Apple Pay perhaps making its way to Canada.

 As you go through your business and the different disruptors that are potentially at play, how much of an impact has this had on you in Canada to begin with? And secondly, do you think the threat is more from non-banking entities or is it from your domestic counterparts in terms of cost reduction and different ways to attack your customer base?

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 Dave McKay,  Royal Bank of Canada - President & CEO   [36]
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 In a pure digital play, I think when you look at particularly mobile, because everything is being built for the world of mobility right now. So that is the world that you have to envision your business in in the future and it's a stretch for bankers to look at a business that's been delivered through a physical world for 150 years to envision a business that's going to be delivered more so through a digital world over the long term. So it's about envisioning a different future.

 And for us, there's really kind of three core pillars that we focused on and I think is unique because I don't think any other banks focused on the three pillars. They've focused on one or two.

 Number one pillar is kind of safety and security. And we spend a lot of time really trying to make sure that whatever you build is at the highest level of safety and security because a compromise of that would undermine the entire financial system. So when it comes to mobile wallets that you referenced, we just were granted a patent in the United States after a four-year application process on a core piece of technology that we think is the core to mobile security and cloud-based security.

 So it is the platform that we are going to build our customer franchise on around a secure cloud-based, host-card emulation technology. And that's been the first step of the game is to make sure you're building on concrete and building on granite and not in sand, is to get the security factor.

 The second one that a number of individuals, a number of competitors are focused on, is building out capability that kind of wows the customer and there's been a run to the market of capability. I think that's less important now, I think customers, particularly boomers are perfectly happy using their plastic till you show them a capability that really excites them. And paying and tapping with your phone is really not relevant to a customer right now; they really don't care.

 The world that you're building for is an overall consumer experience that goes well beyond paying, whether you're using iBeacon and you know the customer in the store and you create a shopping experience digitally and physically that's completely different. We all have visions of that and we're all building up but it's not here yet, it's coming.

 So the customer, if you look at the adoption of Apple Pay in the US has been, it's not been that strong. Because A, because the infrastructure is not there, but it's got to more than just tapping your phone and we all know that we're all very conscious of that. So there are different capabilities out there, but the customer is fairly indifferent to them yet.

 What you have to worry about and what we all work on is making sure that no one builds a capability that you can't replicate. Because what we've seen in technology innovation over the last 30 years is that our customers are incredibly loyal to our franchises, particularly the Royal Bank franchise with the strongest brand in the country.

 And our customers say, I trust the bank with my information, I trust the bank with my banking. If someone comes out with a unique offering, I'm sure my bank will be able to replicate it. And we have fast follower capability to say our customers are not going to really switch out if we can fast follow. And we have a reasonable period of time to fast follow.

 What's been shown in the past, if we're not able to follow in a reasonable period of time, we will lose that customer. But we don't have to be there on day one. So all we have to be really cognizant of to answer your question is someone building a capability that we can't replicate for some reason, whether it's an information flow or an asset that they have that the banking system just can't replicate for one reason or another. And to date, whether it's in the investment side of the business or the payment side of the business or on the banking side, everything that I see, I feel I can replicate right now.

 And therefore in every market around the world you've seen banks fast following the technology, but we have to keep our eye out and we can't be complacent if someone comes along and build something that I don't have the assets to build, and therefore, I can't offer that service on the same level to the customer. And that's what you worry about. I don't see anything yet, but I keep thinking about.

 So build the technology, build the security, build out your capability on top of that security. Think about maintaining your relevance to the customer and leveraging the information that you have to add value is the core operating premise, and you got to do all three really, really well. And that is the focus. But key message is, I'm not losing sleep because I don't see anything that I fundamentally can't replicate.

 There is a lot of good innovation out there, there is a lot of capital going in the Silicon Valley, and they're working on almost all the same stuff. And all of it is replicable so far.

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Unidentified Participant   [37]
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 Thanks for your time.

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 Dave McKay,  Royal Bank of Canada - President & CEO   [38]
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 Thank you.




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