Royal Bank of Canada at RBC Capital Markets Canadian Bank CEO Conference

Jan 09, 2018 AM EST
RY.TO - Royal Bank of Canada
Royal Bank of Canada at RBC Capital Markets Canadian Bank CEO Conference
Jan 09, 2018 / 01:35PM GMT 

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Corporate Participants
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   *  Dave McKay
      Royal Bank of Canada - President & 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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 So, just a couple of things. We will be doing a conversational fireside chat format and, again, there will be opportunity for audience participation. I hope to end my session a bit early so I can ask the most popular questions.

 Also as well please note, as usual at these conferences, I don't have a very big flowery introduction for the CEO. We have provided you with their biographies. We have a very short time period to speak with the CEOs, so I prefer to just jump right in and ask questions. So I think we are okay for timing here. So why don't I invite the first speaker up, Dave McKay?

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

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 Darko Mihelic,  RBC Capital Markets - Analyst   [3]
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 All right. So Dave, you are -- now unfortunately I do have to do this, so bear with me for just one second. Before we begin I'd like to remind you that Dave's comments today may include forward-looking statements. Actual results could differ materially from forecasted, projections or conclusions in these statements. Listeners can find additional details in the public filings of RBC.

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Questions and Answers
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 Darko Mihelic,  RBC Capital Markets - Analyst   [1]
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 So, with that out of the way, Dave, thanks very much. As the first speaker I think I might just ask you for your view on the opportunities and challenges ahead for your bank. And maybe if you could just weave in a little bit of a discussion on the economic and competitive outlook.

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 Dave McKay,  Royal Bank of Canada - President & CEO   [2]
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 Great, thanks. Thanks for being here. I thought the weather was better this year actually so --. And I didn't get to watch the end of the football game last night as I was working to get ready today. But welcome.

 The macroeconomic backdrop I think has even improved since last year when we were together. So I think as you look at particularly the markets that we focus on, Canada, the US, UK, Continental Europe, very strong macroeconomic backdrop. Employment a bit more of a tailwind from rates than we expected maybe a year ago, or even three months ago, with rate increases in the US and in Canada.

 So, I would say overall we are operating in strong markets, very benign credit environment, still with employment strong. Active client franchises across a number of areas. So, a very strong macroeconomic backdrop.

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 Darko Mihelic,  RBC Capital Markets - Analyst   [3]
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 And so maybe with that, why don't we talk about the one area that I do get questions on still to this day -- has to do with residential real estate here in Canada, the B-20 rules have just kicked in. And so, maybe you can just speak to broadly the Canadian housing market and perhaps your view. And what is the message that you'd want people here in this room to hear on Canada's real estate and mortgage market?

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 Dave McKay,  Royal Bank of Canada - President & CEO   [4]
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 I don't know if the messaging in its essence has changed. I think policy changes that we've been enacting are good for long-term stable growth in Canadian mortgages. I think we welcome those changes. We have been implementing those changes. We are trying to digest what the impact is going to be of some of the B-20 changes and we can step through that.

 But overall what we are trying to do is make sure we have long-term sustainable growth. We want a healthy mortgage market. We want a healthy economy. We don't want the cash flow to service mortgage to become a disproportionate share of how consumers are spending their disposable income. So we are trying to find balance and I think that has been a healthy journey that we have been on.

 If you look at the credit strength of the mortgage business across all the issuers is very strong. So I think we've got a very balanced industry. We've got measures in place to make sure that we don't overshoot and we don't have too hot growth. You have seen that come off in Vancouver, albeit coming back a little bit. You have seen it moderate in Toronto nicely, whether it's housing price increases or activity in a purchase market.

 So I think we are moving forward as an industry with our government, our regulators, finding the tools to make sure that we have healthy growth and balanced growth in the mortgage market. And I think you can see it in all the Q4 numbers coming out of the bank.

 So as we go forward, and the question that we always get asked is what's the impact of B-20. It's hard to tell exactly how many people will change their purchase behavior if they don't qualify.

 So the first impact is, they don't qualify under the new regulations, what's my next step? Do I go and look for a less expensive house? Potentially. Do I raise more money? Do I spend more time saving and waiting to buy that house, to delay my purchase? Possibly. So, there's a number of behavior changes that could lead to either different house purchases and growth or delaying that purchase price.

 So we think that net-net you are still going to see roughly, we expect, mid-single-digit mortgage growth in our business going forward. While some people delay, some people raise more money, some people buy a less expensive home where they qualify. And at the same time, it's more difficult if you don't qualify to port your mortgage and transfer your mortgage to another institution. You would expect renewal rates then to be a little bit higher as some of your client base may desire to switch won't be able to switch for qualification reasons.

 So we've got all of these variables that we are trying to anticipate and it's not sure exactly how every individual decision will play out. But there's a bunch of countervailing measures there and therefore we still expect the market to grow nicely and prudently. And therefore we are still forecasting mortgage growth around mid-single-digits.

 And you look at delinquency formations, you look at the credit strength of the portfolio, you still look at the prepayment rates that Canadians have all in a healthy range. Therefore we see this as a quality portfolio and a high quality asset and with the appropriate measures to ensure that it grows in a sustainable way.

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 Darko Mihelic,  RBC Capital Markets - Analyst   [5]
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 And then maybe we can touch on your outlook for -- let's just maybe switch it so that we can think about a little bit of the US as well. So we just talked heavily about Canada's mortgage market, but maybe thinking about City National.

 And I know we get a lot of questions about your US business. And when we look at it, very big growth. Earnings -- I think growth 20%, loan growth at 13% last year. Really strong. Maybe you could talk about the loan growth that you are expecting there in City National and what will the drivers be and just an outlook there would be helpful.

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 Dave McKay,  Royal Bank of Canada - President & CEO   [6]
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 We are continuing to invest to produce double-digit loan growth and deposit growth in our US franchise. That's expanding into new markets, as you heard me talk about. That's infilling in California, looking at New York City, continue to grow there, bringing teams in from other franchises.

 So we continue to grow our commercial account management team. We continue to grow our private banking team. We are targeting both C&I growth, jumbo mortgage growth, core lending growth in the US marketplace. So we are very happy with the expansion there and the quality of growth and maintaining the same very strong credit discipline that City National has always had.

 So, there's a robust growth opportunity among the niches that we serve which is quick service restaurants, professional services, technology, real estate, obviously entertainment banking, a little bit of manufacturing. Very strong market growth in the economies of California, New York, Washington are great markets for us. And therefore we are building and we are investing to continue to produce 13% plus growth in that business. It's a fantastic franchise and the investment has been there.

 We are also launching a number of new initiatives into our wealth management franchise. So we have never had a credit capability either on the margin lending business, on the C&I side with our clients, or on the private banking side within the old wealth -- US wealth of franchise. Therefore you are going to see a number of new capabilities coming into our broker dealer franchise to accelerate loan growth there.

 You look at where we gap to some of the larger players -- I think we are the seventh-largest broker-dealer investment house based on number of FAs in the US. And we don't have a margin credit capability, believe it or not, and the top 10 all do. So we will be launching that in the coming year. And so, obviously a strong capability to produce NII from that, low risk [margined] secured lending. So that's a product. We've never really had a financial planning capability in that business. It's been predominantly an asset advisory broker dealer franchise.

 So we are building out that franchise to continue to grow both on private banking but also on the asset management side; hiring more FAs, hiring more private bankers, pairing them up in the core markets that we operate. So in the US platform from C&I to private banking on the wealth side, from a product to geographic expansion to just more people on the ground, more private bankers on the ground, we've hired over I think 10% more complement in our City National franchise in the first two years.

 So we've invested heavily and it takes a while for that to have traction. So we started that day one. It takes a while for a private banker to really get going when you bring them on-site. So we're expecting to start to see that traction.

 On the same side, in the capital markets operation we've had just a fantastic 2017, exited with an enormous amount of momentum. We are hiring more investment bankers, more coverage officers, we're expanding our capability set. We have really moved up the ranks, are the ninth largest by fees in the world on the capital market side.

 And therefore we are continuing to cover more and generate more fee-based opportunities on the capital markets side. And the US market -- our clients are very active, our sponsored clients are active, our corporates are active, institutionals are active.

 So I think from that perspective the US market has been very strong for us. And we have invested in growth across all those platforms in a strong economy with tailwinds; are feeling very good about it.

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 Darko Mihelic,  RBC Capital Markets - Analyst   [7]
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 And so there is two elements -- there is a lot of initiatives there. You have got pretty big plans for growing the loan book. There's obviously also margin and last year I think -- at City National I think your NIMs were up like 40 basis points.

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 Dave McKay,  Royal Bank of Canada - President & CEO   [8]
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 Yes.

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 Darko Mihelic,  RBC Capital Markets - Analyst   [9]
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 What's your outlook for 2018? And you mentioned in your earlier remarks that you had a bit of a tailwind from higher rates. Can you speak about --?

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 Dave McKay,  Royal Bank of Canada - President & CEO   [10]
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 Yes, I think the rate outlook today is even stronger for NIM expansion than it was three months ago where you will have three, maybe four rate increases each quarter in the United States. As we've talked about a number of times our sensitivity to rates is high as we have got a short duration lending book for the most part. Therefore they will reprice more quickly on the way up.

 So, on the revenue side we are still looking at a $50 million revenue lift per 25 basis points, which is significant. And therefore we can talk about the tax impact of that, more of it drops to the bottom line, is probably your next question.

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 Darko Mihelic,  RBC Capital Markets - Analyst   [11]
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 It is actually. Go ahead.

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 Dave McKay,  Royal Bank of Canada - President & CEO   [12]
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 On the revenue side we have got high sensitivity based -- that's the current book much less if we keep growing that at 13% plus over the coming years. So we are feeling very good about the tailwind there. That was obviously something that we saw when we acquired City National, that it had strong sensitivity. And we've unlocked that sensitivity by bringing in sweep deposits from our broker dealer franchise to help fund that growth.

 So I think net-net the synergies have been incredibly strong. And in fact I think the synergies now well exceed what our business plan was and our forecast when we acquired City Nationally -- even before we started talking about tax impact, which is a tailwind we never expected to get. So, feeling really good about the US franchise from core growth, from investment for growth, from impact of rates and then next we will talk about impact of taxes. So things are looking good.

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 Darko Mihelic,  RBC Capital Markets - Analyst   [13]
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 Well, you led me there, so why don't we just talk on tax impact. Maybe the balance sheet impact and if you've had a chance to think about the ongoing earnings benefit or maybe the impact of the [beat]. Maybe you can just touch on that for us.

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 Dave McKay,  Royal Bank of Canada - President & CEO   [14]
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 Yes, certainly as we look at jurisdictions where we earn a significant amount of our earnings in the United States is New York State and California, two very high tax marginal states. As we look at the impact of the new tax regime netting out some change in the deductions, which we haven't worked through all the micro puts and takes on what you can deduct, what you can't deduct any more, we think we have a handle.

 The range I can give you is that: one, we have a deferred tax asset that we will be writing down in Q1, albeit nominal. And the range on that is roughly about $150 million, plus or minus let's say 10%, 15%. That's two components. One that's a DTA plus some of the tax assets that we own on the solar side and muni side will adjust.

 So impact in Q1 likely to be $150 million plus or minus a range of around 10% let's say. Maybe 15% but not much more than that. So pretty tight. So that's a minor increase. The benefit on an annualized basis -- that's US dollars. The benefit to us is in the range of $150 million to $200 million a year in tax savings, positive. So we expect to pay back that one-time charge sometime by Q3 with the benefits that we'll get on an annualized basis in US dollars.

 So, a strong run rate savings based on the jurisdictions within which we operate with we think a very nominal any type of beat risk in there. As far as some of the funding strategies and the essential funding assets you may have, we don't see a major issue -- material issue there. So, a real positive story as far as impact to the bottom line from tax in the United States.

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 Darko Mihelic,  RBC Capital Markets - Analyst   [15]
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 And just to be clear the $150 million to $200 million per year is also in US dollars?

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 Dave McKay,  Royal Bank of Canada - President & CEO   [16]
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 Yes. Both US dollars I gave you. So $150 million, again roughly 2/3 of that a DTA plus a third of that $150 million, maybe $40 million, adjustment to some of our assets that we have on the balance sheet, plus or minus $10 million. But it could go down from there, it could go up slightly. Then a $150 million to $200 million annual US dollar benefit from tax savings.

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 Darko Mihelic,  RBC Capital Markets - Analyst   [17]
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 And that doesn't sound big enough to have any impact on capital. It would be nominal, right? Okay. So let's talk about capital since it's a good segue. It's very early days for Basel III. All the reforms have come through. But why don't we just throw it out there? Will there be a meaningful impact, do you think? And what should we as investors focus on with respect to these reforms and Royal's position?

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 Dave McKay,  Royal Bank of Canada - President & CEO   [18]
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 Well, I think the first message is a fairly lengthy phase in period of all these changes. So, as we think about floors and the way they are coming as we move towards 72.5 -- and our regulator will decide at what pace we need to move. And that may not be ultimately at the same pace. But they always try to balance -- very conscious of competitiveness of the Canadian banks.

 So as we move towards that floor we don't see that as a material issue around our capital moving to 72.5 Basel III.5, IV, whatever you call it, floor. So overall we are quite happy where that floor is.

 We also expect as we transition from a Basel I floor that you've seen us absorb in Q1 to the Basel III or III.5 floor going forward there will be I think an announcement over the coming month, week, maybe even today, you never know, from the regulator of a transitionary floor. I think we alluded to that in our Q4 call. And so, that transitionary floor moving from Basel I to Basel III will help us as we move towards the longer term floor under our models based approach.

 So, I think from that perspective we see this as a reasonable transition every period and are expecting some short-term relief as we move towards that floor. And I think it's positive from that perspective.

 As far as the unknowns going forward, as we talk about, the fundamental review of the trading book is still, again, a more protracted implementation. But still have to work through all the implications of the FRTB regime. So, I guess that's kind of one of the unknowns out there as we -- we've got the regulations that are being finalized. But certainly as we look at our trading book, obviously we will deal with it appropriately as we start to implement that.

 So, I think a more protracted implementation period, there's been a lot more clarity over the past year on what the rules are going to be, which is great for any business to operate in as we understand the rules and can adjust our businesses appropriately. A little bit of we hope short-term relief as we move towards Basel III floor. And therefore a year from now -- a year forward we have a lot more clarity on the operating environment than we've had in quite some time.

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 Darko Mihelic,  RBC Capital Markets - Analyst   [19]
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 So with more clarity comes potentially excess capital and deployment of it is a question we often get. One of the questions I often get is we all sort of know each bank sort of highlights organic growth as your first outlet for capital.

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 Dave McKay,  Royal Bank of Canada - President & CEO   [20]
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 Yes. It provides the highest ROEs, obviously.

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 Darko Mihelic,  RBC Capital Markets - Analyst   [21]
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 But we still have your capital ratio virtually going up every quarter -- give or take any quarter there's a bit of volatility. So is it that the organic opportunities are not present enough so that we could get through a few quarters and there's no growth in the ratio? Or is it that you are actually holding back on organic growth opportunities because you felt like -- and the industry had to build capital because of all this capital creep? And are we at the end of that?

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 Dave McKay,  Royal Bank of Canada - President & CEO   [22]
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 Yes, we have not been holding back on organic growth because of -- you see our capital ratio is well above what we stated clearly as our target. We have the ability to produce around 30 plus basis points a quarter of capital to be used for RWA growth and the volatility that we see in some of our pension numbers and other numbers to absorb that.

 So we certainly haven't been holding back on organic growth in any shape or form. We really feel it's how you grow is the most important: picking the right assets, picking the right customers, growing the right way, making those choices. That is something you do as a franchise and you state your risk appetite and how you want to grow and what your credit strategy is every day.

 So that consistency is really important with an organization, particularly at the latter part of a long-term economic expansion cycle. And you need to stay consistent to your credit strategy and not get away from it now, which we fundamentally believe. And as we think through a full economic cycle in everything we do. It's very important to stay true. You cannot out run your credit strategy in good times and bad.

 So for us RBC staying true to our credit strategy, which has worked for us for a long period of time and we have a lot of confidence in, as you do have confidence in that, we are staying true to that strategy. We acquired City National to create another outlet for capital deployment.

 So what you are seeing: one, is some of the growth doesn't require as much capital as the wealth management franchise expands, as deposit franchise expand doesn't require as much organic capital. As a population ages and moves away from their peak borrowing years to their more investment years, doesn't require as much capital to grow that investment franchise, that asset management franchise. So therefore some of the growth is coming in less capital intensive areas.

 Where we have capital intensive businesses we have been very strong in capital markets for instance and in recycling capital from relationships where we put our balance sheet out there, we looked for the cross-sell into fee-based products whether it be ECM, DCM, M&A. And in those instances where we don't believe there is a reasonable expectation for future transacting we've redeployed that capital.

 So you've seen fantastic growth in revenues and in profit within the capital markets franchise by relatively stable if not declining RWA. So I would expect to see that trend start to bottom out and start to increase RWAs a little bit as we have a very active capital markets franchise right now on the underwriting side. But I think it's still going to be modest growth.

 So that traditionally a capital intensive business has been recycling capital, being very efficient in its use of capital, have a modest growth trajectory going forward. Therefore to grow and produce the results we've had hasn't required as much capital as we would have normally expected maybe five or six years ago for those reasons.

 So, capital usage going forward -- we have all the ability to grow our business organically, to return capital to shareholders through a number of options and meet those targets that we've set out for you. So, capital is -- we are in a strong position right now, strong balance sheet, strong capital position, ability to do things we want to do.

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 Darko Mihelic,  RBC Capital Markets - Analyst   [23]
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 One of the areas that banks are spending on is technology, and not just capital but also resources and time and effort. And so, one of the things I'd like to sort of weave in here as we think about the themes for the conference is tech spending. And maybe you can just first talk -- I think last year we spoke a bit about tech spending. I think first if you can frame how much you are spending on technology and what is the goal for shareholders on your tech spend?

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 Dave McKay,  Royal Bank of Canada - President & CEO   [24]
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 The first goal on our tech spend is to delight the customer and win new customers. So everything we are building from new channels to new capabilities from a customer facing perspective is very exciting. We have got mobile channels, we've got artificial intelligence capability wrapping around everything. We've got blockchain reinventing a number of processes we have. So leveraging that for -- to retain and grow our customer franchise is strategy number one.

 You saw the NOMI example which has been a huge success. We are number one in J.D. Power in mobile, your mobile capability which we continue to invest in. I mean it's a dynamic process. We are not sitting there saying, okay, we've got to number one. It's an evolutionary process. We are transforming our business from a customer interface capability, simplifying our business. So that is where a lot of spend is going.

 Two, certainly have to become more efficient in the processes that we operate. So robotic process automation and blockchain are all key technology capabilities that allow us to start taking cost out of our repetitive processes. And I think we are still in the early stages of seeing the benefit from that and deploying these technologies. But they are coming and they are making a difference.

 And we have had a number of RPAs and bots that are doing work that accountants used to do and our finance people used to do, making them more efficient, allowing them to focus on higher value activity. So you will just see this evolution that we are on as customer behaviors change, as customer needs change, as our back office integration changes we are completely rebuilding the organization.

 And what's exciting about this opportunity is for the first time we really get to build -- rebuild the Company from the customer in, instead of the bank out. I think this industry has built from the bank out for 150 years and we are really rethinking the organization from the customer in, using this technology and the secular opportunity I think to rebuild.

 So those are the benefits. So you should see it in market share when you look at all the things we have rolled out on the investment side, which we love to talk about, whether it's InvestEase or MyAdvisor and all the capability that we have infilled from full self-serve to full-service wealth management and the scale we have to do that is very, very exciting on that side.

 So customer cost savings absolutely from our back office. Error rate is coming down. Fraud management, obviously key capabilities there whether it be AI-based or other and helping with fraud, adding value across that. You will start to see -- or continue to see our efficiency ratios come down.

 And I think we went through a very a large transformation in our leadership side last year you saw us take elevated severance charges in the neighborhood of $250 million. Those won't repeat this year. We have put the leadership team together that we want over the coming years and therefore you will see a much reduced severance charge that we took into income. We didn't take them as one-time charges so we will have those savings year over year.

 On the technology side, the one thing I would say -- we talked about our spend is at an elevated level. It's required to transform your organization. As I said, we are spending about $3 billion a year. We have shifted the ratio of that from run the bank to 80/20 to 70/30, run the bank 30%, transform the bank.

 The other area that's elevated right now has been our regulatory spend. We have gone through CCAR, private CCAR. We are doing a public CCAR this year. We have gone through an IFRS 9 change. We had been through radar changes. We have gone through an enormous amount of regulatory expense. We just went through MiFID 2 changes in the UK which was very expensive.

 So we have diverted a lot of spend to regulatory compliance that I think hopefully has crested. And therefore we will start to see some savings either redeployed into customer facing growth or cost saving growth from regulatory compliance. That has been a very heavy spend for the past decade. So all of that mix will say that you will start to see a shift towards more customer -- even more customer facing cost-saving opportunities than we have been able to in the past.

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 Darko Mihelic,  RBC Capital Markets - Analyst   [25]
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 Great, thank you for the answer. I think at this stage I'm going to pause and take a look at the most popular questions --.

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 Dave McKay,  Royal Bank of Canada - President & CEO   [26]
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 Sure, am I the guinea pig here?

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 Darko Mihelic,  RBC Capital Markets - Analyst   [27]
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 Yes, you get the first shot at this. And of course I've got to get to the app and I'm not very good at that. Here we go, perfect. Okay, so the top question that's been voted -- there is a couple of questions here that have been voted to the top. So I will start with the first one. If NAFTA is scrapped how concerned are you for the US and Canada, the economy and for your bank?

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 Dave McKay,  Royal Bank of Canada - President & CEO   [28]
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 I think there's a couple of ways you have to -- obviously I think about this a lot. One, I think the probabilities are increasing that you will have some type of dynamic where there is an announcement of a scrapping of NAFTA. However, there is still a 180 day notice period where there's room for negotiation.

 So as you start to think about how the negotiations are playing out and where the risks are, I think we should be prepared to say there still is a lot of room for negotiation. There may be some dynamics, some public dynamics where certain decisions are made. But ultimately there is so much at stake for both sides as far as what is largely a balanced trade relationship between the two parties.

 There is room for modernization without a doubt that still hopeful that throughout this process, even though you may see some very bold announcements -- may -- we will come to some type of balanced change and agreement. If we can't -- it's very hard to sit here and predict what the fallback is. So do you fall back to FTA? Do you fall back to WTO? There is even talk that you may not even fall back to WTO tariff increases.

 If you do fall back to WTO I think you've seen ourselves and our economics department and a number of other institutions out there saying, well, if you fall back to WTO rules then you have roughly a 4% tariff increase on average across a number of sectors. And therefore that would not -- that would be disruptive but not cataclysmic for the Canadian economy in any shape or form.

 So, we've projected that would be roughly 10 or 15 basis points of GDP a year if that were the case. We don't know if that is the case. There is perspectives out there that may not be the fallback; you'd have to renegotiate a new bilateral agreement and not a multilateral agreement.

 So, it's hard to sit here and make assumptions in that type of dynamic where you are not sure. But as you step through this to say if you do -- if you are able to fall back to WTO there should be strong support structure there. There will be some adjustment mechanisms. And I think, as our government articulates, a bad -- no deal is better than a bad deal is probably right. And therefore we don't want to be stuck long-term with a deal that hurts our economy.

 So I think those are all kind of variables where we think back and look at sectors and try to say the higher probability paths here are to ones with reasonable outcomes. There is still a small chance that we get to a place where we have a bad outcome for both sides because it's going to impact both sides, not just the Canadian economy.

 You have to remain hopeful that given all the interested parties in this that we will come to a reasonable outcome on it. But it's hard to prepare yourself now for what could be a long tail outcome on this that is quite negative. So I think it's dialogue and open dialogue and lobbying are still a big part of this and we remain hopeful.

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 Darko Mihelic,  RBC Capital Markets - Analyst   [29]
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 Okay, and another question that is from the audience here, you have a very positive message. What are the three things you worry about most?

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 Dave McKay,  Royal Bank of Canada - President & CEO   [30]
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 I worry about cyber security. As we build this digital world, as we interact in a digital way, as we share information, as we collect more information to benefit our clients and to benefit our partners. Protecting the security of that information and our ecosystem and across the industry, not just idiosyncratically, and keeping that trust in the security of our system is requiring more and more investment and more and more sophistication.

 And I think that presents a danger to our economy, not just to RBC and other banks, but that ever vigilant world around cyber security and the malicious intent that out there is what keeps me up at night. And we spend a lot of money, we are very sophisticated at it. We have got great partnerships in the industry and with government to do that and I think that just requires enhancement. And we are building out new capabilities and failsafe mechanisms that are really important.

 So I think we have the right dialogue, we have the right cooperation, but I've still got to get it right. And it's a tricky world out there. So I worry about this digital world and the cyber security for sure.

 I'd be lying if I didn't say I think through the next cycle, what does the next cycle look like? What is going to trigger the next downturn? Are we ready as an organization? Are we staying true to our credit standards which I monitor? So I think about how the cycle may emanate itself and where we are taking longer duration underwriting risk, how confident are we of doing that.

 So you look at all these cycles, all these signals. And right now all the signals point to a very strong economic backdrop. But a job as a CEO is to think forward. And two, harnessing the new technologies. Like harnessing AI, harnessing blockchain, making sure we are building a sustainable, long-term, competitive value proposition, building a moat around and leveraging our scale.

 We have got huge scale advantage and we are spending more money than our peers. I am not spending $10 billion that JPMorgan is spending, which I sat there and said, hmm, what are they doing with that extra $7 billion or $6 billion. But we are spending the same ratio of our revenue on technology. Spending it well because you can squander that. So making sure that we are leveraging that scale.

 And I'm seeing the leverage of that scale really come to the forefront with InvestEase, with NOMI, with MyAdvisor, with hiring 100 new senior account managers in our commercial business, hiring more investment bankers, expanding the City National complement by over 10% to 500, 600 people in the City National franchise. Investing in all the platforms in our investor and treasury services, investing in our broker-dealer franchise with the secured lending capability we never had.

 Being able to do all of this across all these market-leading franchises is really exciting and making sure we get a return from that. So it's very much -- I recognize we are in a great backdrop, making the best use of that backdrop right now and driving the organization forward to continue to create sustainable competitive advantages.

 Well, you have to stay -- you can never get complacent. You have got to stay on top of it and drive hard. And I think those are the kind of the things that I constantly think about in making sure we make the best use of that scale advantage that we have.

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 Darko Mihelic,  RBC Capital Markets - Analyst   [31]
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 That's great. So not to rush you, we've got about 1 minute left in our discussion. So, I will throw the floor back over to you and just -- it sounded like that was a great message to leave people with. But if you have anything else to add in there, please, by all means.

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 Dave McKay,  Royal Bank of Canada - President & CEO   [32]
------------------------------
 You just look at our client franchises and global capital markets and the strength in Canada, the United States, growing strength in Europe that -- moving up the league tables, building a brand and a capability, leaning left more and more underwriting deals than we ever had. The growth of that franchise, operating in strong markets.

 You've seen it operate, the way we manage credit risk, feeling really good about our global capital markets franchise. You are seeing momentum in that business, you are seeing growing momentum in our retail franchise in Canada as we have done very well in the credit card business.

 We have done well in the mortgage business. You have seen great growth in our commercial deposit and lending businesses and business that we are investing heavily in that we expect to see further growth and further out-performance. So I think we are feeling good.

 Getting back, we had I would say a poor year in our deposit business and really getting back after our deposit side. NOMI and some of these other products are going to help with that and are helping with that. Being more competitive on rates in certain instances is important. So I think we can do better there.

 And in our wealth franchise in Canada and the US, our asset management franchise, 80% plus of funds outperforming their benchmarks. When you combine our distribution power with our manufacturing capability we have a fantastic story to tell. We didn't get to really talk about this -- capturing the flow of funds that we did, strong capital markets behind us. And the performance in our asset manufacturing management in Canada, our distribution and our broker dealer here in Canada.

 In the US franchise, which has been very strong, again another North American client franchise that's really poised with the macro backdrop to do exceptionally well. So I get very excited when I see the economic environment, when I see the tailwinds from rates when I see the tailwinds from taxes, when I see the investments we have made across all of those franchises which only our scale allows us to do, to capture that growth trajectory going forward.

 Probably in the four years I had sat up here I'm feeling probably better about things today. The price of oil we talked about the first time I was here, a little over $60. Feeling better about things today -- I'm going to knock on wood -- than I have in a little while.

------------------------------
 Darko Mihelic,  RBC Capital Markets - Analyst   [33]
------------------------------
 Dave, thank you very much for participating.

------------------------------
 Dave McKay,  Royal Bank of Canada - President & CEO   [34]
------------------------------
 Thanks.




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