Q4 2019 Earnings Call
All participants please standby your conference is ready to begin.
Good morning, and welcome to the C.I.B.C. quarterly financial results call.
Please be advised that this call is being recorded.
I would now like to turn the meeting over to Jeff Weiss Senior Vice President Investor Relations. Please go ahead Jeff.
Thank you and good morning will begin this mornings presentation with opening remarks from Victor Dodig, Our President and Chief Executive Officer, following Victor garage, but always Jim or Chief Financial Officer will review our operating results.
Sure Dettori Athanasios, our chief risk officer will close at the prepared remarks worth the risk management update.
We're also joining the rent by sea Ibcs business leaders, including make appetite East Harry Culham, John Wind towers, and Kristina Kramer, there will be available to take questions. Following the prepared remarks.
As noted on slide two of our Investor presentation. Our comments may contain forward looking statements, which involve assumptions that have inherent risks and uncertainties actual results may differ materially with that I'll now turn the meeting over to Victor.
Thank you, Jeff and good morning, everyone.
This morning, C.I.B.C. reported fourth quarter adjusted earnings of $1.3 billion.
Our core businesses delivered pre provision earnings growth of 4%, However, a higher provision for credit losses this quarter affected our bottom line results.
On a full year basis, we recorded pre provision earnings of $8.1 billion up 5% from last year.
Well provisions of increased we remain confident the quality of our loan portfolio going forward.
Laurel will provide further contact center credit portfolio in her comments.
More broadly we concluded the year with a strong capital position of 11.6%. This provides us with the flexibility to invest in our core business is for a long term growth.
As well as return capital to our shareholders.
We leveraged as capital strength by repurchasing 1 million common shares and increasing our quarterly dividend payment by 5%.
We continue to make progress and delivering a modern relationship banking value proposition for clients and we remain focused focused on four key levers.
Building, a strong client focused franchise.
Diversifying and accelerating earnings growth.
Optimizing our operational efficiency and maintaining capital and balance sheet discipline.
In 2019, we made steady progress on all of these levers and furthered our capabilities as a bank they can compete and win where it matters most on the strength and quality of our client relationships.
In personal small business banking volume growth and higher margins drove a modest improvement in pre provision earnings.
Well at 2019 financial performance did not meet our expectations are ongoing focus on investing in our people and technology and deepening client relationships will have a positive impact on our growth going forward.
We're pleased with the key indicators that are long term strategy to modernize and transformer business is working.
We continue to earn recognition as a leader in mobile and online banking.
We have significantly improved our client experience scores and the JD power retail banking study and it shows customer service index.
Our credit card portfolio is market, leading well positioned for growth providing value in choice to our clients. We've seen strong results from our aventura card lineup and we continue to innovate new features like pace at which allows see I'd be see clients to make installment payments on larger purchases at a lower rate of interest.
We have modernize their banking center network with more than 200 locations across Canada now transformed to emphasize advice piece conversations with their clients well leveraging technology to manage routine transactions.
And we've invested in better meeting the needs of entrepreneurs, including the launch of CBC Smart business for banking spark thinking for business first of its kind banking platform in Canada designed to help businesses integrate their banking accounting and payroll functionality.
Our Canadian commercial banking and wealth management business delivered strong and balanced growth in both loans and deposits driven by the addition of talent to help meet the unique needs of our diverse clients as well as building on opportunities across our bank on both sides of the border.
Our team our team is delivering growth through referrals, something we're able to do because we're building a highly connected team culture and platform made for this purpose, making us more agile and how we collaborate across our bank.
Our clients full relationship.
Within wealth management clients have embraced our competitively positioned see I'd be smart investment solutions.
A portfolio that blends active and passive investment strategies, which generated net sales of $1.7 billion, enabling us to track long term investment dollars well supporting earnings growth.
The U.S., we reported very strong earnings growth of 22% driven by strong connectivity across teams and borders.
We achieved a significant milestone early in the year with the private bank acquisition, becoming accretive to earnings well ahead of expectations further validating the strategic and financial benefits of our investment.
We're growing or U.S. business through a combination of deepening existing relationships and verticals, we know well.
Selectively entering new markets.
We now have offices in 27 U.S. cities, we're building momentum in the banking the private economy.
We also continue to extend or U.S. private wealth management capabilities with the <unk> recent acquisition alone hop Global advisors, leading family office in Saint Louis and New York.
This acquisition and our ongoing client development efforts, we grew assets under administration by more than 12% this year.
And our capital markets business, we delivered solid underlying results with pre provision earnings inline with the strong fiscal 2018, despite a slower issuance market.
The resilience of our performance reflects the strength of our client relationships.
I'd be see ranked number one and number two for the year and equity in corporate debt underwriting respectively.
We also continued to hold leadership positions and syndicated loans advisory services equity trading as well as commodities and foreign exchange.
This year, we also committed to $150 billion and environmental and sustainable financing by 2027, underscoring our focus on enabling sustainable growth and helping make Canada in North America global leaders and environmental stewardship.
The U.S., we expanded our Chicago team and completed the acquisition of query goal, which added to our investment banking capabilities to serve middle market clients.
Post quarter end, we announced an agreement to sell a significant portion of our stake and CBC Firstcaribbean. The GMP financial group for approximately $800 million U.S., while retaining a 24.9% stake in the business upon closing.
With this transaction, we expect to improve see ibcs common tier one equity capital ratio by over 40 basis points on closing.
Free up capital to reinvest in our core businesses.
Looking ahead to 2020.
Rate cuts create uncertainty in a global economic slowdown or driving moderate GDP growth expectations or have under 2% for the North American economy.
Against this backdrop, we expect to see low digit single earnings growth next year.
In personal small business banking, we're encouraged by the size of business progress, we're taking hold and our business results.
Looking forward, we will continue to lead with advice to help our clients achieve their ambitions.
A lot mortgage advisors to Puerto support more conversations with clients about homeownership and will build on our strength in cards with a continued focus on our aventura portfolio and our participation in their Canada's new loyalty program in 2020.
And our Canadian in commercial Bank Canadian commercial banking and wealth management platform will build on our momentum from 2019 as we continue to grow strong private economy bank that focuses on making our clients ambitions that reality.
Our U.S. commercial wealth business will continue to capitalize on organic growth opportunities to deepen relationships and our core markets in the your head and build out our presence in new markets that we've entered.
And then capital markets, we will continue to accelerate revenue growth through increased productivity across our bank in both Canada and the U.S.
Core business performance has been strong capital markets and we expect that to continue in fiscal 2020.
Across the I.B.C., we will continue to simplify and streamline our operations optimizing our efficiency and changing our cost structure.
This will enable us to make strategic investments and tools talent and technology that will support our growth.
We will focus on deploying our capital through organic growth opportunities across our businesses as well as returning capital to our shareholders in the form of dividend increases in line with earnings growth and share repurchases.
Now with that let me turn the call over to our CFO , Roger proposing to review our financial results.
Later detail over do you think you Victor and good morning, everyone. My presentation will refer to the slides there are posted on our website starting with slide six.
This morning, we reported earnings of $1.2 billion and diluted earnings per share of $2.58 for the fourth quarter of 2019.
Adjusting for items of note detailed in the appendix of this presentation net income for the quarter was $1.3 billion and earnings per share of $2.84 was down 5% year over year overall, our pre provision earnings growth of 4% with more than offset by increased provision for credit losses in the quarter.
Revenues of $4.7 billion were up 4% year over year, reflecting solid margin and volume growth across our client franchise.
Expenses grew in line with revenues as we continued to balance strategic investments across our bank with prudent expense management.
Provision for credit losses of 402 million was up sequentially and compared with the prior year <unk> speak to this in more detail in her remarks.
Turning to slide seven our capital position strengthened to 11.6% in the quarter up from 11.4% last quarter and comfortably above our target range, including the impact of the announced reduction. The next day can see I'd be separates Caribbean, our pro forma CP one ratio was approximately 12% in.
Internal capital generation of 27 basis points. This quarter was partially offset by the impact of higher risk weighted assets due to strong organic growth model updates and the impact of share buybacks RW A's increased by 3 billion in the quarter, reflecting largely credit growth across portfolios in our business partly offset.
By a decrease in market risk and our capital markets business.
This quarter. We also bought back 1 million common shares as part of our ongoing normal course, issuer bid, which had an impact of five basis points on CD one.
Going forward, we expect continued balance sheet strength, but anticipate quarterly seat you want increases to be more modest and what we experienced this quarter as we grow our business organically and return capital to shareholders at a more accelerated pace.
The balance of my presentation will be focused on adjusted results, which exclude items of note.
Let me now turn to the performance of our business units starting on Friday.
Slide eight reflects our personal and smoke small business banking results, where we continue to see improved growth in funds managed and return to quarter over quarter growth in residential secured lending balances net income of 603 million was down 10% from last year as continued investments in the business outpaced revenue growth and.
We experienced higher provision for credit losses.
Revenue of 2.2 billion increased 1% year over year, driven by underlying Eni growth, 3% as a result of expanded margins and deposit volume growth, partially offset by lower fee income.
Net interest margin with 253 basis points in the quarter down two basis points sequentially due to competitive pricing, but up eight basis points from last year, primarily due to the benefit of favorable rate.
Noninterest expenses of 1.2 billion were up 5% from the prior year as we continue to invest in modernizing our banks infrastructure distribution channels and product as we've noted before while there's some quarterly volatility in expenses due to timing of initiatives. Our full year expense growth for the segment of 3% is in line with our previous.
Slide nine shows the results of our Canadian commercial banking and wealth management business net income for the quarter was 307 million down 8% from a year ago due to a 73 million increase in provision for credit losses, primarily due to one notable impairment.
We continue to see strong operating growth in this business pre provision earnings were up 7% from a year ago, driven by revenue growth of 4% against the 2% increase in noninterest expenses, primarily associated with strategic initiatives, including our continued hiring and client facing wells.
Commercial banking revenues were up 8% as we continue to gain share on both sides of the balance sheet with particular strength and deposits.
Deposit in lending balances were up 14% and 12% respectively from the same period last year.
Wealth management revenues were up 2%, primarily driven by strong volume growth and our private banking business and higher fee based assets in our brokerage business.
When balances grew 11% year over year from growth in our mutual fund and institutional businesses, while a way balances grew 7%.
Net interest margin remained relatively stable in this business that 310 basis points down one basis point year over year, and two basis points sequentially driven in part by unfavorable raids and modest pricing compression in the commercial banking business.
Slide 10 shows the results of our U.S. commercial banking and wealth management business net income for the quarter with 191 million up 52 million or 37% from the year prior.
In addition to pre provision earnings growth of 14% the business benefited from particularly strong credit performance this quarter, which resulted in a 23 million reduction in provision for credit losses over the prior year.
Revenues were up 11% from the prior year, driven by double digit volume growth and higher asset management fees more than offsetting the impact of lower interest rates.
Average loans grew 4.3 billion U.S. or 18% from a year ago, reflecting our continued momentum in client development. The growth in loans was driven by increases in both the commercial real estate and see a night portfolios, while institutional real estate portfolio continues to remain relatively flat average deposits grew 3.9 billion U.S.
Or 21% from a year ago, reflecting strong organic growth from new clients and other deposit initiatives.
Net interest margin was 293 basis points down 25 basis points sequentially, and 31 basis points from a year ago as noted last quarter, our NIM benefited from certain nonrecurring items, which contributed seven basis points to our Q3 margin the balance of the decrease quarter over quarter was largely due to the impact of falling rates.
Weighted to the three reasons that cuts.
We also continued to grow our U.S. private wealth business.
I am was up 15% over the prior year driven by organic growth helped by tighter integration with our commercial and private banking businesses.
Noninterest expenses increased 8% from the prior year, reflecting continued but moderating investments in headcount infrastructure and marketing expenses to support growth.
As with last year, we anticipate a seasonal expense increase in Q1 related to the accrual of incentive and benefit costs, but expect full your expense growth and 2020 to come in below the levels. We experienced this past year.
Turning to capital markets on slide 11.
Net income of 226 million for the quarter was down 7 million or 3% from a year ago as pre provision earnings growth of 19% was offset by 49 million higher provision for credit losses revenues. This quarter were 735 million up 86 million or 13% from the prior year.
This reflects strong performance across the business with higher trading activity broadly across all products strategic growth in corporate banking and higher underwriting activity.
Differentiated capital markets business continues to generate strong returns and stable revenues supported by our growth momentum in the U.S. and our growing revenue streams from its connectivity with our other business units.
Noninterest expenses of 386 million were up 30 million or 8% from a year ago, primarily driven by higher performance related compensation and higher spend on growth in enterprise initiatives.
Finally, slide 12 reflects the results of the corporate and other business unit net loss for the quarter was 18 million compared with a loss of 11 million for the prior year. These results reflect strong performance in S.C. IB and disciplined expense management balance against our ongoing investment and enterprise wide strategic initiative.
We anticipate the announced sale of a portion of our stake NFC IB to close in the second half of 2020, and we will continue to recognize income from F.C. I'd be in the normal course until that.
Let me now turning to slide 13, which summarizes our full year 2019 results on a full year basis net income of 5.4 billion and earnings per share of $11. A 92 cents were both down 2% year over year.
A record pre provision earnings of 8.1 billion were up 5% from the prior year underpinned by revenue growth across each of our businesses and positive operating leverage we maintained a return of equity a 15.4% for the year ahead of our 15% target and we finished the year with a strong balance sheet and see two one ratio.
11.6%.
Heading into fiscal 2020, we remain confident in our ability to continue delivering value to our clients and we are well positioned to build momentum and earnings growth through 2020, and with that I will turn call over the Laura.
Alright, Thank you for at <unk> and good morning, So let me start with a review of our credit performance in the fourth quarter.
Turning to slide 15 provisions for impaired loans increased to 330 million, representing a provision rate of 33 basis point.
This increase was driven mainly by our business and government portfolios and was largely as a result of one fraud related impairment that amounted to $52 million in our Canadian commercial bank.
Our provisions on performing increased to 72 million this quarter.
$40 million of the move relates to changes in our forward looking indicators, including our scenario weightings, which were adjusted towards the downside.
The remainder of the increase is related to credit migration, mainly in our business and government portfolios.
The next slide provides an overview of our gross impaired loans, which increased to 47 basis points. The increase was mostly driven by our business and government loans as I mentioned earlier.
Slide 17 shows the net write off rates of our Canadian consumer portfolios.
The increase in net write off over the course of fiscal 2019 was primarily driven by our unsecured lines of credit.
Notwithstanding the slight increase right off continued to perform within our risk tolerance and in line with consumer insolvency trends that we're seeing in Canada.
Slide 18 provides the 90 day delinquencies 90, plus days delinquency rates of our Canadian consumer portfolios.
Our delinquency rates have moved up this past quarter.
The increase is mainly in insured mortgages unsecured lines of credit within personal lending that have conservative collateral coverage as such we do not expect them to translate into notable losses.
Increases are primarily from the Alberta region, which is experiencing more challenging economic conditions in higher unemployment rate.
Hey, 19 summarizes our credit performance on a full year basis.
Our key metrics, such as write off delinquency rates and loan impairment continue to remain well within our risk appetite.
Provisions on impaired loans ended the year within expectation at 29 basis points and that's despite some distinct impairments during 2019.
When we account for this I would expect our provisions on impaired loans to remain relatively flat in 2020, when compared with 29 team.
And with regards to provisions on performing loans. They migrated higher this year, primarily as a result of changes to our forward looking indicators and scenario weight.
More specifically, we slightly shifted the scenario waiting to the downside along with the more tempered outlook for unemployment and W.T.I. prices.
That said to the extent our economic outlook remains stable, we would expect moves in provisions on performing to be more modest in 2020, then they were in 29 team.
To conclude.
We continue to have solid underwriting standards and credit policies, a strong team of experts along with a proactive management of account.
And I continue to have a strong degree of comfort with the quality and resiliency of our credit portfolios and with our credit outlook for 2020 with that I'll turn the call back to the operator for questions.
Thank you.
Please press star one at this time if you have a question is the first question is from Gabriel Duchaine with National Bank Financial. Please go ahead.
Hi, Good morning, I'm, just wondering first about the you with margin you mentioned the three fed rate hikes.
Is there any reason why the drop a sharper this quarter than it was in Q3.
The effect.
Jumped out at me.
And then sorry, where do you expect that to be in Q1 and 2020.
Yeah. Thanks, Thank you Gabriel its raich.
So addressing the NIM in the quarter I think first starting with the seven basis 0.1 time helps that we had in the Q3 quarters I think that creates a bit of noise and then in this quarter I would say we have a couple of basis points of onetime negatives. So those things combined I think skew the quarter over quarter picture a little bit.
So I think a for the rest of it as you look at the combined margin change over the latter half that represent the bulk of that impacts in our business due to the recent changes in yield curve and the fed cuts and the reason it presents that way with the bulk in the quarter is rather the pricing dynamic of our book and so as our assets repriced with LIBOR.
And we continue to reprice, our deposits a negotiated basis with clients.
Preferred still underway.
Despite the pressure on NIM, though I'll note and I was up 7% year over year this quarter due to our strong volume growth and in terms of looking at that forwards. We do largely anticipate that stabilizing here given where were at life, whereas at this point, maybe slight downward pressure from here, but largely stabilizing and.
With that you feel confident between the stabilizing margin and the continued growth in volume that we'll continue to see good and I like that.
A couple of bases points down over the next before.
Yeah, I'd say, some something in that neighborhood generally thought.
And on the credit.
I just want to.
Better understand the guidance or that you were giving a full year.
Loss on impaired loans was right on impaired loans of 29 basis points are you, saying, you're expecting about to be stable and 2020.
Uh huh.
I keep hearing that werent normalization from from banks and I'm, just wondering if I mean, no we're actually going higher.
So yes, what I did say is that when we account for the unusual item a that took place during 2019, a that I do expect our provisions on impaired loans to remain flat when I compare them to 2019, so thinking out.
2020, so there would be some.
If you will normalize nation in the numbers, so increased impaired, but offset by some of the one off items such that we remained.
Flat or expected to remain flat on a year over year basis.
Okay, and then just last one.
Hi, good trend of higher provision.
Talking about a lot.
How does it affect your your risk, but I'm thinking about card, which is about the ground and that's only going to intensify.
With your midpoint of 2020.
Secured personal lending has been a growth area for a few backlog number of years, how how does all of a change your up but looking forward.
Well doesn't change our appetite when we look forward as I mentioned in my prepared remarks, we continue to have strong underwriting.
Standards that we'll continue to apply and were very proactive in terms of how we manage our account base and while we are seeing some rise in our delinquency numbers and write off all within a risk appetite as they said, we're seeing some increases in insolvencies across Canada some softness.
In Alberta, but nothing of a concern I think that's why you're hearing everyone talks about the term of normalization. If you will recall, we've come off of some really a low loan losses in history and I think this is just did have a return to normal so don't see anything of can.
CERN.
Thank you for that.
Thank you.
Next question is from Scott Chan with Canaccord Genuity. Please go ahead.
Hi, Good morning, I could you remind me how much the annual impact is on first Caribbean on annualized basis and if that.
Is factored into your fiscal 2020 bps got into low single digits.
Yeah. Thanks, a it's Roger I'll take that so.
We see as the IB impact as more of a later 2020 and 2021 impact so it's not a in the numbers that were speaking of.
As we've mentioned before we expect that transaction that closed somewhere towards the end of the year.
Depending on the regulatory processes. So its not a 2020 impact for 21 going forward and the way we would think about it is that we see the impact of the a the reduction in earnings that we realize off of off of our FCB position netted off against them. So I mean come we have from alone.
And then in terms of the net of that we haven't talked about the specific numbers, but generally when when we do the math the capital that will be freeing up in the transaction.
If deployed towards the buyback programs than net net we think that generally neutralizes the impact to eat P.S. So that's the way we would guide to it.
Okay, and just on the Canadian personal and small business banking side.
NIM was up eight beeps year over year, but I didn't see the sequential number I didn't know if you have that and props and outlook on that on the margin for that in fiscal 2000, Yeah. Sure. So there's the sequential was was down two basis points on the on the Canadian up yet he SPP business.
And that really was the net of some some pressure on margins on certain products as we got into Q4, but still some continued momentum from favorable rates on the repricing of our Oh tractors.
So going forward at this point with our expectation and what seems to be generally in line with markets expectation for rates in Canada.
It's looking like stable with maybe slight negative margin pressure in that business, but generally a full year 18 to full year, that's right well your 19 to full year 20, and the same neighborhood.
Okay. Thank you very much.
Thank you. The next question is from Steve Teria with eight capital. Please go ahead.
Thanks, very much a want to ask a question on mortgages for Christina Christine can you talk about your outlook.
For mortgage growth in 2020, and specifically do you have a better sense.
When you get back to market levels of growth.
I'm seeing some improvement this quarter here.
Thank you, Steve Oh, well, we have more work to do to get back to market level growth. We're pleased with what we're seeing and what we're delivering in the market. So we expect improved improvement in our performance.
As a you may be aware this quarter, we saw Rozsas rach mentions in that growth came across our banking centers on their mobile mortgage advisor teams.
And that comes after a period of slot froze the order prior in summer quarters of decline prior to that we see continued.
Strong retention rates and our pipeline remains improved on year over year basis. So all of that time, we expect that market growth.
We will improve our growth rate and it may take some time as we get to market level growth rates.
Is that is up foreseeable in 2020 or the difficult to say a at this stage.
It's.
Difficult to say, but our objective is to continue to improve and are we based on what we're seeing we're confident that you will we will see that.
Thanks for that I had one quick question just about one of the unusuals. The interest income settlement on tax matters wondering if is that related to the seery reassessments of.
Total return swap activity from a few years back.
Can you comment about how much.
Sorry, It was that can you repeat the question.
The one of the new deals. This quarter was it was called interest income settlement on certain tax matters. I was wondering if that's linked back to the series reassessment of some of the total return swap activities done no. So so that was related to a portion of that was related to the Enron settlement that a that we had.
Announced and then a few other pieces, but nothing to do without other file.
And also the the increase in legal provisions without related at all to the the provision in a in the Canadian.
In the Canadian Bank or was that is that something else.
So we wont speak to specifically the matters underlying that are some ongoing legal matters a that were provision for before and this is a an increase to that position.
Okay. Thank you.
Thank you. The next question is from many grauman with Cormark Securities. Please go ahead.
Hi, good morning, its come up before but definitely relevant today, just trying to get a better sense of how to forecast provisions on performing loans and specifically the forward looking a indicators and I ask it specifically because.
I don't think we've seen any other updates at this quarter from other banks and I. Appreciate you can't speak to peers, but it stands out from that perspective and also.
Given even the bank of Kansas statement yesterday, so I'm just wondering.
If you could give us anymore.
Cadence here how much we made you have when you're making these kinds of opportunities like it was this an update that could have been made like can you defer it a quarter or two how does that how does this mechanics work ins or anything that you can point to to give us a better sense of.
When these types of adjustments are going to be made.
Sure many Laura so all Oh I'll take that one so a lot of it again hard to compare all of the bank, but it really depends on where our starting point was back when we first implemented I FRS nine and so from there.
Really its formulaic in that every quarter, we have an economic outlook that gets updated and that's what tends to drive a portion of this number so for us this quarter or the biggest impact with the F.L. lives as I mentioned in my prepared remarks.
Around the forward looking indicators and the scenario weight. So essentially what we did as we increase the probability weighted the downside scenario and equally decrease the weight of the upside scenario.
So from an economic outlook perspective that was to reflect increased uncertainty in the macro environment.
So that change if you will accounted for about half of the move the rest of it came from revised forecast to certain factors as I mentioned one of those was the unemployment and the other one was a double U T. <unk>. So again, it really how we update our economic outlook on a quarterly.
He out basis, so hopefully.
That clarifies and as I said in my prepared remarks, when we look forward into 2020, so to the extent our economic outlook remains stable, we'd expect that to the provisions on performing a would come in at a more modest level then they have this here.
Does that help you.
No I mean, I guess it's.
Seems like very small changes in units in sort of economic outlooks lead to.
Typically large changes in in updates to the forward looking good indicators when it comes to performing loans is is that correct like is there.
The sensitivities is would you say is relatively high to small changes that's what it seems is going on yeah, that's right and I think as we've always talked about I as far as nine with that comes the volatility that you'd expect to see on a quarter over quarter basis. Now we do always have the ability to old.
Her lay our expert credit judgment.
Which we do on occasion, but Ah for a lot smaller amounts for us here at sea RBC. This is primarily a formulaic driven.
Thank you.
Thank you. The next question is from Mariam Endaka with TD Securities. Please go ahead.
Good morning, just one sort of detailed question first the net interest income in the corporate segment. It seems element and I understand that up a big portion of that.
Roches $67 million interest settlement, but even adjusting for that it does look somewhat elevated my suspicion is that that's offset somewhere else, perhaps another revenue.
Non interest income can you help me think through that so that the right way to look at it.
Yeah. Thanks, Mario so you're right in that a though a large part of that and eyes related to that $67 million of interest income outside of that I would say, we have that continue to performance of F.C. IB as well as though within Treasury. We had some good performance a this court.
<unk> that would.
That would drive that but generally no other specific items to point out and so there was no natural offset there like in non interest income being maybe a little light in that division is there is there any sort of logical off sort or does it just good just good treasury performance this quarter that you'd highlight for us so not really I think it's a it's those factors of those key pieces of and <unk>.
Being performing well, Okay, and then just broadly on expenses you thought I heard you say something to the effect of expense growth should be lower in 2020 than wasn't 2019 now you may have been referring specifically to a segment.
So if it wasn't segment could you offer a more broad outlook on expense growth in 2020.
Yeah, sure and a that comment was specific to the U.S. business Mario as we've continued to invest in that business as Mike has talked about that in the past up both in terms of the backend capabilities as well as the front line. So any particular anymore color on that I'll, let let might take it if you want in terms of a total bank guy.
Since you know the back half of the year, we've been guiding to that four or 5% range and that's where the spin and our goal overall is to manage the business over the long term for positive operating leverage and improve efficiency over time. So we're pleased to have done that oh. Thank you for a as well as full year.
This year going forward you know, we think as we're seeing currently that revenue environment and the and the expenses that drives as was the investments that we will continue to make.
We think that back half is still the right range to target a 420 20 and again long term, we're managing to positive operating leverage here and there'll be some quarterly volatility in the eyes and you may have some negative operating leverage but.
We think at this point with the revenue were seeing that's the right expense that was <unk> four to five thank you for that.
Thank you. The next question is from a Doug young mistakes Chardan capital markets. Please go ahead.
Hi, Good morning, just talk to you Laura just on the credit side. When you gave your your guidance for impaired loans have been PCL rate being flat year over year, you talked about yeah. Excluding unusual items can you talk a bit about what you define as being some of the unusual credit items that came through in fiscal 19.
Yeah for myself the out the more unusual items would have been knows that we mentioned that took place. This quarter. So items that are really not so representative if you will have the strength of the overall loan book the unusual items, we had this year that would've gone sort.
Straight to stage, three and not transmitted sorted through the the stage two provisioning.
And that had been the fraud and Canadian commercial and that was the 52 million I believe in PCL is that correct, that's right and you'll recall, we spoke of one in the utility sector earlier on in the year. So those are those would form if you will the bulk of what I see is.
Isolated events.
Okay, and then Youre performing loan PCL for the year.
Was about four basis points, but you're essentially saying between yeah.
It's going to be less than that essentially is what you're anticipating absent any changes to forward looking indicators or your models and scenario weights essentially.
That's right okay.
And then Victor you mentioned in your and your comments change and cost structure and I don't want to take it out of context, but what I'd like to know is do you think big changes need to be made to your cost structure.
And if so do you anticipate having to take a restructuring charge to reset your cost structure.
So Doug good morning, it's a good question I think it's important to kind of provide broader context on our cost transformation over the years. If you look at the last couple of years, we've made progress on simplifying our bank improving efficiency in a number of ways.
And we use that through a combination of restructuring charges in 2016, and importantly, normal course efficiency gains and with that focus on <unk> cost transformation or nics ratios have improved.
From where it was in 2016 of 58% to 55.6% today. Our goal was to get to 55. Some of the revenue softness that we had gotten away sort of 55.6, and we're certainly pleased with those results.
As we go forward, we'll continue down the same Pos and we believe we have further opportunities to simplify our operations and create efficiency and while we prefer to execute this gradually over the normal course, we continue to review all our options and that could potentially require a charged down the line in order to accelerate our progress we've got to a target of 52 by 2012.
Me too that was based on the old revenue environment, I think a more realistic nics target for 2022 based on the macroeconomic factors that we see out there isn't a 53 and a half to 54 range, we need to work diligently to get there.
So not really know what would be the pivot point, where you see some drastic change has to be made as I. Just the revenue environment is just not turning the way that you anticipate is there anything you can give us a look at it as pivot points, Doug we kind of look at it as an ongoing transformation and we're sort of.
Halfway through the cost transformation at sea IVC.
We've made really good progress and there's more progress to make.
Great. Thank you very much.
Thank you.
Next question is from Sumit Malhotra with Scotia capital. Please go ahead.
Thanks, Good morning, I want to just start with with or on a couple of things with with credit Oh, the Canadian commercial fraud situation looking at your all bank numbers here.
Your charge offs weren't really that the different than they've been running out here, but a little paper. My does so I think it was in the neighborhood of.
Yes, she 234 million in the quarter. So is your provision for this this situation.
Is it a resolve that a this is something that you're not going to collectors are any.
Stability. This comes about because obviously, there's a there's a big delta between what you provision than what you charged off in Q4.
Yeah, Hi, sumit or you're right.
Right I mean, the provision level can always change overtime, because it really depends on how the situation evolve.
At this point in time, where provision that 49 cents from a dollar I think we're adequately provisions at this point in time, but the the story will play out but at this point in time feels like radically provisions.
And just a couple of more for you it.
Doug was getting at this too so if we look at the.
The full year PCL ratio for the bank I think it's around 33 basis points. This year and you referenced a couple of things whether it's the fraud, whether its PG any earlier in the your.
I mean look but further we go in the cycle. These things are going to happen when you couple that with.
The the movements in your and your underlying parameters are methodology. When you think total PCL for CNBC and in 2000 and.
20.
Bank has a times of the past given us some indication relative to the 33 basis points that I thought a total level. What do you think is an appropriate range and Russia should be thinking about.
Well as they talk to and I I'd break it down into two amounts because as you can appreciate the the provisions on impaired.
Feels a lean a little easier if you will to predict so barring unforeseen event.
My expectation as I said is that remain we remain relatively flat. So we came in at 29 basis points for the year as they said, which was within guidance that we provided last year I would expect us to remain flat next year and with regard to up provisions on performing.
As he said they were up four basis points and I would expect again unless things change in terms of our economic outlook that the increase would be more modest then the four.
And last one for you.
The there's been some volatility in the Canadian consumer.
Bankruptcy insolvency proposals that we've seen in the last number of months, which seems to be at odds with.
The.
Drops data in Canada, and and some of the.
Underlying credit metrics, we've seen from the banks did that play any part at all in the <unk> in the parameters up to you and acted in any comment from you, especially given the larger credit card portfolio. The bank goes too.
How you're thinking about that situation with respect to your consumer book.
Well actually feeling very comfortable with our consumer book and our credit cards.
Our actually I'd say performing a inline with expectation we didn't see a bit of a increase.
In delinquency rate sort of quarter over quarter, but that was really a seasonality where we see delinquencies normalizing. After I, usually you know low summer numbers what were.
Saying here and maybe if I look at it in two parts. So on the delinquency is the bulk of the uptick was really in our insured mortgages unsecured lines of credit and that was mainly driven by the softness or that we saw in Alberta. So from that perspective, all of those loans are really well collateralized.
So losses would be very lowest never materialized, but if you look at our net write off.
Where we're seeing a the bulk of the increases there is really in our unsecured lines of credit and that would be in line with a broader trend that we're seeing in Canada, where we've seen consumer insolvencies up.
I guess I'd, just point out that even with that increase in the personal lending segment.
When you look at it from a year over year basis. It's a 9 million dollar increase 15, one 5 million from a quarter over quarter basis. So nothing.
Nothing of a great concern and in our provisions for performing a there was some delinquency migration in that number but as you saw on the I think it was slide 15, it was a very small amount.
That's helpful. Weston Oh, that's very good. Thank you for that last question on this very quickly for her ouch.
I think ex of the accounting or I for US changes next quarter pro forma on capital, you're you're about 11.8% one of the better numbers on the other group I believe you answer the question on F C I'd be saying, but you could neutralize the.
EPS impact by buying back more stock is that something you're you're suggesting will will occur as though transaction closes or given your pro forma visibility.
Is a is that uptick in buyback activity that you're referencing something that's the bank is thinking about a prior to the close of the transaction.
Sure. Thanks, Tim It I'll take that loan, but we're going out to a move on after this a little.
Capital and so I.
I think.
We have slightly different numbers and you on the Q1 and a as we've disclosed the I FRS impact for us is a bit smaller than what the peer group has has.
Disclosed, but leaving that noise aside in Q1 as I mentioned in my remarks, we do expect a capital generation forward to continue to be net positive maybe a bit more modest then this quarter I'm because of some of the onetime helps we had this quarter, but yeah still net positive.
And Ah, we feel pretty good about that and even before the close and having the capital in the door on FCC I'd be we feel strongly about our capital trajectory and with that should we anticipate accelerating the buyback activity in advance of that so as I said and the remarks again going forward from here, we anticipate to be more active and.
Then we have been in the by.
Well compared numbers after thanks for your help thanks.
Thank you.
The next question is fun, Nigel just seems that with their test investment research. Please go ahead.
Hi, all my questions have actually been asked and answered. Thank you.
Thank you. The next question is from microscopic with credit Suisse. Please go ahead hi, Good morning, just wanted to go back to Laura on the provisioning on performing loans. So if you could just help me understand but your guidance for a lower number in 2020 is a big confusing to me just based on the fact that you're you're.
Discussing more downside risk it seems like you're a bit more negative than you would've been last quarter or even at the beginning of year can you just sort of help me understand.
That dynamic.
Yeah, well, maybe I'll start with provisions on performing.
So those are forward looking and so I would say that that takes into account that downside.
My expectation again at this point in time would be that our economic outlook at this point remain a stable. So in that regard that's why I expect provisions on performing.
To come in lower in 2020, then they did this year, that's with regards to provisions on performing.
With regard to provision on impaired loans.
Just in keeping with a bit more downside on the horizon I do expect impaired up provisions to increase in 2020 relative to 29 team, but essentially what I've done this I've taken into account.
Unique events of 29 team that we spoke of and I assume that you know those likely won't represent and when I took all that into account is how I get to flat in my expectations for provisions on impaired in 2020 relative to 29 team.
Hello.
It helps the is it fair to say that so as you add loans.
In 2020, you would be provisioning slightly more on the performing.
Fair on those new loans, just given your more negative outlooks.
Well I'm not sure that that's the.
I would.
Look at it I mean, the provisions on performing.
Take into account the economic outlook in during the year they'll take into account a credit migration. So yeah, I guess there'll be some of that a in there, but even with that I still expect that provisions on performing when we look forward to come in less than what we had in 2019. Okay. That's helpful. Thanks, and then just one quick.
One for Christina just wanted to get your thoughts on how you think about the tradeoff between getting your your residential mortgage growth back up towards industry peer levels.
The margin.
Are you are you going to look to maybe protect the margin and maybe this is a longer process than was originally anticipated or how do you think about that trade off.
It isn't a mortgage a strategy trade off it's really about our focus on our clients and growing with their clients <unk> and the markets. We serve them in across Canada. So as we continue to see opportunity to continue to help clients with their home ambitions.
We expect there's opportunity for growth in this space and it will also then contribute to our relationship strategy because homeownership is a great moment for us to help the Canadians with broader goals and their financial planning goes beyond that so when we look at the margin question.
And it's really about how do we build a longer term relationship with the client with for clients and we'll compete in the market.
The rates will need to compete in.
So is it fair to look at that catch up is maybe more of a 2021 story just given the sizable differential that you currently have let's see growth in this segment of the business or in the mortgage space in the portfolio over the course, the year and I say that because we're seeing it in Q4 isn't that it's been improving.
During a for a couple of quarters now and the growth will continue over the course not business and by the end of the year will position us well for 21 as well.
Thanks very much.
Thank you.
The next question is from it so rosmulder heading with BMO capital markets. Please go ahead.
Quick question for John to Entellus, John If I look at just the commercial banking component to affect Canadian commercial and wealth.
The margins in that business started down every quarter this year anyway.
Can you just talk to me to us I guess, a little bit about the dynamics there between a volume growth and margin compression as you look into 2020.
Thank you for the question. So our model has been pretty consistent and we don't we don't compete on rates at all as the marketing gotten a little or kind of more aggressive, yes, but nothing material a lot of the compression you see is just rate impact.
So I haven't seen big clients compression and whatever has existed.
It's been more on the deposit in the loan side going forward I don't see again from client pricing perspective, I don't see big deterioration. So could it move a basis point, a couple of basis points, perhaps but nothing material, but the directionality generally low oh write down I should say I mean client pricing I don't think.
I don't think we'll be going up.
So again, we're we're running a relationship banks, we would compete in the market, we don't need on price but.
But we wouldn't business when no good clients and when the relationship clays <unk>.
And then maybe just a couple of quick keys here that you or Victor I guess, Oh, Yeah, I mean, we've talked about the capital ratios now and pro forma and potential for buyback but.
Generally speaking is there a kind of level that you're going to try and run the bank with the capital ratio level is it 11 and a half is it a you know low elevens is it high elevens can you give us it kinda yard stick on Oh Morningstar Abbott's Victor here. So you know we've done a good job and building up a very robust capital level.
You know with profile on a pro forma basis, a 12% or we think about running the bank at 11 that 11, a half percent range being the comfortable range for us.
We're clearly at 11.6 today, just to remind you of or capital priorities going forward and I tried to do this every quarter. We have for the first one is to invest in our businesses organic growth, we have been investing and that's reflected in our expense growth with an over indexing and our commercial banking and wealth management businesses. In addition.
And to our Canadian personal banking business.
Sure buybacks are an important component of that I think roches been clear we bought back a million shares last quarter, we do intend to accelerate the pace or share repurchases given our current capital level.
With respect to dividends, Oh, we target the midpoint of our 40% to 50% range on an adjusted basis were slightly above that we plan to grow our dividends as inline with our earnings in the last one on inorganic investments and I think we've been quite clear that were selective.
No rush, we're investing in our business organically you can see the growth in the U.S. is quite robust with expansion in the markets are bias is really toward tuck ins at most for the foreseeable future.
I mean, that's excellent they could do you think you want to rethink their dividend policy from a semiannual to an annual just to give a bit more flexibility given some of the.
Got a lack of transparency your visibility I guess into the outlook or you think that there's no need for that.
His point in time, there's no need to rethink it we may we're really focused on improving the performance of our businesses.
You know, we we we did not deliver what we wanted to deliver to their shareholders and we are focused on getting the bank back to earnings growth in 2020, that's the primary preoccupation of the leadership team. Thank you very much.
Thank you.
This will conclude todays question and answer session I would now like to turn the meeting over to Victor.
Thank you operator.
So we said in 2015 that we're going to succeed by building CBC into a client focused bank and we've made clear progress in that regard.
This year, we continue to improve our client experience numbers across or Canadian retail business, we drove robust topline growth in commercial banking delivered strong results and U.S. and our U.S. businesses and continue the transformation or a capital markets franchise into a connected business, that's driving high quality earnings consistently.
For our bank.
We are affirming our belief that were on the right path and as I look to 2020, I'm confident we're well positioned to deliver valued or clients and team and growth to our shareholders.
I just before I wrap up I'd like to thank Kevin glass for his contributions to our bank over the past 11 years he's been quite during this call, but he has been beside a microphone in case you did have them acquired a question for Kevin has been a tremendous leader and an important part of our team and we wish him the very best as he starts his retirement.
End of year.
And on behalf of our board and executive leadership team I want to thank her entire C.I.B.C. team for your continued dedication to making our clients ambitions are reality.
And to our shareholders for your continued support have a wonderful holiday season, everyone well talk to you in the new year.
Thank you.
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