Q4 2020 Royal Bank of Canada Earnings Call
Good morning, ladies and gentlemen, and welcome to RBC Conference call for the fourth quarter of 2020 financial results.
Please be advised for this call is being recorded.
I would now like to turn the meeting over to non <unk> head of Investor Relations. Please go ahead of me fine.
Thank you and good morning, everyone speaking today will be Dave Mckay, President and Chief Executive Officer, Rod Bolger, Chief Financial Officer, and Graham Hepworth, Chief Risk Officer, and we'll open the call for questions also joining us today are Neil Mclaughlin group head personal and commercial banking, Doug Guzman group head wealth.
Management insurance, and I, and yes, and Derek Elder group had top of the market.
As noted on slide one of our comments may contain forward looking statements, which involve assumptions and have inherent risks and uncertainties.
Actual results could differ materially.
Sales to remind listeners that the bank assesses its performance on a reported and adjusted basis and consider supposed to be useful and assessing underlying business performance.
To give everyone a chance to ask questions. We ask that you limit your questions and then re queue with that I'll turn it over to Dave.
Thanks, Dean and good morning, everyone and thank you for joining us today I'll.
I'll start with some context on the fourth quarter.
And then for bite my thoughts and the macro backdrop and how we're positioned heading into 2021.
Today, we reported fourth quarter earnings of $3.2 billion, driven by continued strength and our leading Canadian banking.
A couple of markets and wealth management businesses.
Despite the significant impact from near zero interest rates and a challenging operating environment brought on by the COVID-19 pandemic earnings per share of were up 2% year over year.
We benefited from strength and trading and underwriting revenue and capital markets strong fee based revenue growth and our wealth management businesses and double digit volume growth and both Canadian banking and city national.
Our results. This quarter also benefited from our continued focus on risk management and cost control.
Now for a few thoughts on the macro environment heading into 2021.
Economy has rebounded well to date and given the emergence of the second wave of COVID-19 and of core markets.
We expect economic growth to slip over the next couple of quarters and project Canadian economic growth and 2020 down over 5%.
However, we project GDP growth to rebound for to 5% and 2021.
The pace of economic recovery still remains contingent on an uncertain trajectory of depends on it.
We received positive news on the development of a series of vaccine much uncertainty remains on the timing and execution of the rollout of of vaccination program.
As a result, we will need to continue to focus on bridging and him and mitigating the impact of the pandemic on our citizens.
We applaud the significant support government programs of provided our clients today.
And are pleased to see key programs extended.
Measures to curb the spread of the disease must put the health and safety of people first and foremost.
But also remain flexible and dynamic to manage the damage done to the economy and particularly to small businesses.
For Rpcs part and we will continue to work with our clients to support them through this difficult time.
Since the start of the pandemic, we provided significant support for our clients, including deferrals of on more than $90 billion of loans.
Well the majority of clients of returns and making payments on their loans. Some of experience further difficulties with the effects of a second wave and Graham will speak to this later.
Therefore, while long term interest rates of started to move higher we are operating with a belief that low short term interest rates will persist for an extended period.
Low interest rates combined with elevated levels of monetary and fiscal stimulus provide both a buffer for individuals and businesses to manage the uncertain year ahead and.
It also provides a catalyst for growth.
The health of risks have been minimized.
For the uncertainty and volatility of the past year strength and liquidity of our balance sheet has remained a constant.
We ended the year with a record cetone ratio of 12.5% of common equity tier one up nearly $6 billion over the past year.
This provides a $19 billion buffer against the current regulatory minimum of 9%.
In addition, we increased our allowance for credit loss to over 6 billion up nearly 3 billion from last year and this represents over 4.5 times coverage of our last 12 month write offs and nearly 90 basis points coverage of loans loans and acceptances.
Our strong balance sheet gives us flexibility to not only manage the uncertainty ahead, but also allows us to continue supporting our clients for.
Growth in the economy and drive shareholder returns.
This year, we paid over $6 billion and dividends to our common shareholders up slightly from 2019.
Despite the significant increases and capital levels, we delivered a premium aro, we of 16% and the fourth quarter and continue to create value for our shareholders growing tangible book value per share of 5% and a stressed year.
Heading into 2021, we are maintaining our three and five year medium term objectives.
However, we recognize that meeting these targets for the near term will be challenging or be challenged by the ongoing impacts of COVID-19.
The prolonged low interest rate environment and capital deployment restrictions.
One pass the higher ROI and EPS growth will be through our continued emphasis on prudent cost control.
Our past investments and digital capabilities data and cyber and risk management systems of underpinned our ability to support our clients and manage the last nine months with operational resilience.
While we continue to invest in our core businesses and strategies, we remain committed to running our bank more efficiently with an emphasis on containing expenses and driving productivity.
And now I wanted to speak to the full year performance of our businesses.
All of our core businesses reported strong client volumes driven by investments and technology. Our advice led sales force capability award, winning client experience and simpler easier to use products matched with resilient customer needs.
Canadian banking reported net income of over $5 billion for the year underpinned by strong volume growth.
Your bad it over 60 basis points of market share and core checking accounts over the last two years alone.
We view this as a core relationship product and our goal remains to add more clients by expanding our digital capabilities and reach and leveraging our scale to add more relationship value.
Our Canadian banking and wealth management teams continue to partner to provide a continuum of offerings to our retail and wealth clients covering the full spectrum of client segments and needs.
Of our Investees Robo advisor and direct investing brokerage platforms up to our full service discretionary wealth management.
We have seen significant expansion of client relationships through this closer collaboration with over 65% of Canadian wealth management clients now, having a Canadian banking products and with further cross sell initiatives and progress.
We are proud of the success, we have had an advisory role with clients My advisor where clients can meet virtually with digital financial specialists surpassed 2 million clients Onboarded with a personalized plan since its launch and 2017.
Turning to the mortgage business, we reported very strong residential mortgage growth of 11% year over year.
The Canadian housing market has been exceptionally strong as work from home arrangements of driven and increased desire for more space, including and suburban areas and smaller markets and limited supply of detached homes and pent up demand of also contributed to housing activity.
We continue to gain market share.
750 strong mortgage specialist.
Driving more new originations and and overall focus on client loyalty.
Where we're seeing retention rates at nearly 92%.
While low interest rates will continue to support buyers, we expect mortgage growth to slow going forward as pent up housing demand begins to cool.
And credit cards, our partnerships and engage membership base drove nearly a 120 billion of purchase volumes. This year, despite the reduction and travel.
With RBC ventures, we continue to advance our strategy to differentiate of bank by creating value beyond banking.
Owner for example, which provides digital and corporations services has now supported 13000, new business starts in 2020 alone.
Of those we incorporated we have been able to kind of Bert 57% to RBC business banking.
In addition, owner recently acquired founded adding both scale and new product offerings, including higher margin subscription services to our existing book.
Turning to wealth management, where we generated over 2.1 billion and earnings in 2020.
And these volatile times, we're seeing an increased demand for holistic wealth management and active asset management solutions.
RBC global asset management retail funds captured over 40% of Canadian net sales of share consist.
Consistently outpacing industry trends and added to our leading 16% market share and Canadian retail AUM.
The strong performance of net sales was driven by our expanded advice and planning capabilities, along with very strong investment performance and our funds for 70% of value and outperforming the benchmark on a three year basis.
More broadly the RBC I share alliance continues to be a strong partnership cash.
Capturing a significant 20% of year to date industry flows as of September.
And our Canadian wealth management Advisory business, we continue to hire experienced investment advisors will also seeing very limited attrition rates.
Our industry, leading recruiting efforts of added nearly $15 billion in a way over the last two years.
And our over 1800 50 investment advisors drive revenue per advisor as nearly 30% higher than the Canadian average.
We saw yet another strong year organic franchise growth and our us wealth management and city national franchises.
We brought in over $60 billion of waste since 2018 through hiring experienced financial advisors and our U.S. private client group.
We continue to organically scale up the platform, which is the seventh largest wealth advisory and the us by advisor count.
We also continued to see strong volume growth of city national with loans of 25% and deposits of 31% from last year with broad based growth across all business lines.
City National grew its client relationships by nearly 14% over the last two years and we will drive targeted efforts to deepen these relationships.
We also continue to add private bankers to accelerate our strategy to provide complete financial solutions for high net worth and ultra high net worth clients.
Turning to our insurance segment, which generated net income of $831 million and 2020.
This segment continues to generate high early earnings and provides a good source of diversification against credit and interest rate risk.
Our diverse insurance client base is building relationships with our other Canadian retail franchises and of added over 800000 clients is 2018.
Capital markets, and an exceptional year generating near record earnings of $2.8 billion and a strong ROI of 11.7%, while absorbing total PCL of $1.2 billion.
The strong results speak to a diversified business and a geographic mix.
Balance sheet optimization, and a well managed risk profile, which together results and lower than average earnings volatility relative of global peers.
Our global markets businesses reported very strong results. This year as they benefited from robust client activity and successfully navigated a volatile market environment.
Looking ahead, we expect trading activity to moderate and the year ahead.
Client engagement was exceptionally strong and our fixed income and equity desks and to further value and to further value to clients RBC capital markets launched eight and and AI based electronic trading platform, which is already traded over 2.5 billion shares and $65 billion of notional volumes over the last 12 months.
We also supported our corporate and investment banking clients financing needs through various stages of the pandemic.
As liquidity concerns moderated our clients continued to take advantage of low interest rates and construct of equity markets to raise capital, thereby boosting our underwriting revenue.
Looking into 2021, we do not see this elevated pace of underwriting activity continuing.
Although M&A activity was on pause for most of 2020, we have led some very significant transactions.
For example, recently RBC capital markets acted as financial advisor to Synovus as part of their $24 billion merger of equals with Husky.
And the very active technology sector RBC acted as active joint book runner on Nuvasive IPO.
And as exclusive financial advisor to light speed on the acquisition of Shopkeep.
Looking ahead, we are more engaged with our well capitalized clients on strategic advisory mandates and are seeing the M&A pipeline start to build again.
Also we are deepening client relationships and the US and we'll also look to strength in senior coverage teams and key sectors.
So in conclusion, our performance in 2020 speaks for the scale strength and resilience of our diversified business model and the significant investments, we've made and technology and our people or a number of years.
Despite the significant impact of COVID-19, you seamlessly mobilize to support our clients strengthened our balance sheet invested in our core franchises supported communities and pay dividends to our shareholders.
We enter 2021 with strong momentum strength stuff.
Stability and operational resilience to support our clients and continue creating value for them.
And for our shareholders. We are grateful for your support and we remain focused on executing our strategy to deliver long term value.
I also want to take this opportunity to thank our more than 86000 colleagues across the bank for their relentless dedication and supporting our clients communities and each other and such an extraordinary year.
I'll now turn it over to Ron.
Thanks, Dave and good morning, everyone. Starting on Slide 10, we reported quarterly earnings of $3.2 billion earnings per share of $2.23 was up 2% from a year ago free.
Pre provision pre tax earnings of $4.6 billion were up 4% from last year, despite absorbing the impact of lower interest rates, which I'll speak to shortly before.
Before I turn to segment results I will spend some time on for key topics expenses capital net interest margins and non interest income.
Starting with expenses, which were down 4% year over year were down 2% when excluding the impact of severance and related cost with an eye and Ts last year.
This quarter highlighted our continued commitment to prudent cost management and the vast majority of expenses of the relatively flat or down from last year.
Variable compensation in the quarter was down significantly from last year, largely and capital markets.
We also continued to benefit from further reductions in marketing and travel costs, which were down approximately $80 million from a year ago and more than offset incremental cove and related costs.
Offsetting cost increases on discretionary items was an increase in technology and related cost as we continued our investment in digital solutions to enhance our clients' experience and as Dave mentioned, we will balance investments in key growth areas, while also being laser focused on costs, including balancing project prioritization.
We also have a number of cost containment programs 40 and place across our businesses.
Looking ahead to 2021, we expect expense growth remained well controlled in line with our pre pandemic commitment to slowing expense growth.
Moving to slide 11, our Cetone ratio increased 50 basis points quarter over quarter to a strong 12.5% our.
Our capital build was yet again underpinned by strong capital generation, which added and 31 basis points to a ratio of this quarter.
I will now discuss our TBA ammo movements on slide 12 negative risk migration was partly offset by continued pay down of corporate credit facilities to levels closer of those before the onset of the pandemic.
And last quarter, we guided to credit migration and our commercial portfolios over the coming quarters, and we saw that expected trend crystallize this quarter, 70% of the lending related net credit downgrades. This quarter were driven by migration and Canadian commercial lending largely related to vulnerable sectors.
We have reviewed a large majority of our Canadian commercial portfolios and absent a material adverse events. We don't expect further significant migration going forward and as a reminder of next quarter will include a reduction in ASP is transitional capital modifications, which is expected to impact our CNG one by an increase of approximately 10 basis.
Points.
Now moving to slide 13, net interest income declined two basis, 2% year over year as strong volume growth was more than offset by the impact of lower interest rates All bank NIM increased three basis points from last quarter benefiting from slightly lower, albeit still of the elevated enterprise wide liquidity and.
The segment level of Canadian banking, NIM declined two basis points quarter over quarter as the impact of lower interest rates and asset mix more than offset the benefit from strong personal and business deposit growth.
City National NIM was down seven basis points relative to last quarter, given the more asset sensitive nature of the balance sheet lower interest rates continued to negatively impact loan and investment yields. This was partially offset by lower funding costs.
Looking forward, we expect NIM to continue to decline modestly in both Canadian banking and city National. However, we would expect positive net interest income growth year over year in both segments by Q3 next year as we expect the impact of lower interest rates to be more than offset by our strong volume growth.
We also expect to see elevated liquidity levels continue to decline as much as to more and more normal levels through balance sheet optimization and as the bank of Canada programs begin to roll off and in coming quarters.
Turning to slide 14, non interest income was down 3% year over year for up 3% net of insurance fair value change and the prior year gain and the sale of Blue based private debt business.
Our results this year share the benefits of and diversified business model with our net and with our non interest income representing over 50% of total revenue, providing an offset to the impact of lower interest rates. The strong performance of market related revenue also highlights the counter cyclical nature of some of our non interest revenue streams strong capital markets and wealth.
Management non interest income.
Offset lower fee based revenue and Canadian banking, which was affected by the impact of Cove at 19.
Moving to our business segment performance beginning on slide 15, personal <unk> commercial banking reported earnings of over one and a half billion dollars Canadian banking quarterly net income was $1.5 billion down 5% from last year as the impact of lower interest rates and car service revenue more than offset lower provisions for credit losses.
And strong volume growth.
Core checking account growth was up over 20% from last year and additional and addition personal guys see balances were up mid single digits. We're also seeing strong growth in our direct investing balances and business deposit growth was up a robust 25% net.
Strength extended to mortgages with double digit growth driving total loan growth of 5% year over year commercial banking loan growth declined 2% year over year, However, with commercial utilization rates remaining below levels noted of March there is potential upside with sustained economic growth.
The sequential decline in card service revenue was largely related to $35 million of one off items with underlying spending volumes also lower from last year. However, we did see an uptick and credit card balances as the economy slowly opened up in the summer.
Turning to slide 16 wealth management reported quarterly earnings of $546 million down 25% from last year.
Excluding the impact of the blueberry gain last year net income was down 8% year over year, largely due to the impact of interest rates and higher expenses, primarily in our U.S wealth management business Canadian wealth management benefited from higher fee based client assets. This was partially offset by the impact of lower interest rates global asset management revenue decreased 15%.
Year over year, but excluding last years gain revenue was up 8%.
AUM increased by over $50 billion year over year with over two thirds coming from total net sales and the rest from constructive markets.
Net sales were broad based with two thirds of the long term sales driven by international institutional mandates.
Very strong volume growth and city national was more than offset by lower interest rates retail loan balances increased 15% year over year underpinned by our focus on jumbo mortgages commercial loan growth was up 26% or up 13%, excluding the impact of triple fee loans.
We also saw solid growth and our use of private client group with a way up 27 billion units from last year benefiting from both higher market returns and net sales.
And turning to slide 17, we discussed insurance results net income of $254 million. This quarter decreased 10% from a year ago, primarily due to unfavorable annual actuarial assumption updates.
Mainly related to mortality experience Theresa.
Turning to slide 18, Investor and Treasury services net income of $91 million increased $46 million from a year ago as the prior year included severance and related costs associated repositioning the business. Excluding net earnings were down 29% year over year and given revenue headwinds in this challenging environment. We will continue to assess and act on stay.
For TG cost management initiatives in this business turn.
Turn to slide 19 capital markets reported record.
Fourth quarter earnings of $840 million. This was the fourth quarter and ROE with revenue over $2 billion and pre provision pre tax earnings in excess of $1 billion, reflecting the continued strength of our premium capital markets franchise corporate investment banking reported yet another quarter with revenue over $1 billion up 16% year over year.
As we continue to deepen client relationships and support financing needs. Our clients continue to pay down previously drawn credit facilities to more normalized levels and instead took advantage of lower financing costs to access debt capital markets, which contributed to strong data origination fees are equity underwriting business also benefit.
And from the shift and financing trends as equity markets also remain constructive while the M&A pipeline is recovering and our advisory revenue remains muted we gained market share in what is an area of focus global markets had yet another strong quarter with revenue up 22% from last year to $1.3 billion.
Wrapping up a strong year, where business generated revenue of over $6 billion.
Equity straight and remained strong benefiting from elevated volatility and strong client flow and equity derivatives. We continue to see strong credit trading benefited from narrowing credit spreads and secondary trading activity rates trading continues to be robust and higher fees and commodities were offset by decline and.
FX trading and.
Turning to slide 20 of final thought and our three and five year medium term objectives. We met three out of the for of our stated financial objectives, while flow and short on EPS growth given significantly lower interest rates and a record level of PCL recorded under I for US nine this year despite.
Despite currency headwinds, we remain committed to our medium term objectives. However, we are suspending our 2021 targets highlighted at our 2018 Investor day. The current macroeconomic forecasts around the forward interest curve and GDP growth and cumulative basis for materially lower than where they were in June 2018 expectations.
But as Dave and I mentioned earlier, we remain committed to improving productivity, attracting new clients for a differentiated products and services and increasing our market share consistently over time and with that I'll turn it over to Graham.
Thank you Rod and good morning, everyone.
Starting on slide 22 gross.
Gross impaired loans of $3.2 billion or 47 basis points were down $662 million for 10 basis points from last quarter.
And maybe due to fewer impairments across all business segments with capital markets accounting for nearly two thirds of the decrease.
Turning to slide 23, PCL and impaired loans of 251 million were 15 basis points was down 147 million or eight basis points from last quarter due to lower provisions across all business segments and free.
And banking PCL and impaired loans of $169 million was down $95 million or nine basis points from last quarter as the impact of payment deferrals and government support programs kept delinquencies and impairments muted.
And capital markets PCL impaired loans of 68 million was relatively flat to last quarter and wealth management, we had no net PCL and impaired loans. This quarter of the provisions required for new impairments were offset by recoveries on previously impaired loans.
Turning to slide 24, we maintained our allowance for credit losses, and a strong $6.1 billion were 0.89% of loans and acceptances consistent with the prior quarter.
This resulted in PCR non performing loans of 147 million this quarter, which was down by 133 million from last quarter, moving our Canadian banking retail portfolios and and capital markets.
Well this quarter there were favorable changes to our forecast for host prices as well as some near term Canadian and us GDP growth equities and us bond yields.
Elected to increase the weights toward downside scenarios by 10% given the resurgence of containment measures through the rise of Coca day team cases, and many of the regions, where we operate.
Let me now comment on key and basing relief programs starting on slide 25.
At the end of October nearly 90% of retail deferrals offered as part of our client really program have expired.
And we have two per cent of those deferrals have become delinquent for which a third were delinquent prior to the deferral of being put in place.
This has resulted in a slight uptick and early stage delinquencies for the Q3 lows.
Of the remaining 6.3 billion and active deferrals, which represents less than 2% of our Canadian banking retail portfolio will.
Over 75% are expected to roll up of December with the balance would be rolling off by March 2021.
Nearly all of the act of deferrals are from our residential mortgage portfolio, which includes healogics.
Of these active deferrals west and 2% of the balances are uninsured with the current LTV greater than 80% and.
For the majority of those balances are in Alberta, which has seen a decline and home prices over the last few years.
But we do anticipate retail delinquencies to rise over the coming quarters as all deferrals roll off of President delinquencies remained lower than our normal run rate.
Turning to slide 26, nearly 90% of commercial and small business deferrals of also expired and.
All of our clients, who had a payment due after the expiration of the deferral period have returned to performing in line with of Joe General credit performance of those portfolios.
For clients, who took deferrals and have a business deposit account with us deposit balances at the end of October average over 14 times of the monthly of debt service obligations of from an average of 11 times last year.
The increase and debt service coverage is due to rising average deposit balances and declining utilization for borrowers who uptake and deferrals.
35% of acts of deferrals and 41% of the active we expect of deferral population operating in a volatile sector and.
Through our client outreach program, we have proactively contracted almost all of our retail and commercial clients, who requested of deferral to see how we can best support them.
And while the majority of clients of indicated that they don't require further assistance, we are working with those who do to help them navigate these challenging times.
Turning to slide 27 certain.
Certain sectors hub and negatively impact by containment measures put in effect to curb the spread of coconut and team while others have benefited.
This exposure represents 5% of our total loans and acceptances outstanding down from 6% last quarter as utilization trends continued to decline.
Let me discuss the sectors that represent the majority of our vulnerable exposures, starting with commercial real estate on slide 28.
Nearly 30% of our vulnerable exposure is to retail related commercial real estate, which continues to be impacted by business closures and physical distancing measures that can read collections were challenging.
Only a small portion of this exposure is the smaller independent retailers and non investment grade enclosed malls, which was seen rent collections trim down again as koby 19 restriction of have returned in certain regions.
Most of this exposure has a high debt service coverage ratio and a low LTV.
Nearly 30% of our relative exposure is in the consumer discretionary sector.
Retailers with limited to new online presence hotels and continued to see low occupancy rates and recreational companies that have been force to temporary shutdowns of Ecova 19 restrictions continue to be the most impacted segments of this sector.
Overall, a large portion of this exposure is secured.
Casual dining restaurants with no drive-thru articulate auctions have also been impacted for the majority of our restaurant exposure is in the quick service segments.
20% of our volatile exposure is in the oil and gas sector, which continues to be impacted by low commodity prices due impart by for whether reduction and demand from COVID-19 limited access to capital and a weaker market for asset sales.
A large majority of exploration and production exposure benefits from a boring base loan structure plus.
Thus far fall borrowing base redeterminations have been relatively benign supported by higher commodity prices compared to the sprint.
And most of our remaining vulnerable exposure is in portions of their transportation and other services sectors.
Well each sector is unique we believe of the support programs and please will continue to help mitigate potential loan losses.
Overall, the macroeconomic environment has proven more supportive of than originally forecast at the onset of dependent.
Two important so the extent of government support programs, which resulted in better than anticipated credit performance. This year.
We're roughly though the emergence of of second wave of depend and that has led to the reintroduction of restrictions, which will negatively impact economic recovery.
We believe the economic impact of this second wave will be less severe than the first wave given a narrower and more targeted restrictions of and introduced a better understanding of the virus, which has led to stronger consumer and business sentiment and continuing government support.
However, there is considerable uncertainty around the speed of the economic recovery and the availability of of vaccine.
As well as renewed pressure on multiple sectors due to the newly imposed restrictions.
These are all factors, which resulted in us putting greater weight on our downside scenarios as I noted earlier.
For context, our primary pessimistic scenario has the Canadian unemployment rate at above 9% until March 2023.
And host prices declining by 8% and remaining depressed until late 2023.
As such a scenario were to play out we could see our USIO and performing loans increased by approximately 18%.
As we look forward into 2021, we expect to see an increase in delinquencies and impairments over the coming quarters, particularly and are vulnerable sectors, but we believe that we are adequately reserved at this time.
To conclude we are satisfied with the resiliency of our high quality diversified portfolio, which has benefited from our strong risk aware of culture and disciplined approach to underwriting remains focused on effect of living structures and solid risk return profiles.
And as we have done since the onset of this pandemic, we will work with our clients to help them continue to navigate through these uncharted times with that operator, let's open the lines for Q index.
Thank you and we'll now take questions from the telephone line and if you have a question and you are using a speakerphone, please and lift your handset before making your selection and.
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Our first question is from Ebrahim Poonawala with Bank of America Securities. Please go ahead.
Good morning.
Yes.
I guess question for you guys thoughts one and.
About the outlook for PC as it sounds like you and your peers and listening to the banks. He asked and they have accounted for the migration. We expect to see next share. So when we think about debt PC and outflow of is it safe to assume that we go back in 2021% to 25 30 day, its PCL, but we used to call.
Coated.
And if you can speak to of just in terms of.
What's your expectations on all of the shift to in paid losses of performing and how soon could we see those diseases actually begin thank you.
Sure. Thanks, everyone for the question.
And maybe break that out into the two parts could of the latter part of your question and and talk a bit of both for the third fees and then what that means overall.
Hi.
For the Lucas and airborne So I think as we looking into 2021.
Certainly on one hand, we're kind of work our way through a recovery, but as we see kind of short term headwinds like the certainly the second wave that we're facing now that will have an impact and will have an impact on our vulnerable sectors as well, we've seen deferrals rolling off and delinquency starting to increase on the back end of that and government support will overtime normalized.
And as those things come together, we do see a world where were delinquencies and Thats impairments will serve to increase through 2021, and particularly its getting for higher levels of the back end of 2021, and so that's kind of how we see it flowing through this year.
When you think of both performing PCL and Hcl. There certainly we have built our provisions up through 2020, and a very mindful of the pandemic and quite frankly, the uncertainties associated with that and so while there are pieces like the vaccine news coming out are positive in that regard for a number of factors that will go into kind of how we think of both or stage one and two.
[music] allowances for.
And for growth.
The incurrence of stage three of incurrence of impaired loans will be of the biggest factor and driving how we think of both stage one and two phase one and two is really there to to address what we expect in the future and has that future actually manifest and we would expect ethics and as dr. or considerations under stage, one and two.
But the other considerations of will go in there that will drive it is whether our forecast changed materially from where we're thinking of both the world right now to date, we have largely I think trended with consistent with the macro projections and forward.
And within the one area that it was materially.
Materially better than what we have kind of started out with that.
But you know as we work through the vulnerable sectors and considered some of the kind of key risks, there and particularly those commercial book.
Those are the areas that we worry of owed and so and we'd be balancing all of those things as we think through 2021, but there is such a high degree of uncertainty as to how that plays out I think were somewhat reluctant to put a real piddling and on the number there.
Got it thank you.
[music].
Thank you.
Our next question is from John Aiken with Barclays. Please go ahead.
Good morning.
And for Rod wanted to talk with the capital ratio of 12, and a half percentage and non asking and all that the usual what are the what are the uses for cash flow because I think we all know that phenomena for going and look at.
Coming out of 2021 offs hopefully when we're in a more normalized environment, although we think we'd be saying that for a long time now what is your philosophy in terms of where the capital sits today and where do you think it might be able to migrate is it kind of go up is it going to go down and what would you be comfortable with one of the Everything's all said and done.
I'll start.
Got it and and I'll, let rod.
Chime and certainly as we think of a more normalized of world, where the buffers are restored to where our regulators want them and we are able to start to leverage this capital as you said into shareholder value accretion, while those buybacks or growth per or whatever.
The shareholder value. So as we think through kind of where that normalized level. As we go back to where we were kind of largely pre pandemic flu of 10 seven of 511% roughly if.
If things don't change from a regulatory perspective, we would view that as kind of where we'd like to grow run the bank and therefore, the capital of surplus to that and and more normalize world, we'd like to create shareholder value.
And at the end of the other element I would I would.
Hi, Monetized, obviously, we were restricted from increased and dividend and share buybacks and that makes sense given the pandemic, but as I was listening to Graham talk about the outlook for PCL just recall a year ago, we had gross impaired loans of about $3 billion and total allowances of about three and three and a half billion now we have.
Gross impaired loans of $3.2 billion and reserves, including acceptances $6.3 billion. So think about our excess capital of 18 billion plus that $6.3 billion.
As as strength and and a fortress balance sheet and you know as we've seen the losses come through and this pandemic and we're well positioned to support our organic growth and our strategic initiatives going forward.
Great. Thanks, guys appreciate it.
Thank you.
Next question is from and given the addition of National Bank Financial. Please go ahead and good morning.
Couple of questions for for Graham.
And this might not be a fair one, but I look of the 14 basis points loss rate and Canadian banking and lowest of thats ever been.
For what would that be if not for all of these support programs.
And then related Lee you added $147 million for your performing provision is there and the beta at all like if you were just going by your and your models of the so for them.
Would you be in.
Releasing reserves at this point or do you see that of the.
Scenario that most of its risks and.
Is that right.
Thanks, Gabriel EBITDA from the Canadian banking, certainly we see the for the level of provisions of stage three level of provisions this quarter of being very muted as I said in a huge boards and the deferral program that we've put in place and support our clients and and certainly the byproduct of the strong government support for the marketplace supporting those.
And and we see that the consequence of really the decline and in a newly impaired loan formations this quarter, but thats really driving that for us is lot of boats.
Not a lot of both the.
Well recoveries of reversals and for it so.
And that's driving that and you asking what would have otherwise elsewhere and I would go and look at fuel and kind of what is our normalized stage three PCL and that would be to contact you could kind of consider it and if you will because we haven't really seen the impact of the pandemic flow through to this point and additionally.
Additionally, I think it really is reflective of I think the very strong client base, we drive Acadia and banking, we believe which focused on of prime and Super Bowl and client base there and.
We do of the high quality client base, which isn't to say that that quite this won't be impacted at all of the pandemic, but it does I think position us and a very strong place to go through this.
And then your other question around you know the thinking around stage willing to I mean, again I kind of go back to.
My earlier comments here.
This quarter again, we had income.
And with that our forecasts around he lives and modest improvements and other areas. So that would be a positive for the for Liberty's CFO perspective.
It get more concerned about the credit of the likelihood of a of.
For the second wave and we're certainly seeing that manifest itself and so those were kind of competing impacts that and that would offset each other and then management's discretion comes in either of you comes and here as well and we go through and analysis looking at and of the forward forecasts, how we think governments support will eventually roll offs.
And those all come into play.
Most of the spot where we.
Took a lot of.
And increase and overall performing AC Ole we really took the bulk of that back in Q2, and when we book up or belt is and really what you've seen and Q3 and Q4 are some adjusted to that as we kind of work through with the information, but haven't really had.
Head of change our view materially certainly things like the vaccine is important the information out there that some delayed over the last couple of weeks as David alluded to and that Theres still a lot of.
No information there as to how thats going to impact the economic recovery and that will be something and will be thinking through carefully and Q1 and hopefully we'll have a bit of a line of sight as to what that means but those are all set of factors that kind of led us into our thinking for Q4 this year.
Yes, I guess sort of just all trying to figure out.
And what these ratios look like when all of us.
Support programs roll off and.
Yes.
Everybody is talking about so.
Thanks.
Thanks, Carol will take the next question.
Thank you. Our next question is and meaning Roman with Scotia Bank. Please go ahead.
Hi, Good morning, just turning back to the buybacks.
I understand I asked for you would want to be cautious, but do you believe there is a good case to be made for allowing buybacks.
Now, let's say is that something that is is.
Is there a valid arguments for that and your view.
I think many of really if you listen to all our commentary around and of the uncertainty of the next six to nine months and the timing of this and the impact on our clients. Notwithstanding there is extended government support. So we're trying to evaluate all of that and I think we.
We've as you've seen we focused on growth and client areas, where we're sure footed, particularly mortgage growth.
And where we really understand that client base for a while is largely growth through and and existing client. So if we were sitting here today, saying would you and.
Take back capital if you could I think it's a little premature I think we want to see a more stable recovery, one and see a more stable unemployment rates and I think caution still should should rule. The day. So I wouldnt push the cricket later right now, but as things progress as we start to see more stability and and and cloud.
Moving on to normalize World then it would be appropriate.
I think thats the way you have to look at and there's still uncertain sales there and we're going to be prudent and how we manage the bank.
And just a follow up on that.
We are hearing from other management teams and I think maybe it's consensus that the second wave.
And is less damaging this current log and he is going to be less damaging from an economic point of view than when the first waiting for getting used to it and they have workarounds.
You sound cautious, but sort of would you share that view or for how would you look at.
The risk here in terms of and the second round of lock him.
Absolutely I think we've learned a lot and it was and Graham's comments around how the second wave will play and we're not going into the same sense of locked down we recovered 2.4 out of the 3 million jobs losses are still 600000 unemployed so thats a big.
Big step for many of the remaining 600000 or and and I'm a narrower segment of a service industry. So absolutely the second wave.
In addition, bolstered by extended government support will be will have less impact and the first flavor. We're just taking a cautious approach having said that you've seen some very significant volume growth and client growth across all our businesses from capital markets two of the wealth franchise for the Canadian banking franchise, and that's really strong growth that you're seeing of low.
Lending products and deposit products, so and we're operating very effectively and was was still with a conservative risk profile and you can see that manifest itself and our stage three losses.
Think of previous analyst calm and and those are very low loan losses, yet we're continuing to grow.
Our balance sheet, and our franchise and of talks to our client base and our and our risk posture.
And we're we're good at that so I think net net we're finding a way to grow this franchise.
Create long term value, while managing and an uncertain environment.
Thanks, a lot.
Okay.
Thank you. Our next question is from Scott Chen with Canaccord Genuity. Please go ahead.
Good morning, Rod I wanted to go back share comments and I just want to make sure and current rate I think you talked about that you believe or you're targeting thats the bank could get back to and growth in fiscal Q3 21.
On the Canadian and Usfive and I guess, one is that did I hear that correctly and.
Maybe kind of talk about how that intertwines with your comments on kind of margin compression near term for the volume trends.
Sure sure. Thanks, Scott for that so the largest player here on on the net and the net interest income and the NIM.
Is when the interest rate.
Decreases took place which was I think about it in the middle of March. So you are talking about halfway through our second fiscal quarter and 2020. So as were in Q1 of 21 the year over year comparison has the higher interest rates from the prior year for the full quarter and our second quarter and 2021, you're going to EBIT for the half the quarter last year.
And so those are going to be tough comparable so on a year over year basis. The NIM compression is severe on a sequential basis. It's muted just like it was this quarter and so as we roll into Q3 next year the year over year decline is going to be much lower than what we've seen for the previous for quarters at that point.
And so therefore, our volume growth, which has been very strong will more than offset that and so you'll be able to see net interest income growth on a year over year basis, starting in Q3 for both of those businesses, which are interest rate sensitive.
That makes sense and if I, if I can take and one more for you Rod just on the cost side came and while this quarter and if I look at fiscal 2020.
Cost structure, and 5% and the all bank level is that a good kind of metric to use next year and kind of in that low single digit range.
Yes, we would if we were striving for lower than that next year, obviously, we will see how capital markets and wealth management play out because there is a higher variable comp element based on market driven forces, but all other expenses were actually targeting lower than that 2.5%. This year.
Okay. Thank you very much thanks for your question.
Thank you for our next question is from and Doug Young with Deutsche Bank Capital markets. Please go ahead.
Hi, Good morning, just a rise of sticking with you on the NIM and size.
If I look of all bank net loans, excluding trading 162, it's down 45 basis points year over year, and and I get kind of the different moving pieces, but what I'd like to focus and on as the impact of that has come through and because of the amount of liquidity that you're holding and just wondering and as you think for weren't so maybe the two part question like what has been the impact on.
All bank and excluding trading from the excess liquidity, how do you see that unfolding over the next two years as some of that liquidity comes out should should we anticipate some of that being back David.
Yes. So there is always a lot of noise on the all bank NIM, obviously, the excess cash and liquidity that we have right now is playing a part and that Theres a part on mix depending on the types of assets that you have on the balance sheet. So there's a little bit of nuance, there and how you're growing certain levels and certain businesses as well, but I would look at asset of.
Two things right some of the GAAP.
Government programs are rolling off as we get into the second and third quarters next year. So some of those programs are going to be winding down and we're going to be repaying some of that money back which is going to strip.
And strip down some of the excess liquidity. The other element is that we would expect our loan growth to outpace our deposit growth, which wasn't the case. This year. So going into 2021 is that happens that will also use up some of that excess liquidity and then also where we are going to be doing some term funding to comply with T lack of but.
And it's going to be lower and has been lower this year and we expect the lower next year than it was in previous years. So thats also going to help us. So all of those are going to be putting a little bit of upward pressure on it but let's not get over overly exuberant on that because the interest rates are low yes, the longer rates of cup come up a bit, but theres not going to be a high.
Whole lot of upward momentum.
From a double digit basis point perspective.
And just sort of follow up and just.
And let everyone get and here, we do plan and going over for a few minutes I know our speeches were longer than at the end of the year. So we will run over and try to clear the queue here. So let's move on and please re queue for for a second question.
Thank you and our next question is from Mario Mendonca with TD Securities. Please go ahead.
Good and good morning, Rod probably for you.
It's fairly detailed but when I look at your other income there has been significant volatility and that other line.
And I wouldn't really be so focused on.
Okay.
Mario we launched last year.
And maybe operator, we'll go to the next question.
Are we going from kind of this time.
Okay. Thank you.
Got you that our chairman of Yep hear me now.
Yes.
Oh, sorry about that.
And I want to go to do sort of a Nit picky question here.
Our income.
And there is a fairly significant there is a lot of volatility and that other income line. This this year a lot more of that we had for the past normally wouldn't care. So much but the number is fairly large and that can have a pretty significant swing and other income and quarter to quarter could you talk a little bit about what's caused all of the volatility and that other line this year.
And maybe specifically this quarter.
Yeah sure and.
A lot of this unfortunately as accounting and maybe we should put it put some information and the kind of help help but find the key to that because while one thing as year over year, you had the bluebay gain and their last year, which was $151 million right. So that was and a onetime event in Q4 19, but then on a recurring basis.
You Havent you have three real drivers you have the wealth accumulation program and us wealth management, where that expense moves up and down as as what our employees have invested and moves up and down but we hedged that so so on the one side the expenses move up and down but on the other side the hedges in revenue and net revenue.
Come through this line item, so thats typically a large driver of that volatility, but it has no impact on the bottom line typically the other element is a lot of our securitization hedging also and capital markets goes through this line item on the one side and trading on the other side and then the third element is some of the some of the.
The funding that we do across currencies and globally through our eye and Ts our funding and liquidity platform again, you are getting some some revenue here and and offset in net interest income trading revenue or vice versa. So I can assure you that the year over year decrease of 296.
Is about 95% to 100% covered by those three items, which are accounting items with the exception of the one time gain and on a quarter over quarter basis. It's also the case. So some we can probably provide a little bit better clue of how that goes back and forth, but there's really no economic deal.
Greece that you saw on that line item.
Yes, so maybe just a little bit of help there and understand the offsets would probably get me all the way there. Thank you.
Thanks Maria.
Next question. Thank you and our next question is comes from Rodman for Haiti with BMO capital markets. Please go ahead.
Thanks question for Neil and obviously, good debt mortgage volume growth can you give us a sense of how.
And mortgage spreads are on the new business.
Versus the old business headed and Thats Rolling off line my understanding is mortgage spreads are higher.
And I'm, just trying to kind of circle, the square and wide and continue to feel this margin pressure and Canadian bank. Thanks.
Yeah. Thanks for the thanks for the question I think Rob touched on overall and the biggest driver is really around interest rates that Rob touched on of business mix plays a I think a very small part of this in terms of specifically the mortgage business.
The business mix in terms of really strong mortgage originations driving that growth, we would definitely contribute to that.
And we are pleased with.
Our performance in 2020, despite kind of the.
Extreme slowdown as the pandemic hit we did really slingshot out of that and compete well.
I would say earlier in the year.
The spreads were tighter there has been some relief there, but it's still I'd say very competitive market.
So can you comment on what Ted and new business coming on how this spreads and that compares with of business that is rolling off if you will of getting renewed.
Our immuno it will change month to month, but it's it's relatively relatively even.
Thank you.
Thank you and.
Next question is from Mark for Saad with Cormark Securities. Please go ahead.
Thanks, just continuing on Scott's question and expenses. It seems like there could be a lot of puts and takes into 2021 and so presumably some of the cope and related expense growth can become a tailwind and if we're heading in the right direction towards a more normal operating environment and some of the travel and business investment related cost for you could come back and all and I guess could you.
Talk about what are the bigger puts and takes that go into your expense outlook for 2021, and then finally do you think positive operating leverage would be somewhat attainable for 2021. Thanks.
Thanks provides rod I'll I'll take that so on the on the expenses there will be and a natural uptick for us on a few items as we've mentioned, we've been investing and technology and we've been growing all of that spend over the last few years. The accounting requires you to capitalize and amortize that so the spend that we've been building over the last few years.
Years continues to have a little bit of a headwind there as you amortize that that's cash debt was spent in recent years, but that will impact us going forward.
Think overall some compensation items generally for a lot of folks came down this year because of the lower earnings and so therefore, as we reset that and hopefully have better performance next year and that might be a headwind and we also added some FTC, mostly on the front line this year and.
As those head.
Head count are with us for the full year, there's some natural uptakes. There. So you do have some natural inflation and there but you also have our efficiency programs that we've been working through which is why was able to guide to two and overall increase apps and some of the variable compensation nuances.
Below that 2.5% growth rate this year in the low single digits and so that's what we're aiming for and in terms of positive operating leverage again, it's important to look at it by business. This business mix with such a big part of that because the margins are so different but again, it's going to be the second half of the year is going to be tale of two to half of the year second half of the year, you're going to see better operating leverage for us.
For the year is going to be a tougher operating leverage environment because of interest rates.
Hi, Thanks and hope.
Sorry go ahead, and we will have will requeue, then and thanks.
Thank you and our next question is from Mike Vistana Bank with Credit Suisse. Please go ahead.
Good morning, a question for Neil I wanted to go back to your mortgage growth and and specifically the market share gains you've been seeing which clearly have been very strong for quite some time now so what I'm wondering is.
What's your outlook going forward and have you reached a point, where maybe you've picked some of the low hanging fruit and does it get tougher from here to sustain that growth relative to your peers.
I'm not sure how much pricing goes into that.
As a driver into that mix, but if you can comment on what you sort of for C. Going forward there will be helpful.
Sure. Thanks for the question I.
I definitely wouldn't say any of the business running as low hanging fruit I mean, our regional leaders will tell you is exceptionally competitive out there.
Yeah, I'd say earlier in the year, we there was a.
You know one competitors I don't think had the sort of the distribution scale, obviously that we expect all of our competitors to come back hard at us.
We've consistently I guess really sort of two factors one we've consistently grown our distribution capabilities. So were we.
Looking for quality mortgage specialist, we set of really high bar we.
We don't you know sort of step up and then staff down we're sort of always sort of growing that sales force and we have over 1700 mortgage specialists that are out connecting with clients. So that's I think the first piece. The second piece in terms of really driving the growth and and and the market share is we talked about this a couple of times over the last year we.
Really gone through an opt and felt weve optimize each part of that business. So from lead generation lead conversion, how we get through adjudication rates and fulfillment. We feel we started the year really firing on all cylinders and I think we're really well positioned to come out of the out of the pandemic and compete well so.
That and then I think good good representation with our sales capability and the markets that are really growing and Ontario, BC and per back where you're seeing the largest growth. So that's what I really think is that sort of of the fundamentals of our success.
You know I Wouldnt say were going to continue to see this growth rate Rod had mentioned or sort of using David mentioned, we do see growth rate starting to come off.
But coming off of very high level.
And just real quick so is pricing a major contributor to your recent gains.
No I mean, we would say we do not lead with price we consistent I would say price is something when we found ourselves. The uncompetitive. It was because we were a few basis points outside of the competition and we take a lot of work to make sure. We're constantly triangulating what the market price is and has become very fragment.
It product by product region by region, but we do not lead with price. We are our target is to be offer competitive price with better advice and better reach.
Thanks for that.
And and you heard the previous question that margins have been stable, which is the.
No.
Bestmark on that net.
Last question please.
Thank you. Our next question is from Paul Holden with CNBC. Please go ahead.
Thanks, Thanks for taking my question.
So has your message loud and clear on being conservative for the next six line.
So and continue to focus on.
Lower risk opportunities wondering how you think about the pivot and post and then.
Growth which of.
Hopefully we'll see.
Do you think you need to pivot to different areas of growth when that happens and what might be those areas of growth you could you could because it too.
Well I. Thank you for.
You look at the solid growth that we've exhibited across all our businesses and market share gains and wealth management of market share gains and.
And capital markets and and the retail bank I think we're doing a good job of of continuing to grow the franchise and serving our customers. So it's not like we've gone into a risk defensive position and I'm, putting any business on for books were serving our customers very well I think with.
Our investment and technology has allowed us to cross sell and retain clients to a greater rate and I think thats driving our growth, so you're where and when you see mortgage retention rates at historically high levels. They are it's from Reed reengineering, the processes and and focusing on that so.
I don't want people thinking that we're on a risk off position our growth would indicate otherwise I think you know that the posture. So as we come out of this you're going to see some of the contributions to our net income growth.
From businesses that are that of had a hard time to share our credit card business payments sales balances are down as you can see almost $2 billion card activity has been pretty stable, but our clients aren't revolving and aren't using the product the same way that business and revalue seeing the significant impact interest rates of had on our.
Wealth franchise, and the United States significant impact we've earned through that that's going to be a contributor to growth.
As we come back through that.
No as we look at and client activity levels really drive our volume growth. So we don't change our risk appetite, we don't change our risk posture significantly through a cycle. Therefore, we are not going to go into a big risk on physician. We've we've managed through cycles, it's really.
Our clients interact with us and what their needs are and we certainly will see our business clients and our commercial clients and capital markets clients go onto the front foot more and that should drive M&A mandates that should drive underwriting activity DCM DCM.
And so those activity levels were really well positioned for we've invested in this franchise as you can see our debt.
As Rob referenced our front line numbers of gone up we're we're positioning ourselves to emerge with Ics and accelerated momentum at the end of the year by investing and capabilities investing and stuff. So that's how we're signaling shifting to the front foot getting ready for for more client demand and investing and client value and technology. So we feel very.
Very good about where we are today and momentum and our relative position to capture further growth coming out of this.
Got it thank you.
And we'll take and we'll try to clear the Q, we've got a few more questions.
Thank you. Our next question is kind of Ebrahim Poonawala with and Bank of America Securities. Please go ahead.
Hi, Thanks for taking my question again.
Just a follow up for Dave on capital allocation completely get debt you want to the bank.
More cautious in the near term.
But as you look out communicating you have a stock which is probably one of the best value of bank stocks trading close to two times price to book.
Give us a sense of how you think about buybacks versus M&A and and again I guess, you kind of for who readout for brick and mortar tights franchises and go for M&A, but is it fair for shareholders should we expect you to be a little bit more creative when it comes to capital allocation and looking beyond buybacks, if and when we get to that stage.
We're always looking for opportunity to to grow share.
Shareholder value, we've kind of signal to you the parameters that we're looking at it we would we would make an acquisition and and of shareholder returns and the timing of those shareholder returns first and foremost of my previous answer I won't go through it again, but we see significant organic growth opportunity years, and you're seeing double digit growth across our businesses and that's from the investments we've made so.
We are going to use capital and that's the highest ROI.
And you've seen us deliver 16% ROI and Q4 was added 12.5% Cetone ratio. It tells you now the focus we have and driving shareholder value, but absolutely. We are looking for scale, United States and we've got a significant of franchise momentum there and we continue to look for opportunities and have a cultural fit has to live there.
Drive the right synergies, we have to be confident that synergy journey, but it's not like we're sitting back and not doing it and we're looking we're thinking so if there is an opportunity that presents itself that that checks the boxes, we will absolutely use that surplus capital.
To to execute of growth trajectory, we're just very conscious of the trade offs that we have organic growth first and.
We expect to continue to meet our organic growth.
Plans and generate surplus capital. So I think from that perspective looking forward, we have significant strategic flexibility.
And we're going to use it smartly to create value for you. So absolutely. We're looking at all three mechanisms and Roger do you want to jump and I'll just provide two two data points side. You ran that might help one is we are trading at 25 basis point discount right now to our 10 year historical price to book value. So.
That that's something to keep in mind. The other element is even into this pandemic over the last five years, we have grown our book value per share, which is a key driver of shareholder value and almost 7% annually on a CAGR basis, so you're able to drive that sort of growth and all of that largely has come organically as David cited.
Those are those are other considerations such a huge factor and.
Thanks for your question and.
Okay.
We'll go and we have a couple of more.
I have a few minutes ago here. Thank you. Our next question is from Sohrab Movahedi with BMO capital markets. Please go ahead.
Yes, Thanks again for affording me that reqs, while Neil back to you just want to get a sense of fair given the margin outlook that you have for this segment.
And and I know there has been a good amount of discussion around total bank expenses, but do you see and way forward for you where this segment efficiency ratio can improve without said the net interest margin turning around.
Well I think Rob touched on our outlook for for NIM.
And we set of issues as we signaled is a basis point or two per quarter into 2021.
Operating leverage just sort of picking up and Rob's comments is really going to be a back half of the year of mid year story and.
Couple of other things specific to our business that just building on and on beyond rates and Rod talked about.
Things like.
The interchange impact as we get into the second second half of next year and that card services. Other income line that would be fully into our run rate.
And things right now in terms of.
We waived certain fees. We've we've provided interest rate relief on credit cards that are still you know will take us into 2021 that will be fully rolled off rolled off the business.
And the back half of 2021 so.
And then could cost we don't see the same type of.
Occupancy cost, we need to invest and things like plexiglass and those sorts of things. So the back half of next year we.
We do see the opportunity for positive operating and operating leverage and that's when you'll start to see the efficiency gains start to come.
Thanks.
Okay, I think weve answered all the questions.
And the Q. So I just wanted to thank everybody for for attending today and maybe just to summarize what we would like you to take away from the Q and a and our speeches and the themes today number one significant client momentum across all our businesses you looked at the market share gains and the retail bank, so really strong capital markets trading and investment banking performance of.
Standing flows and the wealth franchise and.
And growth in any way growth and when you look at that client momentum as we exit into a more normalized year that will continue to grow. So we feel very good at the same time, you look at no almost record low stage three losses.
We are growing our franchise, we are growing our balance sheet, we're managing risks exceptionally well it positions us very well and then normalize world to continue to put our balance sheet to work.
So I would say our risk management capability, the quality of our client franchise and Graham work. So I think you should take comfort. We're growing this franchise of their premium level, we're delivering a premier MRO, we were managing our risks and a premium fashion. We've got a premium C. One ratio and gives us enormous strategic flexibility to accelerate out of this and.
I feel very good and condition. In addition to that of technology investments and heard Rod talk about our focus on cost control and keeping a low single digit those are all leavers with momentum that create shareholder value at a premium are always so I think we feel very good and I think thats. The story that we wanted to tell today and thank you for your questions.
Have a great holiday season, and then we'll certainly talk to and in New York.
Thank you everyone and the conference has now ended and sees disconnect your lines and this time and we thank you for your participation.
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