Q4 2020 Royal Bank of Canada Earnings Call
Good morning, ladies and gentleman one of could be to RBC conference call for the fourth quarter of 2020 financial results.
Please be advised that this call is being recorded.
The only during the meeting over to not be on head of Investor Relations.
Oh go ahead ms. on.
Thank you and good morning, everyone speaking today will be day, Mci, President and Chief Executive Officer Rod.
Bolger, Chief Financial Officer, and Graham Hepworth, Chief Credit Officer, then we'll open the call for questions also joining us today are Neil Mclaughlin group had first on commercial banking, Doug Guzman group head wealth management insurance and I in Seattle, 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, because they're supposed to be useful in assessing underlying business performance.
Give everyone a chance to ask the question, yes. The you limit your questions and then re queue with that I'll turn it over to Dave.
Thanks, the Dean and good morning, everyone and thank you for joining us today.
I'll start with some context on the fourth quarter.
And then provide my thoughts on the macro backdrop and how we are positioned heading into 2021.
Today, we reported fourth quarter earnings of $3.2 billion, driven by continued strength in our leading Canadian banking.
Capital markets and the wealth management business.
Despite the significant impact from near zero interest rate on the challenging operating environment brought on by the COVID-19 pandemic earnings per share of were up 2% year over year.
We benefited from strength in trading and underwriting revenue in capital markets strong fee based revenue growth on our wealth management businesses and double digit volume growth in 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, yeah.
Economy has rebounded well to date the given the emergence of the second the wave of COVID-19 in the core markets.
We expect the economic broke the slip over the next couple of quarters on project Canadian economic growth and 2020 down over 5%.
However, we project GDP growth to rebound for to 5% in 2021.
The pace of economic recovery still remains contingent on the on certain trajectory of the depend on it.
We received the positive news on the development of a series of vaccines much uncertainty remains on the timing and execution of the rollout of the 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 are provided the appliance today.
We're 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 RBC is part of the we'll 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 are making payments on their loans. Some of the experience further difficulties with the effects of the second wave and Graham will speak to this later.
Therefore, while long term interest rates of started to move higher we are operating with the belief that low short term interest rates will persist for an extended period.
Low interest rates combined with the elevated levels of monetary and fiscal stimulus for by both the buffer for individuals and businesses to manage the uncertain the year ahead.
Also provides the catalyst for growth once the health of risk had been minimized.
For all the uncertainty and volatility of the past year, the strength of liquidity of our balance sheet has remained the constant.
We ended the year with a record CP one ratio of 12.5 per cent the common equity tier one up nearly $6 billion over the past year just.
This provides the $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. This represents over 4.5 times coverage over the last 12 months write offs and the only 90 basis points coverage of loan of loans and acceptance of.
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 in dividends to our common shareholders of.
Lightly from 2019.
Despite the significant increases in capital levels, we delivered a premium Aro we of 16% in 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 on capital deployment restrictions.
One pass the higher order, we need the EPS growth will be through our continued emphasis on prudent cost control.
Our past investments in digital capabilities data and cyber in 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.
I now one of the speak to the full of your performance of our businesses.
All our core businesses reported strong client volumes driven by investments in technology or 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.
GAAP added 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.
On the full spectrum of client segments and needs.
From the Investees Robo advisor and direct investing brokerage platforms.
For our full service discretionary wealth management.
We have seen significant expansion of client relationships. The that's closer collaboration of over 65% of Canadian wealth management clients now, having a Canadian banking products and with further cross sell initiatives on 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 well the personalized plan since its launch in 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 an increased desire for more space, including in suburban areas and smaller markets a limited supply of detached homes and pent up demand of also contributed to housing activity.
We continue to gain market share.
The 750 strong mortgage specialist.
Driving more new originations and on 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.
The credit cards, our partnerships and engage membership base drove nearly a 120 billion of purchase volumes. This year. Despite the reduction in travel.
With RBC ventures, we continue to advance our strategy to differentiate the bank by creating value be on banking.
Owner for example, which provide the digital incorporation services has now supported the 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 on.
I think both scale of new product offerings, including higher margin subscription services to our existing book.
Turning to wealth management, where we generated over 2.1 billion in 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 this year concern.
Consistently outpacing industry trends and added to our leading 16% market share in Canadian retail AUM.
The strong performance of net sales was driven by our expanded advice planning capabilities, along with very strong investment performance in our funds the 70% of the U.M. outperforming the benchmark on a three year basis.
More broadly the RBC I share alliance continues to be a strong partnership GAAP.
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. We're also seeing very limited attrition rates for.
Our industry, leading recruiting efforts about of 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 the U.S. 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 U.S. by advisor count.
We also continued to see strong volume growth of city national with loans up 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 for by complete financial solutions, the high net worth and ultra high net worth clients.
Turning to our insurance segment, which generated net income of $831 million in 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 the other Canadian retail franchises and of added over 800000 clients is 2018.
Capital markets at 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 the geographic mix.
The balance sheet optimization, now well managed risk profile, which together resulted in lower than the 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 in the year ahead.
Line engagement it was exceptionally strong in our fixed income and equity desks and to further value and to further value the clients RBC capital markets launched eight and an AI based electronic trading platform, which is already traded over 2.5 billion shares of $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 continue 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.
The very active technology sector RBC acted as active joint book runner on Nuvasive IPO.
And as the 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 in the US and we'll also look the strength in senior coverage teams in key sectors.
So in conclusion, our performance in 2020 speaks for the scale strength and resilience of our diversified business model. The significant investments we've made in technology and our people or a number of years.
Despite the significant impact of coal the 19, you seamlessly mobilized 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 study.
The 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 bang 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.
The 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 I turn the segment results I will spend some time on for key topics expenses capital net interest margin and non interest income start.
Starting with the expenses, which were down 4% year over year were down 2% when excluding the impact of severance and related costs with the nine Ts last year.
This quarter highlighted the continued commitment the prudent cost management the vast majority of expenses, the the relatively flat or down from last year.
Variable compensation in the quarter was down significantly from last year largely in 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 coven 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 as Dave mentioned, we will balance investments in key growth areas, while also being laser focused on costs, including balancing project prioritization we.
We also have a number of cost containment programs already in place across our businesses.
Looking ahead to 2021, we expect the expense growth remained well controlled in line with our pre pandemic commitment the 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 added 31 basis points to a ratio of this quarter.
I will now discuss our TBA movements on slide 12 negative risk migration was partly offset by continued pay down of corporate credit facilities the levels closer of those before the onset of the pandemic.
Now the last quarter, we guided to credit migration in 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 asked me the transitional capital modifications, which is expected to impact our CG 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.
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 the elevated liquidity levels continue to decline as much as to more normal levels through the balance sheet optimization and is the bank of Canada programs begin to roll off 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 on the sale of Blue based private debt business.
Our results this year share the benefits of the diversified business model with our net 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 on.
Offset lower fee based revenue in Canadian banking, which was affected by the impact of Gulf of 19th.
Moving to our business segment performance beginning on slide 15 first on 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 in addition, personal guys see balances were up mid single digits. We're also seeing strong growth in our direct investing bounces and business deposit growth was up a robust 25% the.
On the 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 remain below levels noted the March there is potential upside with sustained economic growth.
Sequential decline in card service revenue was largely related to the $35 million of one off items with underlying spending volumes also lower from last year. However, we did see an uptick in credit card balances as the economy slowly opened up in the summer.
Turn to slide 16 wealth management reported quarterly earnings of $546 million down 25% from last year.
Excluding the impact of the Bluebay 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 net.
The Navy in wealth management benefited from higher fee based client assets. This was partially offset by the impact of lower interest rates.
Total 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 for.
The strong volume growth of 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 pillows.
We also saw solid growth in our use of private client group with a way of 27 billion you asked from last year benefiting from both higher market returns and net sales.
Turning to slide 17, we discuss insurance results net income of $254 million this quarter decreased 10% from the year ago, primarily due to unfavorable annual actuarial assumption updates mainly.
Mainly related to mortality experience Theresa.
Turning to slide 18, investing Treasury services net income of $91 million increased $46 million from a year ago as the prior year include the severance and related costs associated repositioning the business. Excluding net earnings were down 29% year over year given revenue headwinds in this challenging environment. We will continue to assess the knocked on stay.
The teacher cost management initiatives in this business sort.
Turn to slide 19 capital markets reported record.
Fourth quarter earnings of $840 million. This was the fourth quarter on 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.
Sure as we continued the deepening 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.
The from the shift in 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 the $1.3 billion.
Wrapping up the strong year, where business generated revenue of over $6 billion.
Equity straight line remains strong benefiting from elevated volatility and strong client flow in 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 in commodities were offset by declining.
FX trading.
Turning to slide 20 of final thought on our three and five year medium term objectives. We met three out of the for of our stated financial objectives, while flow in 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 current 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 on the cumulative basis are 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 or 10 basis points from last quarter.
Mainly due to fewer impairments across all business segments with the 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 provision across all business segments income.
The in banking PCL on impaired loans of 169 million was down $95 million or nine basis points from last quarter as the impact of payment deferrals of government support programs kept delinquencies and impairments muted.
In couple of markets PCL impaired loans of 68 million was relatively flat to last quarter and wealth management, we had no net PCL on impaired loans. This quarter of the provision is required for new impairments were offset by recoveries on previously impaired loans.
Turning to slide 24, we maintained our allowance for credit losses at a strong $6.1 billion were 0.89% of loans of acceptances consistent with the prior quarter.
This resulted in PCL on performing loans of 147 million this quarter, which was down by 133 million from last quarter, moving or Canadian banking retail portfolios and in capital markets.
Well this quarter there were favorable changes to our forecast for host prices as well as the near term Canadian and us GDP growth equities and the risk bond yields we elected to increase the weighted toward downside scenarios by 10% given the resurgence of containment measures through the rise of Coca day team cases, the many of the regions where we operate.
Let me now comment on feeding basing lead programs starting on slide 25.
At the end of October nearly 90% of retail deferrals offered as part of our client really program of expire when.
Well, the 2% of those deferrals have become delinquent the which the third were delinquent part of the deferral being put in place the.
This has resulted in a slight uptick in early stage delinquencies from the Q3 lows.
Of the remaining 6.3 billion, an active deferrals, which represents less than 2% of our Canadian banking retail portfolio.
Over 75% are expected to roll up of December with the balance was the rolling off frameworks 2021.
Nearly all of the act of deferrals are from our residential mortgage portfolio, which includes HILA ex.
Of these active deferrals less than 2% of the balances are uninsured for the current LTV greater than 80% and.
On the majority of those balances are in Alberta, which has seen the decline in home prices over the last few years.
Well, 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 net.
The 90% of commercial and small business deferrals of also expired nearly all of our clients who had a payment due after the expiration of the deferral period have returned to performing in line with the Jolt 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 in debt service coverage is due to rising average deposit balances and declining utilization for borrowers who have taken deferrals.
35% of acts of deferrals and 41% of the active we explain the deferral population operated in a volatile sector.
Through our client outreach program, we have proactively contracted almost all of our retail and commercial clients, who requested the deferral to see how we can best support the.
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 have the negatively impact by containment measures put in effect to curb the spread of COVID-19, well others have benefited.
This exposure represents 5% of our total loans of acceptances outstanding down from 6% last quarter as utilization trends continued to decline flow.
On to 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 the retail related commercial real estate, which continues to be impacted by business closures and physical distancing measures. The king read the collections were challenging.
On the a small portion of this exposure is the smaller independent retailers and non investment grade enclosed malls, which was seen rent collections crammed down again as coordinating restrictions have returned in certain regions.
Most of this exposure has a high debt service coverage ratio of the low LTV.
The only 30% of our of older of exposure is into the consumer discretionary sector.
Retailers with limited to the online presence hotels, the continued to see low occupancy rates and recreational companies that have been forced the temporally shut down so the COVID-19 restrictions continue to be the most impacted segments of the sector.
Over a large portion of this exposure is secured.
Casual dining restaurants with no drive through or take hold auctions have also been impacted but the majority of our restaurant exposure is in the quick service segments.
20% of our volume exposure is on the oil and gas sector, which continues to be impacted by low commodity prices due impart by the right where the reduction in demand from COVID-19 limited access to capital and a weaker market for assets sales.
A large majority of exploration and production exposure benefits from a boring base loan structure. Thus.
Thus far for borrowing base redeterminations have been relatively benign supported by higher commodity prices compared to the sprint.
The 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 in place will continue to help mitigate potential loan losses.
Overall, the macroeconomic environment has proven more supportive of that originally forecast that the on sort of the pandemic.
The imports to the extent of government support programs, which resulted in better than anticipated credit performance. This year.
We're roughly though the emergence of the second wave of depending on mix has led to the reintroduction of restrictions, which will negatively impact the economic recovery.
We believe the economic impact of the second wave will be less severe than the first wave given the narrower and more targeted restrictions of it introduced a better understanding of the virus, which has led the 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 the vaccine.
As well as renewed pressure on vulnerable sectors due to the newly imposed restrictions.
These are all factors, which resulted in us putting greater weight on the 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 price as the claiming by 8% and remaining depressed until late 2023. So.
The scenario were to play out we could see or is the on performing loans increased by approximately 2%.
As we look forward into 2021, we expect to see an increase in delinquencies and impairments over the coming quarters, particularly on are vulnerable sectors that 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've done since the onset of this pandemic, we will work with our clients to help them continue to navigate through these on charted times with that operator, let's open the lines for Q on it.
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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 who book.
Slide on as we think about the on the outlook for PC as it sounds like you and your peers just listening to the banks yesterday have accounted for the migration, we expect to see next share so.
So when we think about the PC allows for milk is it safe to assume the can you go back and clinically anyone to the 25 30 day its pcls that the use really use for pre coded.
If you can speak to just in terms of.
What your expectations on on the shift to in paid losses of performing and how soon could we see is of the needs of that you may 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 talk a bit of both for the third fees and then what that means overall.
For the Lucas' remarks, but 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 the second wave that we're facing now that will have an impact it will have an impact on our multiple sectors as well, we've seen deferrals rolling off and delinquency starting to increase on the back end of that on the government support will overtime normalize and the.
The things come together, we do see a world where we're delinquencies in the US impairments will start to increase through 2021 on 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.
Ill say sale there certainly we have built our provisions up through 2020 at 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 boats or stage one into allowances on first.
First and foremost.
The incurrence of stage three of the incurrence of impaired loans will be of the the biggest factor in driving how we think of both of these one into phase one and two is really there to to address what we expect in the future and as the future actually manifests on.
We'd expect that to kind of drive or considerations under stage, one and two.
But the other considerations that will go in there that will drive it is whether our fourth the us change 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.
Moving from the one area that I would say is materially better than what we had kind of started out with on.
But the you know as we've worked through the vulnerable sectors and considered some of the kind of key risks there on particularly those commercial book.
Those are the areas that we worry of owed and so it would be balancing all of those things as we think through 2021 on but there is such a high degree of uncertainty as to how that plays out I think were somewhat reluctant to put a real pit on the 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.
The for Rod wanted to talk with the capital ratio of 12, and a half percentage and non asking the usual what are the what are the uses for capital for US I think we all know that but I mean, if were going on war cat.
Coming out of 2021 on hopefully when we're on 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. The is it kind of go up is it going to go down and what would you be comfortable with when the Everything's all said and done.
I'll start.
Got it and then I'll, let rod.
Chime in.
Certainly as we think of a more normalized the world where the buffers are restored to where our regulators want them and we are able to start to Leverages capital as you said into shareholder value accretion, whether its buybacks or growth for or.
Whatever.
As the shareholder value. So as we think through kind of where that normalized level as we go back to where we were.
Of largely pre pandemic will yield the 10, seven and 511% roughly.
If things don't change from a regulatory perspective, we would view that as kind of where we'd like to throw run the bank and therefore, the capital of surplus to that in a more normalized world, we'd like to create shareholder value.
Yes, the sales the other element I would I would.
Prime on is obviously, we were restricted from increasing the dividend and share buybacks and that makes sense given the 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 net 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 the $6.3 billion.
As a strength and a fortress balance sheet and as we've seen the losses come through in this pandemic of 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.
On this might not be a fair on but I look at the 14 basis points loss rates in Canadian banking the lowest of this over.
Ben.
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 the beta at all like if you were just going by your on your models of the so from.
Would you be income.
Releasing reserves at this point or do you see that of the of the.
Scenario that the risks.
Correct.
The Thanksgiving EBIT.
Let's turn to the Canadian banking, certainly we see the see the the level of provision the stage three level provision this quarter of being very muted on as I said in the huge part due to the the deferral program that we've put in place to support for clients and certainly the byproduct of the strong government support the credit in the marketplace supporting the clients and if anything we see that the close the K.
Really the decline in in a in the impaired loan formations. This quarter. The that's really driving that for this is the lot of both the.
Not a lot of both the.
With the recoveries of reversals of in right for.
So the that's driving the added in the asking what it would have otherwise the elsewhere in the I would we'll look at fueling the is kind of what is our normalized stage three PCL and that would be the cleantech you could kind of consider it in if you will on because we haven't really seen the impact of the pandemic flow through to this point on it.
Additionally, I think it really is reflective of I think the very strong client base, we drive Acadian banking, we very much focus on the prime and Super Bowl on client base there on that so.
We do have the high quality point of this which isn't to say that the quite this won't be impacted at all on the pandemic, but it does I think position us on a very strong place to go through this.
And then the other question around the thinking around stage will into I mean, again I kind of go back to.
My earlier comments here.
This quarter again, we had income.
Moving on our forecast around each pie of some modest improvements in other areas. So that would be a positive from the celesio perspective on me.
It get more concerned about the sort of the the likelihood of the of.
For the second wave and we're certainly seeing that manifest itself and so those were kind of competing impacts of that would lead to the offset each other and then management's discussion comes any of the view comes in here as well and we go through the analysis looking at kind of the forward forecast, how we think the government support will eventually roll off.
And of those all come into play to force the spot where we.
Took a lot of.
An increase of the overall performing AC all we really took the bulk of that back in Q2 on when we book up or belt isn't really what we've seen in Q3 and Q4 are some adjusted to that as we kind of work through with the the information but haven't really on.
Head of change our view materially certainly things like the vaccine is important new information out there that some delayed over the last couple of weeks a day.
Of that needed to net theres still a lot of on billing information there as to how that's going to impact the economic recovery and that will be something we'll be thinking through carefully in Q1 on hopefully we'll have a bit of a line of sight as to what that means.
But those are all kind of factor that kind of led us into our thinking for Q4 this year.
Yes, I guess sort of for all trying to figure out.
On what these ratios look like when all the.
Support programs roll off from.
Everybody the story so.
Thanks.
Thanks, Good growth ex the next question.
Thank you for our next question is from many Roman with Scotia Bank. Please go ahead.
Hi, Good morning, just turning back to the buybacks.
I understand I also 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 there a valid argument for that in your view.
I think many of you listen to all our commentary around some of the uncertainty of the next six to nine months and the timing of this and the impact on our clients on notwithstanding there is extended government support. So we're trying to evaluate all of that and I think.
We've as you've seen we focused on growth and client areas, where we're sure footed, particularly mortgage growth.
That's where we really understand the client base for a while is largely gone.
Growth through an existing client. So if we were sitting here today, saying would you.
Take back capital if you could I think it's a little premature I think we want to see a more stable recovery want to see a more stable unemployment rates and I think caution still should should rule. The day. So I wouldnt push the trick for later right now, but as things progress as we start to see more stability in inquiry.
On a normalized world then it would be a couple of goods.
I think thats. The way you have to look out of there is still uncertain sales there and we're going to be prudent on how we manage the bank.
And just a follow up on that.
The hearing from other management teams on anything maybe it's the consensus at the second wave.
It is less damaging the current log on the is going to be less damaging from an economic point of view than than the first way people are getting used to items net.
Work around you.
Yes on cautious the sort of would you share that view or or how would you look at the.
The next year in terms of on the second round of locks on.
Absolutely I think we've learned a lot and it was in 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 lost the there's still 600000 unemployed. So that's the big step for many of the remaining 603.
2000 are in that I'm, a narrower segment of the service industry. So absolutely the second wave.
In addition, bolstered by extends the government support will be will have less impact than the first flavor. We're just taking a cautious approach having said that you've seen some very significant volume growth in client growth across all our businesses from capital markets two of the wealth franchise for the Canadian banking on franchise, that's really strong growth that you're seeing.
Lending products and deposit products. So that we are operating very effectively and we're still with the conservative risk profile and you can see that manifest itself centerstates three losses thing.
I think the previous analyst comments those are very low loan losses, yet, we're continuing to grow our balance sheet and our franchise and the talks to our client base on our and our risk posture.
We're good at the so I think net net we're finding a way to grow this franchise.
To create long term value, while managing in an uncertain environment.
Thanks, a lot of.
Okay.
Thank you. Our next question is from Scott Chen with Canaccord Genuity. Please go.
Hello.
Good morning, Rod I wanted to go back to your comments on that just wanted to make sure on current rate I think you talked about that you believe or you're targeting that the bank could get back to enter the growth in fiscal Q3 21.
On the Canadian and Usfive I guess, one is that did I hear that correctly.
And maybe kind of talk about how that intertwines with your comments on 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 on the net interest income on 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 in 2021, youre going to EBIT for the half the quarter last year.
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 then if I could take one more for you ride the I've just on the cost side came and while this quarter on if I look at fiscal 2020.
Cost structure and 5% in the the all bank level is that a good kind of metric to use next year 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 Doug Young with Janney Capital markets. Please go ahead.
Hi, Good morning, just sticking with you on the NIM side.
Like all banks net gains excluding trading on 62, it's down 45 basis points year over year on and I guess kind of the different moving pieces, but what I'd like to focus in on is the impact of that has come through the because of the amount of liquidity that you're holding and just wondering as you think for weren't so maybe the two part question like what has been the impact on.
All bank NIM, 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 the impact though.
Yes, so there's 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 of that there is 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 from certain businesses as well, but I would look at assets a few.
Two things right some of the GAAP.
Government programs are rolling off as we get in the second the 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.
The 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.
Thats going to be lower in 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 come up a bit, but theres not going to be a whole lot of upward momentum for.
From a double digit basis point perspective.
And just for a follow up and just trying to kind of let everyone get in here, we do plan and going over for a few minutes I know our speech was or longer the at the end of the year. So we will run over and try to clear the queue here. So let's move on please re queue for for a second question.
Thank you. Our next question is from Mario Mendonca with TD Securities. Please go ahead.
Good good morning, Rod probably for you.
It's fairly detailed but when I look at your other income there has been significant volatility in the other line.
And I wouldn't really be so focused on.
Okay.
Mario we launched last year.
And maybe the operator, we'll go to the next question.
Are we going from here at this time.
Okay. Thank you.
Got you that our share me now yes on hear me now.
Yes.
For the.
Right I want to go to do sort of a net picky question here.
The income.
In there is there is a fairly significant there's a lot of volatility in net other income line. This this year a lot more of the from the past normally wouldn't care. So much but the number is fairly large and the can have a pretty significant swing in other income from quarter to quarter could you talk a little bit about what's caused the all the volatility in the other line this year.
And maybe specifically this quarter.
Yeah sure and.
A lot of this unfortunately as accounting and maybe we should put of put some information in the kind of help help but find the key to that because well one thing is year over year, you had the Blue Bay gain in there last year, which was a $151 million right. So that was of a onetime event in Q4 19, but then on a recurring basis you have it.
We have three real drivers you have the wealth accumulation program in us wealth management, where that expense moves up and down as as what our employees have invested in moves up and down but we hedge 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 comes through.
For 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 in capital markets goes through this line item on the one side and trading on the other side and then the third element in some of the some of the.
Funding that we do across currencies and globally through our eye in Ts, our funding and liquidity platform again, you are getting some some revenue here and then 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 onetime 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 theres really no economic decreased.
You saw on that line item.
So maybe just a little bit of help there and understand the offsets would probably get me all the way there. Thank you. Thanks.
Thanks Marissa.
Next question.
Our next question is from Sohrab Movahedi with BMO capital markets. Please go ahead.
Thanks question for Neil obviously.
Obviously, good the mortgage volume growth can you give us the sense of how.
Mortgage spreads are on the new business.
Versus the old the business out of the that's rolling off line my understanding is mortgage spreads are higher.
I'm, just trying to kind of circle of the square on line.
Continue to feel of this margin pressure on Canadian bank. Thanks.
Yeah. Thanks for the thanks for the question I think Rob touched on overall the the biggest driver is really around interest rates that Rob touched on the 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 the growth.
Lastly 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 the new business coming on how the spreads on that compares with the business that is rolling off if you will of getting renewed.
It will change month to month, but it's it's relatively relatively even.
Thank you.
Thank you for our next question is from the Mark for Saad with Cormark Securities. Please go ahead.
Thanks, just continue on Scotts question on expenses. It seems like there could be a lot of puts and takes into 2021. So presumably some of the covert related expense growth can become a tailwind and if we're heading in the right direction towards a more normal operating environment than some of the traveling on business investment related cost for you could come back on all in I guess could you.
Talk about what are the bigger puts and takes that go into the expense outlook for 2021, and then finally do you think positive operating leverage would be somewhat attainable for 2021. Thanks.
Thanks for my Dad's Rod I'll take that so on the on the expenses there will be a natural uptick for us on a few items.
As we've mentioned we've been investing in technology and we've been growing all of that spend over the last few years. The accounting requires you to capitalize on amortize that sort of the spend that we've been building over the last few years continues to have a little bit of the headwind. There as you amortize that that's cash debt was spent in recent years, but that will impact us going forward I think.
The 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 on that might be a headwind. We also added some FTC mostly on the front line this year.
And as those.
Head count are with us for the full year, there's some natural uptakes. There. So you do have some natural inflation there, but you also have our efficiency programs that we've been working through which is why I was able to guide to two at an overall increase apps and some of the variable compensation nuances on.
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, its important look at it by business because business mix the such a big part of the because the margins are so different but again, it's going to be the second half of the year, it's going to be hell of twos to have for the year second half of the are you going to see better operating leverage first half.
For the year is going to be a tougher operating leverage environment because of interest rates.
Hi, Thanks again.
Sorry go ahead, we'll have we'll re queue then thanks.
Thank you for your next question is from Mike Weinstein of Vic with Credit Suisse. Please go ahead.
Hi, Good morning, a question for Neil I wanted to go back to your mortgage growth and specifically the market share gains you've been seeing which clearly have been very strong.
For quite some time now from what I'm wondering is what's your outlook going forward and have you reached the 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 not.
I'm not sure how much pricing goes into that.
As a driver into that mix, but if you can comment on what what you sort of the for C. Going forward there will be helpful.
Sure. Thanks for the question 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.
One competitors I don't think had the sort of the distribution scale. Obviously, the we expect all of our competitors to come back hard on us.
We've consistently I guess really sort of two factors one we've consistently grown our distribution capabilities. So we're you know we're looking for quality mortgage specialist we set of really high bar.
We don't you know sort of step up and then staff down we're sort of mix always sort of growing that sales force and we have over 1700 mortgaged 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 in and the market share is we talked about this a couple of times over the last year Weve.
Really gone through an opt in felt weve optimize each part of that business. So from regeneration lead conversion, how we get through adjudication rates through the 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 on.
That and then I think good good representation with our sales capability on the markets that are really growing in Ontario, BC on Quebec, where you're seeing the largest growth. So that's what I really think as the sort of the the fundamentals of our success.
I wouldn't say, we're going to continue to see this growth rate you know Rod had mentioned or you think 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 of 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 Frank.
Minted 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.
Okay. Thanks for that.
And you heard the previous question the margins have been stable, which is the.
No.
Best Mark on the.
The next question please.
Thank you. Our next question is from Paul Holden with CNBC. Please go ahead.
Thanks, Thanks for taking my question.
So part of your message loud and clear on being conservative for the next six.
Nine months or so.
Yes on lower risk opportunities.
Wondering how you think about the pivot and post the world, which eventually will see.
Do you think you need to pivot to different areas of growth when that happens and what might be those areas of growth could you compare the two.
Well I think if you look at the solid growth we've exhibited across all the businesses on market share gains in wealth management of market share gains.
In capital markets and in 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 defense of physician and I'm, putting any business on the books were serving our customers very well I think with the.
Our investment in technology has allowed us to cross sell and retain clients to a greater rate and I think thats driving our growth. So you are when you see mortgage retention rates that the historically high levels. They are its from the read 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 the the posture. So as we come out of this you're going to see some of the contributions to our net income growth from.
On businesses that are that of had a hard time to share our credit card business payments sales balances are down the as you can see almost $2 billion card activity has been pretty stable, but our clients aren't revolving aren't using the product for the same way of that business can rebound you seen the significant impact interest rates of had on our wells.
The franchise on 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 the 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're not going to go into a big risk on physician, we we managed through cycles, it's really.
How are clients interact with us on what their needs are and we certainly will see or our business clients in our commercial clients and capital markets clients go on to the front foot more on that should drive M&A mandates that should drive underwriting activity DCM.
And so those activity levels were really well positioned for we've invested in this franchise as you can see our.
As Rob referenced our front line numbers of gone up we're we're positioning ourselves to emerge with ex an accelerated momentum at the end of the year by investing in capabilities investing and stuff. So that's what we're signaling share.
Shifting to the front foot getting ready for for more client demand in the investing in client value and technology. So we feel very good about where we are today on momentum and our relative position to capture further growth coming out of this.
Got it thank you.
Now, we'll take the we'll try to clear the Q, we've got a few more questions.
Thank you. Our next question is from Ebrahim Poonawala with the Bank of America Christians regime. Please go ahead.
Hi, Thanks for taking my question the again.
Just to follow up on gave on capital allocation completely get debt you want to the income.
More cautious in the near term.
But as you look out coming they can you have the stock which is probably one of the best value exco exceeding cost of two times price to book.
Give us a sense of how you think about buybacks versus M&A and again, I guess, you kind of for who without brick and mortar tights franchises in terms of M&A, but at the is it fair for shed. We're just we expect you to be a little bit more creative when it comes the capital allocation and looking beyond buybacks, if and when we get to that stage.
We're always looking for opportunity to to grow shareholder value, we've kind of signal to you. The parameters that we're looking at if the wood, we would make an acquisition and and the the shareholder returns on 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 of yours.
Seeing double digit growth across our businesses and that's from the investments. We've made so we're going to use capital of that's the highest ROI.
You've seen us deliver 16% ROI on Q4 was out of 12.5% Cetone ratio. It tells you now the focus we have on driving shareholder value, but absolutely. We are looking to scale, the United States and we've got a significant of franchise momentum there and we continue to look for opportunities to have a cultural fit has to the alive. The.
Drive the right synergies, we have to be confident that synergy journey, but it's not like we're sitting back and not doing anything we're looking for thinking. So if there is an opportunity that presents itself that the check the boxes, we will absolutely use that debt.
Surplus capital.
The two to execute a growth trajectory. We're just very conscious of the trade offs that we have organic growth first and.
We expect the continued to meet our organic growth.
The 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 the Roger do you want to jump in the I'll just provide two two data points side you ran that might help one is we're 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 the key driver of shareholder value at 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 Dave cited.
Those are those are other considerations the huge factor in.
Thanks for the question.
Okay.
Well again, we have a couple of more.
I have a few minutes ago here. Thank you. Our next question is from some of them all the heady with BMO capital markets. Please go ahead.
Yes, Thanks again for affording me the re queue as well Neil back to you just want to get a sense of fair given the margin assets that you have for the segment.
And I know there has been a good amount of discussion around total bank expenses, but do you see that way forward for you where the segment efficiency ratio can improve without said the net interest margin turning the rent.
Well I think Rob touched on our outlook for for NIM.
At least as we signaled is a basis point or two per quarter into 2021.
Operating leverage just sort of picking up on Rob's comments is really going to be a back half of the year of mid year story the.
Couple of the things specific to our business that just building on the on beyond rates that Rob talked about the.
Things like on.
The interchange impact as we get into the second half second half of next year on that card services. Other income line that would be fully into our run rate.
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.
In the back half of 2021 so.
And then corporate costs, we don't see the same type of.
Occupancy costs, we need to invest in things like plexiglass and those sorts of things. So the back half of next year you know we.
We do see the opportunity for positive operating on operating leverage on that's when you'll start to see the efficiency gains start to come.
Thanks.
Yes.
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 the takeaway from the queuing day in or speeches on 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 investment banking performance of.
Standing flows and the wealth franchise.
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'll look at almost record low stage three losses.
We're growing our franchise, we are growing our balance sheet, we're managing risks exceptionally well it positions us very well and the normalized world to continue to put our balance sheet to work.
So I would say our risk management capability the quality of our client franchise that groundwork. So I think you should take comfort. We're growing this franchise of the premium level, we're delivering a premier MRO, we were managing our risk in the premium fashion Weve got premium seats, you one ratio it gives us enormous strategic flexibility to accelerate out of this on.
I feel very good condition. In addition to the on the technology investments you heard Ron talked about our focus on cost control and keeping the low single digits. Those are all leavers with momentum that create shareholder value at a premium are always so I think we feel very good I think thats. The the story that we wanted to tell today and thank you for your questions have.
Have a great holiday season, then we'll certainly talk on the new year.
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