Q3 2022 Royal Bank of Canada Earnings Call
All participants please standby your conference is ready to begin.
Good morning, ladies and gentlemen, welcome to Rbc's conference call for the third quarter 2022 financial results. Please be advised that this call is being recorded I would now like to turn the meeting over to assume inland head of Investor Relations. Please go ahead.
Thank you and good morning, everyone speaking today will be Dave Mckay, President and Chief Executive Officer, <unk>, Chief Financial Officer, and Graeme Hepworth Chief Risk Officer also joining us today for your question, Neil Mclaughlin Group head personal and commercial banking, Doug Guzman group head wealth management insurance and <unk>.
Yes, and Derek Nelga group had capital market.
As noted on slide one our comments may contain forward looking statements, which involve assumptions and have inherent risks and uncertainties.
Actual results could differ materially.
I'd also remind listeners that the bank assesses this performance on a reported and adjusted basis and considers both to be useful in assessing underlying business performance.
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.
Thank you Austin and good morning, everyone. Thank you for joining us today.
Today, we reported earnings of $3 $6 billion, a solid quarter driven by continued strength in our personal and commercial banking businesses.
Both Canada and the U S, where we benefited from double digit volume growth and strong tailwind from rising interest rates.
Our market sensitive businesses reported a challenging set of results against the backdrop of one of the toughest environments for financial markets.
This was underpinned by increased uncertainty heightened volatility lower asset valuations and widening credit spreads impacting client sentiment and activity.
Vince growth was relatively flat from last year as a built in hedge of lower variable compensation offset higher spend as we continued to invest in the client experience.
Our results also included a prudent reserve build given the range of potential macroeconomic outcomes.
Including the likelihood of a recession across North America.
While we closely monitor early warning indicators, both gross impaired loans and PCL on impaired loans remain low as our clients continue to demonstrate resilience despite rising costs.
Well now offer my thoughts on the operating environment to provide context for our results this quarter.
The macro environment remains uncertain.
Characterized by a number of challenges headlined by persistently high inflation.
Supply chain constraints are being exacerbated by rising geopolitical tension.
Covid related tail risks and Asia tight labor markets and more recently droughts related to climate change.
While inflationary pressures appear to be peaking we expect aggressive monetary policy to continue.
Central banks try to rein in demand driven inflation by raising borrowing costs.
Pushes us even closer towards the end of an economic cycle.
These factors alone are not likely to drive a severe downturn.
That would also require higher unemployment and we believe the current strong.
Job market is a differentiating factor relative to the beginning of prior downturns.
Although there is high leverage in the system. Our clients are entering this cycle was stronger liquidity than in prior ones, including healthy corporate balance sheets and increased personal savings across FICO bands in Canada.
Consumer spending also remains robust.
Despite the complicated macroeconomic backdrop.
Operating from a position of strength across our capital liquidity and allowance coverage ratios I'm confident our competitive advantages will drive premium growth going forward.
Our premium return on equity was a source of strong internal capital generation and double digit growth in book value per share.
Our priorities in deploying our capital have not changed we remain focused on building on our momentum and driving accretive organic growth, which I'll speak to a little later.
As part of our commitment to delivering long term value for our shareholders. We bought back over 10 million shares while paying $1 8 billion of dividends this quarter.
We remain well positioned to execute on key strategic priorities the acquisitions should they meet our strategic and financial requirements and we're looking forward to working with our new colleagues. Following the anticipated close of Brewin Dolphin acquisitions later this year.
Finally, we're comfortable with operating at a higher capital ratio at this point in the cycle. We believe this is the prudent thing to do given the uncertain environment.
Our liquidity coverage ratio provides a 66 billion buffer over the regulatory minimum and we expect to continue to fund the majority of our organic loan growth in our personal and commercial banking businesses through our large client deposit base.
I will now speak to trends, we're seeing across our largest segments, including the benefit from higher rates.
Canadian banking, we saw double digit year over year growth across mortgages commercial lending and credit cards with deposits up 9%.
Higher interest rates provided a 2200 $25 million benefit to year over year revenue growth, partly due to the strength of our core deposit franchise.
Our strong market share in this key product provides us with a strategic advantage to deepen our client relationships and built a strong base to profitably grow our loan book.
We feel good about the stickiness of these deposits given our client value proposition led by our market, leading RBC vantage offering.
Average retail deposit balances are approximately 30% higher than pre pandemic levels and remains stable across all risk tiers with the exception of our Super Prime group, which have moved cash into higher yielding offerings.
The dynamics of our mortgage business were also strong this quarter with acquisition volume is still higher than pre pandemic levels, and we expect mortgage growth to slow over the coming quarters, given the decline in housing activity and prices and a return to a more balanced sales to listing ratio.
Notwithstanding macro factors mortgage profitability should be supported by deepening client relationships around this anchor product in a variable mortgage specialist cost base.
Commercial loan growth was broad based this quarter, including in manufacturing logistics and business services, along with a recovery in auto for financing.
While commercial clients remained concerned about labor shortages and the cost of capital Youre seeing confidence start to tick higher with revolver utilization rates also starting to recover.
Growth in credit card balances continued to be underpinned by trans actors as our clients continue their discretionary spend at a healthy pace with total spending 30% above pre pandemic levels. We have also started to see solid growth in revolver balances in recent quarters.
And over time, we expect upside growth from card revolver rates and commercial utilization rates recovering towards pre pandemic levels.
As the largest bank in Canada, we often ask ourselves how does the market leader grow.
And we believe the most profitable Avenue of growth is to organically add new clients by providing differentiated value propositions through our leading distribution channels, including our growing sales force.
This quarter, we are adding to our growth engine by further expanding the client acquisition funnel.
With immigration levels expected to rise to record levels, We've announced the collaboration agreement with IC, ICI Bank, Canada, which attracts a substantial proportion of new comer population from South Asia into Canada as.
As part of our agreement IC ICI Bank, Canada will refer all newcomer clients to RBC over time, making it easier for them to open a bank account upon arrival.
But his partnership we will offer longer term value to these clients by deepening our relationships through our leading mortgage investments and credit card businesses.
Additionally, we will soon launch Abbvie on rewards this as the next generation of value proposition for our proprietary loyalty program re imagining it as an end to end commerce experience to drive further client engagement.
Ivy on rewards will deliver everything Canadians have grown to appreciate about our market leading program with a new shopping companion called Avalon shop plus.
Seamlessly integrating offers product searches price alerts and the ability to pay with points. We have an exciting pipeline of innovations that will continue to attract new clients and consolidate relationships.
Turning to wealth management, the diversity of our portfolio and the quality of our advice continue to be strengths in these volatile markets.
This quarter highlighted the balance across our various businesses within our wealth management segment.
<unk> <unk> from higher interest rates in the U S and Canadian businesses more than offset the impact of lower markets.
On fee based revenue streams.
Despite market volatility Canadian wealth management also benefited from net new assets in the quarter as well as over the last 12 months.
Speaks to the holistic nature of our wealth management solutions and the strength of our client advisory relationships.
Earlier this quarter RBC Dominion Securities ranked highest amongst Canadian bank owned investment brokerage firms for the 16th year in a row. According to the investment executive brokerage report cards.
Moving to RBC global asset management.
Our assets under management have a more balanced mix of equities and fixed income relative to a more traditional 60 40 allocation. The decline in AUM was largely driven by the somewhat unusual occurrence of North American equities and bond valuation selling off at the same time, largely driven by rising interest rates.
However, Canadian long term retail net sales remained positive over the last 12 months as our clients continue to look to us for actively managed investment strategies.
In the U S. We reported strong revenue growth and earnings growth driven by margin expansion and diversified loan growth at city national.
We're effectively leveraging our multi year investments in this business, including technology infrastructure, Treasury management, and sales capacity, including commercial and private bankers our.
Our strategy is further supported by the availability of lower cost sweep deposit balances from U S wealth management.
The results of our capital markets platform. This quarter do not reflect the strength of this premium franchise, nor the potential of its performance going forward.
<unk> were impacted by an industry wide decline in fee pools, along with a disruption in high yield in broader credit markets.
While leverage finance remains a strategically important business supporting our strategy of deepening client relationships our market share has remained steady at 3% to 4%.
It continues to be a higher ROE product, where we have generated positive revenue net of marks and every fiscal year. Since we entered this business over 10 years ago.
More broadly we continue to strategically invest in our capital markets business. This includes adding senior coverage teams in key verticals with particular focus on advisory and equity origination businesses, where we have gained market share year to date.
Although the environment sort of muted activity client dialogue remains robust underpinned by upcoming financing needs and secular trends around energy transition technology disruption and re shoring.
Our backlog remains healthy.
So conversion of this pipeline may be extended as clients remain cautious as valuations reset.
Despite difficult financial conditions, we remain committed to support the supporting our clients in managing their risk in meeting their financing needs.
In closing we have entered this period of uncertainty with momentum and from a position of strength.
<unk> by a strong capital liquidity and allowance coverage ratios.
Our leading client franchises are operating prudently and efficiently at scale and we are well positioned to take market share through the next point in this cycle.
We remain committed to delivering more value to our clients and to create long term value for our shareholders.
Let me now turn the call over to Nadeem for more details about our quarter and dean over to you. Thanks.
Thanks, Dave and good morning, everyone I will start on slide nine we reported earnings per share of $2.51. This quarter down 15% from last year, our diversified business model and balance sheet remained resilient amidst an unfavorable macroeconomic backdrop in which we increased the provisions for credit losses on performing loans.
In addition, challenging conditions across financial markets had a significant impact on our results this quarter with revenue down 5%, including the recognition of loan underwriting markdowns in capital market.
Adjusting for these markdown revenue net of PBC AE was up 2% from last year underpinned by strong volume growth and broad based benefits from higher interest rates.
Expenses were relatively flat year over year as lower variable compensation was offset by higher salaries and non compensation costs as we continue to invest in our people and technology to create more value for our clients.
Before focusing on the drivers of our earnings I will talk about our robust capital levels on slide 10.
Our CET one ratio remains strong at 13, 1% down 10 basis points from last quarter, earning.
Earnings this quarter generated 30 basis points of capital that are $1 8 billion of dividend to our common shareholders.
Our capital return strategy has driven a total payout ratio of over 80% year to date include.
Including dividend increases and the continued execution of our previously announced normal course issuer bid.
<unk> was up from last quarter, largely due to strong loan growth across Canadian banking capital markets and city National as we continued to support our clients financing needs.
This was offset by a reduction in loan underwriting commitment and a decline in market risk <unk> in capital markets as the impact of the significant volatility in Q2 2020 is no longer being reflected in our historical var period.
We would expect our CET one ratio to be around 12, 5% next quarter. Following the anticipated close of the Brewin dolphin acquisition and the continuation of share buyback.
Our strong ratios provides us flexibility in our capital deployment, leading with supporting client driven growth.
Moving to slide 11.
Net interest income was up a very strong 17% year over year arent, even higher 19% excluding trading result.
The year over year benefit from higher interest rates and volume growth was broad based across segments.
Canadian banking net interest income was up 14% underpinned by double digit volume growth and margin expansion.
Canadian banking NIM was up 15 basis points from last quarter, primarily due to higher spreads across our low beta core checking platform and GIC portfolio.
Which is seeing inflows as clients shift into higher yielding deposit products.
Going forward announced rate hikes are expected to provide incrementally higher revenue in the second year and the benefit from future rate hikes will accumulate further.
This in turn is expected to drive continued NIM expansion.
As interest rates increase deposit mix and growth will matter, even more and we believe we are well positioned given our large base of low beta core retail checking accounts.
We also expect to continue to gain market share in this key product through the widening of our client acquisition funnel and our deep client value proposition.
Wealth management net interest income increased 41% from last year due to strong volume growth and higher net interest margins at city national combined with higher deposit margins and Canadian wealth management.
Furthermore, higher interest rates drove increased revenue from U S wealth management sweep deposit.
City National is asset sensitive NIM was up 31 basis points from last quarter due to higher yields on its largely floating rate commercial loan portfolio combined with the shift in asset mix.
The increase in city National NIM. This quarter does not fully reflect the benefit from July 75 basis point increase in the fed funds rate.
Rising interest rates also drove higher client deposit revenue and investor and Treasury services.
Turning to expenses on slide 12.
Noninterest expenses were relatively flat from last year with variable compensation down 19% commensurate with the decline in market related revenue and.
<unk> expenses, excluding variable and share based compensation were up 8%.
Largest increase of these controllable costs with higher salaries, which were up 8% relative to last year.
As Dave noted, we continued to strategically invest in sales capacity across our largest businesses.
Marketing costs continue to normalize from low levels as we expand our client acquisition efforts by highlighting our growing value proposition to our existing and prospective clients.
We've also seen an upward trend in revenue related business development costs, such as travel.
As we look to meet the complex needs of our clients across our businesses.
U S wealth management expenses were up 10% year over year in U S dollars, including investments to improve the operational infrastructure supporting city National's expansion over the past six years.
Next quarter, we expect year over year expense growth across the enterprise, excluding variable on share based compensation to be lower partly due to the legal provision taken in the fourth quarter of last year.
However, given the salary inflation and strategic investments to grow the business. Our full year 2022 growth in controllable expenses will likely come in slightly higher than our prior guidance.
Moving to our segment performance beginning on slide 13.
Personal and commercial banking reported earnings of $2 billion this quarter.
Canadian banking pre provision pre tax earnings were up 15% year over year, well above strong revenue growth of 11%.
Noninterest income was up 6% from last year, largely due to increased client activity driving higher banking related fees, including higher service charges.
A significant rebound in travel bookings from pandemic lows resulted in higher foreign exchange revenue along with credit card purchase volume.
Higher card service revenue was partially offset by an uptick in travel related rewards card.
Operating leverage was a strong four 5% this quarter we.
We expect it to be even higher next quarter as the benefits from wider spreads were more than offset growth related investments.
We anticipate the full year operating leverage to be well above our historical 1% to 2% range.
Driving our full year efficiency ratio towards 40% for this fiscal year.
Turning to slide 14.
Wealth management reported earnings of $777 million revenues were up 8% year over year supported by the strong growth in net interest income discussed earlier.
In contrast, noninterest revenue was relatively flat.
Global asset management revenue decreased primarily due to mark to market seed capital losses, and lower fee based client assets largely due to unfavorable market conditions.
Canadian long term retail net redemptions were $4 billion this quarter at RBC Gam, mainly imbalance and fixed income mandates.
RBC captured a good part of the shift as clients moved to Gic's during a period of elevated market uncertainty.
The risk off sentiment also subdued client activity driving lower transactional revenue this quarter.
Turning to insurance on slide 15.
Net income of $186 million decreased 21% from last year, primarily due to the impact of new longevity reinsurance contracts in the prior year.
Agnes you did these contracts can be volatile quarter to quarter.
Turning to <unk> on slide 16.
Net income of $164 million increased $76 million from a year ago, primarily due to higher client deposit revenue and higher funding and liquidity revenue largely from increased market opportunities.
Turning to slide 17 capital markets reported earnings of $479 million.
Pre provision pretax earnings were down 52% from last year's strong results.
During the quarter widening credit spreads as well as weakening primary markets in July resulted in the recognition of $385 million of loan underwriting markdowns in an uncertain environment.
Approximately 75% of the marks are unrealized and do not yet include the benefit of fees, which are recognized upon close of the transaction.
Excluding these marks investment banking revenue was down 49% from last year relatively in line with the decline in global fee pools.
In certain backdrop impacted client activity and M&A advisory, while higher interest rates and market volatility kept issuers on the sidelines impacting our origination businesses.
Lower trading revenue was primarily driven by the impact of widening credit spreads on credit trading which is a larger part of our global markets business.
In contrast, our macro businesses performed relatively well given volatility in rates and FX markets.
Equities revenue was solid, albeit impacted by softer origination activities.
To conclude we will continue to deploy our strong balance sheet to drive client driven growth and deliver sustainable value to our shareholders.
We remain well positioned to benefit from further increases in interest rates.
Which along with our focus on expense control should drive positive operating leverage going forward with that I'll turn it over to Graeme.
Thank you <unk> and good morning, everyone.
Starting on slide 19, our gross impaired loans ratio of 25 basis points was down two basis points this quarter, reflecting a modest reduction in gross impaired loan balances and continued portfolio growth.
New formations of $458 million increased 15% quarter over quarter, but remained low at less than two thirds of pre pandemic levels.
Increase in new formations. This quarter was primarily in the wholesale loan portfolio largely attributable to a new impaired loan in the real estate and related sector.
Turning to slide 20, PCL on impaired loans of $170 million was down $4 million or one basis point this quarter.
A reduction in PCL was driven by capital markets, where we had a $13 million net reversal of provisions this quarter.
<unk> loans in the oil and gas and utility sectors.
In Canadian banking PCL was up 34 million from last quarter with modest increases in both the retail and commercial portfolios.
With expectations that we were trimming back to more normal levels of impairments and PCL.
For context, the $180 million of PCL in Canadian banking this quarter still remains well below the 2019 quarterly average of $330 million.
Moving to slide 21, we provide some further context on our allowances.
During the quarter. The economy continued to operate near full capacity driving unemployment rates down to record low levels. This.
This environment has helped sustain the low levels of gross impaired loans and PCL on impaired loans I just highlighted.
With the exceptionally strong economic conditions have exacerbated inflationary pressures pumping central banks to take action with substantial interest rate increases during recessionary concerns and increasing uncertainty around the macroeconomic outlook.
To account for this growing uncertainty we have prudently increased our provisions on performing loans by $177 million this quarter.
Which drove a $144 million increase in our allowance for credit losses on loans from $3 9 billion to $4 billion.
Last quarter, we increased both the severity and likelihood of a downside scenarios used to determine our provisions this.
This quarter the increase in reserves, primarily reflects a weaker base case credit outlook the macroeconomic forecast.
For example, we now assume the Canadian and U S economy, as we will see somewhat recession in 2023.
Korean host prices willing average decline of over 12% from their peak.
Additionally, business growth, particularly in our cards and commercial portfolios as well as the shift in our portfolio composition contributed in part to the increased allowances this quarter.
In the context of a rising interest rate environment I did want to spend some time discussing a couple of portfolio is being impacted starting with the Canadian banking residential mortgage portfolio on slide 22.
So as I highlighted last quarter, while variable rate mortgages accounted for a growing volume of our acquisitions through 2021 and 2022 district.
With strict mortgages still account for more than 65% of our portfolio.
In addition, most variable rate mortgages at RBC will not see an increase in payment until they renew will experience a relatively modest increase if rates continue to rise.
The impact of higher interest rates is primarily realized at renewal.
Overall, our mortgage portfolio and a mortgage client base were exceptionally strong.
Our Canadian banking uninsured mortgage portfolio has a current loan to value of 46% with only $17 9 billion of mortgages with a loan to value greater than 75%.
Our mortgage clients have an average FICO score of 801, and our internal payments analysis indicates that a majority of our clients will be able to absorb these anticipated increases.
So these are those core strengths, where brewers will also benefit from the flexibility that comes with a timely hub before their mortgage comes up for renewal and their payment increases.
As highlighted on slides slide only 17% of mortgage balances come up for renewal by the end of 2023.
Additionally, the vast majority of our mortgages that are the highest loan to value of bonds and have the lowest interest rates. Those that were generally originated in 2021 in early 2022 don't renew until 2025 or beyond.
This puts our clients at a strong position to deal with rising rates and declining home prices. We have experienced to date, we expect going forward.
Bruce will have time to adjust behavior and benefit from wage and income inflation to moderate the impact of higher payments, while the risks associated with our mortgage portfolio or increasing our drilling standards have been designed to ensure resilience through an economic cycle.
Turning to slide 23, you'll know to discuss a couple of markets leveraged finance business, which still that leveraged loans and high yield bonds and has also been impacted by the rising rate environment.
We continue to prudently manage both credit and market risk for this business and our leveraged lending portfolio. Our exposure represents only one 2% of our total outstanding loan portfolio down from one 5% in 2019.
At origination are leveraged loans benefit from securities and a first lien position in <unk> capital structure.
Additionally, the portfolio is very well diversified by sector and by borrower with no sector accounting for more than 17%.
On an average of extending exposure per borrower of approximately $20 million.
And our underwriting portfolio exposure is managed within a consistent risk appetite supported by well established limits.
Market risk is managed through a deal specific structure and pricing protections timely syndication and portfolio hedging William.
And what we incurred realized and unrealized losses in the underwriting portfolio this quarter, which did even noted earlier was our consistent with our risk framework and within the risk appetite we have established for this business overall.
Overall this business has a track record of drawing generating strong financial performance through market cycles.
To conclude we continue to be pleased with the ongoing performance of our portfolios. The strong economic recovery from COVID-19, and allowed us to sustain our exceptional credit performance for longer than we originally anticipated.
Leading indicators like critical delinquency rates have started to increase towards pre pandemic levels and point towards the normalization of PCL on impaired loans through 2023.
The timing and magnitude of increased credit costs will likely depend on central bank success at improving inflation, we're creating a soft landing for the economy.
Continue to proactively manage risk will be growing economic uncertainty and as I noted last quarter, we stress test our portfolios for inflation and interest rate risks and believe we are well capitalized with Stan plausible even more severe macroeconomic outcomes.
With that operator, let's open the lines for Q&A.
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Our first question is from Ebrahim <unk> with Bank of America. Please go ahead.
Hey, good morning I.
I guess just.
Big Picture question, Dave going back to some of the comments you made on the call earlier macro environment remains uncertain and I think you mentioned.
Closer to the end of the economic cycle, but at the same time it sounds like underlying business momentum consumer commercial remained solid.
As a perspective in terms of your downside scenario and how quickly things could get materially worse than when things are today and what that move in terms of just implications of a deceleration in growth trends and the steps that we should expect in terms of credit quality photo level. Thank you.
Maybe I'll turn it to Graham the second part of that because we stress our portfolios against a number of different scenarios. Thank you for the question. So I think.
The operating word has uncertainty in it.
From the investment community to the CEO of community to the governments all stakeholders in our economy are struggling to read all of these forces at play at once right now and I think so uncertainty is the operating word and agility and stability are important construct and I think as we deal with that uncertainty we are dealing with very very strong CET one ratio.
Strong provisioning.
With strong funding capability, and therefore that strength gives us enormous flexibility to deal with the uncertainty I can't honestly sit here and predict how things are kind of play out no. One can markets cat. That's why markets are volatile right. Now. This is this is new territory that we're trading in the aggressive monetary tightening and quick tightening they.
Have to drive demand down.
That's the only way, we're going to get control.
Of inflation and therefore my comments you expect to continue to see aggressive monetary tightening until we bring inflation back closer to the targeted inflation ranges, maybe slightly above and that's why we're calling for.
And a number of areas, including the RBC economics, calling for rates to rise above potentially the net neutral rate in the short term.
So aggressive demand you've seen that affect mortgages in the asset class already in North America and other markets you see a slowing down of demand and resale activity and markets Youre seeing a little bit of a slowing that's.
That's masked by inflation, but you're seeing a little bit of a slowing quarter over quarter and some of the year over year card purchase activity levels now.
Inflation keeps driving that into double digit levels at.
It remains above pre pandemic levels and some of that recovery will be muted so youre starting to see the impacts of demand <unk>.
Suppression from monetary tightening and we're going to watch that closely but we still have significant.
I think cushions to that the strong balance sheets over of our corporates, which have produced very low delinquency and impairment rates as we go through this.
The significant cash flow and what's different between Canada and the U S is that the surplus cash in the U S is concentrated in the top quintile or top two quintiles in Canada.
All the measurement and analysis, we do it's much more evenly spread because how Canadian governments distributed.
Serve and other payments across.
The 2020 into 2021, and how long it went we see much broader based savings across the FICO bands as we talked about in the process of Quintiles in Canada, which again provide a shock absorber to inflation and provide a shock absorber to any potential job loss that comes at us from higher demand as you are starting to see.
<unk> technology sector creeping into other sectors lay off employees.
You read it every second day in the paper, so youre starting to see more and more signals of an end of cycle approach that that Biggs Prudence, which is why we took an incremental provision this quarter on performing loans, despite our impaired loans decreasing despite having very strong stage III, we thought it prudent along with our very.
Strong capital levels to take incremental so it's all part of trying to balance the uncertainty ebrahim to continue to look for opportunities for quality growth, but to play cautious with our balance sheet.
And be able to absorb any uncertainty of a more rapid economic.
<unk> cycled to your point, so hopefully that helps.
Playing off that uncertainty and I think what you get in the <unk> balance sheet and provisioning and franchise is the ability to absorb all those outcomes.
That has been just one quick follow up if I may do you think the market's really concerned about just the elevated level of affiliates and what that means for mortgages fee pricing even accident.
So.
Maine, where they are for an extended period of time.
Are you about the just the health of the consumer today versus at any point in the last decade. Thank you.
As an important question and maybe I'll go to Neil because we have done a lot of analysis and have a lot of data on that yeah. Thanks, Dave I'll start and then Graham wants to add anything so ebrahim. Thanks for the question. We've spent a lot of time kind of breaking down, particularly the mortgage book just to look at the topic of renewal risk and looking at particularly.
Particularly mortgage customers whats the rate the contract rate. They have now when does it come up for renewal and what would be expected delta be given.
Our view on where rates will be when that renewal comes up.
A couple of things that obviously are sort of our first look at the risk is taking down the insured versus uninsured.
A portion of the book and then we've granted made a mention of a proprietary.
Turnover view on capacity as we have done a lot of modeling around looking at our customers' cash flows that touch on where Dave started with the strong deposit franchise. There is also a value in that data, where we can see their capacity their ability to absorb that those incremental interest costs, when we break that down and we overlay.
Those factors really the next couple of years to grant the point grants made in the speeches, we don't see much risk at all very very small pockets of concern.
For the remainder of this year throughout next year and really the segment. We get into is the Graham had mentioned is the customers who had the lowest the lowest rates in the highest health home prices and at least the last part which is looking at are currently calculated LTV and the last piece, we overlay and we bring that all together, we really sort of lag.
Is it on the spot, which is we'll continue to monitor it but we don't see much risk in the mortgage book at all until we get out to that 25% and 26 cohorts and when they renewal and then at that point they'll have wage inflation and should have more capacity and we'll continue to work with those clients. So that would be the view on the on the mortgage book when we look at other consumer credit.
We're still in a position, where we see we see high liquidity and consumer accounts growth is slowing as you look at things like the checking account, where we've seen a lot of liquidity pushed into.
GIC book, we've had about over $10 billion have been pushed into the GIC book. So that's cash on the sidelines that provides additional cushion for those customers and we're starting from a very low point of delinquencies and credit losses to <unk> point. So we're starting from a good point.
We do a lot of work to look at the stresses, but we have playbooks.
That we will enact that if we get into a downturn to manage the credit profile, but maybe I'll end it there and asset Graham. So I don't have a luxury I think Dave and you will capture a lot of the really critical points here, which is.
There's a tremendous amount of uncertainty going forward and that's really what we're reserving against right now.
Because the flip side of that is the starting spot the portfolio of the current macro.
Dr. <unk> is a very very healthy and strong one and Thats why you see the strong performance in current stage III loan losses.
So we're going into a more of a recession here and we're uncertain environment from a really strong and healthy starting point.
But we're taking the prudent approach would reflect that we do look at a lot of different scenarios.
A lot of uncertainty.
How this could play out over the next 345 years and so.
We try and consider that range of uncertainty through all of our scenarios.
One single downside, we look at it and we bring that into play and that's why we established the reserves, we do and how we assess our capital adequacy that we have so we've got a really strong portfolio really strong starting point for a lot of uncertainty ahead of us and that's really what we're trying to balance here.
Thank you very much.
Thank you.
Our next question is from meaning Rehman with Scotiabank.
Scotiabank. Please go ahead.
Hi, good morning.
You referenced uncertainty logging for opening remarks, I am just wondering how that plays out in terms of.
Your outlook on capital deployment, specifically any changes to your thinking on capital deployment.
Given.
The outlook that you outlined with the uncertain outlook that you outlined and then maybe even more interesting just in terms of risk appetite any changes there any levers that youre pulling.
Given your outlook.
The impact on the business.
I think first from a risk appetite and strategy perspective, as we've talked about.
<unk> C is important and we're consistent through a cycle and you can never time cycle as you know, including this one therefore, we are very disciplined in our risk appetite and will let market share grow when we think it's being under price significantly or it starts to fall out and you can expect that with with inflation with challenges to consumers.
Potential job loss coming at us that more and more customers will fall out of that risk appetite.
The key message that we continue to say, we lend through a cycle, we manage customer through a cycle we don't.
Running hard at it and then retreat from it that's not how you want to treat long term customer franchise. Therefore, we tried to be.
Consistent through that cycle to your point on capital.
Between our global operations with its capital markets retail bank as you saw very strong growth our U S wealth operations.
Strong.
Organic growth opportunity will be funded by capital as you saw the <unk> growth from doing that we're seeing strong client demand, particularly in our corporate loan book.
Given some of the lack of liquidity that we're seeing in <unk>.
In markets.
Core will continue to serve those clients, we have a very strong client book within our risk appetite CNS continued to execute and returning capital to shareholders with an 80% payout ratio. We have the capital flexibility to continue to have a steady stream of buybacks generating very strong total shareholder returns.
Four.
Our shareholders. Therefore, it I think given the uncertainty continue to apply that prudent playbook and that growth playbook should give you confidence that you'll see a lot more of the same we always remain on the lookout for strategic opportunities, we don't shy away from them.
We pursued and came to an agreement with Brewin Dolphin, we're very excited about the opportunities in front of us in executing that playbook. So we're always having dialogues. It just does it ever will it lead to something thats within our risk appetite and within our.
Our price and returned to shareholders appetite you have the luxury cycles as we did with Brewin dolphin. When we made the offer for Brewin Dolphin and we knew we saw the war in Ukraine coming our way.
<unk> in Ukraine, we knew it would suppress demand we knew there was going to be challenges, but we are taking a long term view on these acquisitions and therefore, we think through our business model over time, not just in the immediacy of what's going on in the macro world. So.
Hopefully that context helps organic growth return of capital to shareholders prudent allocation, particularly at this point in the cycle.
And generally our flexible cautious approach, but using our balance sheet strength to take opportunity.
When you see the kind of price revisions in opportunity revisions in front of us.
That's very clear and just to clarify so no change in your outlook on buybacks in particular is that correct.
No.
Thanks.
Yes.
Thank you.
Our next question is from Gabriel <unk> with National Bank Financial. Please go ahead, hey, good.
Good morning.
Just a quick one on the.
Formations in the wholesale was that tied to the.
Leveraged loan book at all the real estate loan.
No no it wasn't.
Leveraged loans real estate is not a big part of the leveraged lending sector generally speaking.
Just sort of the real estate division Okay.
Bigger picture question.
Margin expansion.
This quarter could we see a similar increase in Q4.
Then you also talk about the importance of your deposit franchise, which is totally understandable.
The larger one.
I'm just wondering about the.
The positive substitution effect you've talked about.
Customers switching.
<unk> 10 billion and GIC as are you starting to see.
Is that something that could accelerate where.
Yes.
Customers moving out of zero cost deposits into the term product.
That might feed into your margin upside over the next year or so maybe you can help clarify that thanks.
Thanks. Thanks, Good question I'll start and maybe turn it over to Neil distance from some of the deposits dynamic. So in terms of the margin expansion if I if I break it down between what we're seeing in Canada. We're looking to see similar types of NIM expansion going through the next couple of quarters, not not directly but that 10% to 15 basis points over the next couple of.
Orders and that is driven off of the rate environment picking up as we mentioned the deposit value that we bring on our low cost low beta deposit and that comes from two perspectives, one theres a bit of an immediate rate sensitivity on a portion of the deposits. If you consider invested short, but then there's also the larger portion of the <unk>.
<unk> that are invested longer term rates. So those have the continued sustained benefit.
Rates have been rising and so we do expect that accretion to come through into Q4 as I mentioned the July rate hike was not fully baked in so we'll continue to see that flow through in the margin expansion and if you look at it from the U S. On the city National side in particular, which is primarily sensitive into this.
Short end of the curve, given the large proportion or 50% of our.
Floating rate assets not side as the balance sheet. We expect again similar ATB Fed fund increase coming to end of July to continue to sustain that margin expansion into the fourth quarter as well.
From the from the deposit franchise standpoint, we do have the benefit of that low beta low cost deposits primarily off of the checking account. So there is opportunity I would say as clients have migrated.
From their savings products and most importantly, we've seen some of that capture back on the wealth management side as clients have divested owed them from the market standpoint, given concerns around what's happening in the market and moved into the GIC product and actually from our from our standpoint as it relates to that product. We have that is the formula.
Customers are finding for us and we've generated some of our NIM expansion off of that this quarter that maybe I'll turn it over to Neil what theyre seeing from their deposit side, yes. Thanks Sandy.
We've seen we still have year over year growth was slowing growth within the core checking account in the Canadian retail business.
But definitely in terms of the sort of risk off.
I'd say stance of the mass retail investor between rates and then the market uncertainty they are looking for.
Our guaranteed preservation of capital and they're looking for and now have an incentive in terms of the GIC product to move and get some returns. So we have seen.
Some of that excess liquidity move into the GIC product.
Would you characterize that.
Still healthy increases in terms of that core checking account.
As a source of liquidity.
But the other source has been a swap out from our retail mutual fund business into GIC.
We're still out there capturing those funds from clients a lot of them just parking it now to wait out the uncertainty and then we will have our financial planners and investment retirement planners work with those clients to get them back into the mutual fund product. It's a very sticky product I think one of the benefits right now.
Maybe you mentioned it we are actually seeing some strong spreads in the GIC product that have made that that swap.
Bill Okay.
So just to reiterate we could see similar margin expansion in the Mexico four quarters.
And then as far as the substitution effect thats more in the wealth business, either new money or out of the markets in the GIC, but that's still.
Reducing your funding costs overall.
Yes, I would say for Canada in particular, the the margin expansion.
Higher in Q4, and then it will start to taper off a bit as the rate expectations. Both has tempered off a.
But southern Canada and similar in Q4 from what we saw for city National This quarter alright. Thanks Neil.
Thank you.
Our next question is from Mario Mendonca with TD Securities. Please go ahead.
Good morning, if I could go back to the leverage loans for a little bit the.
I appreciate that the portfolio of $9 6 billion.
The risk is credit Ross cannot market risk, but could you give us.
On outlook on or some history like how long is this portfolio have been around for Royal and what sort of credit losses have you seen both positive and like maybe average and highs and lows can you help us size, what the credit risk really is on that book.
Yes, sure maybe I'll start and Derek can chip in.
Afterwards.
I think we tried to provide some context on that portfolio overall at that size.
Well the portfolio does grow over time, it hasn't been growing as fast as kind of the rest of the loan portfolio and so we've.
Taking a prudent approach that I appreciate it is a higher risk portfolio I think the other thing, we really want to draw people's attention to that.
From the inherent.
But if it's we get from seniority and security portfolio is very diversified with relatively granular portfolio with $20 million holds.
So there is it does contribute to our overall PCL profile over time.
But I wouldn't say that it's by no means the dominant portion of our PCL profile at all right. So it's.
If you look at capital markets performance over the last five quarters, we were in a net recovery position.
This environment inherently its not and.
And that's part of that right. So it is not inherently adding are creating a very differentiated PCL outcome. Despite it being a high risk portfolio.
Again, I think we're quite comfortable with the credit risk there and we've been very consistent in our approach on it and it's really been the market risk side that creates the bigger volatility for us, particularly declare it looks like this but maybe I'll turn it over to Derrick and he can give a bit more context of the other dynamics of the business.
Sure. Thanks, Graeme and Mario I. Appreciate the question I think on the on the lending portfolio, where we're holding that and Thats credit risk I think Graham is covered off that well that we watch that very closely we really are disciplined in managing two small holds and that leads to a very broad and diversified.
Group of borrowers importantly, as well often the leveraged lending portfolio was really thought of our sponsor driven but as you can see on the slide in the IR materials about 45% of that is actually corporate borrowers that are just lower rated.
And I would say over time to Dave's comment we've been in this business for over a decade, we've got I think a long history, we've been very disciplined in how we managed it and I think that has proven out very well over the cycle and importantly on some of the sponsor related names of our lending too we do establish very good track records of how sponsors.
Our dealing with their portfolio of companies in times of stress and that.
Obviously, it gives us an ability to work with some of our sponsor clients and their portfolio of companies. When you do run into any periods of challenge and we obviously saw that a few years ago as we went through COVID-19.
While we did see some PCL rise in that book, it was quite manageable and consistent with history and our risk appetite.
As mentioned, obviously that the area of risk that we're watching more closely in this kind of period of market dislocation as the market risk on the underwriting book again, we have taken some marks on that position that we think is prudent given the market environment, we're in but as Nadine mentioned, 75% of that.
Is unrealized at this point in time.
I think we've been very consistent in how we manage that risk over a cycle over the last decade, it's been a very successful and strategically important business for us that has been a positive contributor to revenue each and every year and it is important in terms of driving other ancillary business, whether that be M&A refinancings and debt markets.
Or IPO in ECM activity.
So we believe it's it's been well managed unfortunate you will run into periods of dislocation like this where we will have some marks.
But we will manage through that prudently and believe it continues to be a very important business for us over the long term can.
Can you size that business.
Like I can see in the presentation, you are not giving us the <unk>.
Is that something you can disclose.
We haven't disclosed what our underwriting position is there for competitive reasons, but as you can see in the slide our market share has been very consistent we came into the downturn slightly above our longer term average, but not materially and we have since reduced that.
To about 23% below the average over the period okay.
Okay. A quick follow up question and then for Neil those mortgages that were put on the books in 2020 in 2021, I'm, referring to the variable rate mortgages.
The rate on those mortgages could be up as much as two to 300 basis points now.
You made the point that the only issue is that renewal, but isn't there. This entire concept where the payment is no longer covering any of the principal in which case Royal has to act a little sooner than the renewal does that trigger concept existing royal's books.
It does so in variable rate mortgages there is.
Trigger right and we've gone through that analysis over the last couple of months Mario.
We have about 80000 mortgages that will we will we expect with the next couple of rate hikes will reach that point.
We've gone through again sort of the similar deep analysis I had mentioned in terms of a longer term renewal risk similar to this trigger effect.
The average increase was about $200.
And we have less materially less less than half a percent of customers that we think will even require a phone call. So.
So we can see the capacity and the vast vast majority about 80000.
Mortgage customers and communication will start to go up.
Got it thank you.
Graham.
That would just make sure you understand the product construct there though.
<unk>.
Claims hit that trigger point and interest rates continue to increase it's just the incremental interest cost pass through and the immediate right. They don't reset back to the amortization schedule until renewals, that's why deals saying on average it's only a couple of hundred dollars payment increases that you would expect given the interest rate trajectory we're on for.
For context, that's about 6% to 10% on average.
Real payment increases really to comment renewal.
I understand that thank you.
Thank you.
Our next question is from Paul Holden with CIBC. Please go ahead.
Thank you good morning, I appreciate all the candid comments on the macro.
I guess, an exercise all of US have tried to go through us.
If we are going to go into a recessionary type environment trying to estimate the <unk> ACO.
And there is a temptation to look back at Q2, 'twenty and look at the ACL ratios on a loan type basis back then and say how much would T cells have to increase to get back there.
But clearly there are some differences between today.
What happened in early 2020, and maybe in your mind you can highlight as you run through your sensitivity analysis. What do you think those key differences are on <unk>.
On why the ACL may or may not be similar to the peak in 2020.
Yes, Thanks Al it's Graeme I'll take that question.
I think Q2 2020 is a very difficult period compared to I mean, the pandemic was I would say a pretty extraordinary period to maybe what we're looking at in terms of more conventional recessionary period. If you will I mean, we were in a position back in Q2 2020, where the economy globally was it a complete shutdown mode right.
People were sent home unemployment spiked instantaneously I think is very different than the kind of recessionary situations, we're facing now.
And so when you look at our macroeconomic forecast.
Uncertainty, we put around that and I think we've highlighted some of that in our disclosures. Yes. We are looking at unemployment in our baseline going from a again extraordinary starting point of four 9% to six 6%. So that is an increase in the unemployment in and are more severe situations look at unemployment get up to.
Were in the 7% range again on top of that we do stress testing, even more severe scenarios, but if youre looking at more plausible events in the kind of recessions that were thinking about.
I don't think were looking at the same level of severity that we were facing back in Q2 2020.
Same thing with clothing again, we've seen a considerable rapid housing. So we do consider wherever stress around that that we certainly could see.
Jose.
Harder and we're familiar with what we were expecting back in 2020, but really didn't play out that way.
Again, we're looking at recession as a kind of a baseline we're looking at uncertainty around that but I. Just don't think it's the same level of severity that we were facing in Q2 2020, when we saw a complete shutdown of the economy.
Okay, and then how do you factor in things like account and deposit rates that were mentioned earlier, the starting point for unemployment the general health of the consumer and maybe.
The general health of businesses as well.
What role does that play into your <unk>.
Scenarios sensitivity analysis, yes.
Yes.
That's great.
Jesus Youre right were always kind of taking our portfolio and its going to its current position and so the items that youre talking about the health of the consumer to the health of the business situation. Those are typically represented in our readings for those clients that we have risk ratings for both our retail clients or wholesale borrowers.
And so there really is kind of start to provide that starting point for us that we then overlay our macroeconomic projections to come up with these forecasts.
You asked about Q2 2020, we were actually looking back at kind of where we were Q4 19, Q1 2020 kind of before we went into that period.
Back then we were somewhat bearish as well we felt we were at the end of credit cycle and so we're just making some comparisons on where our loan loss allowances were then versus now and at a headline we are actually quite similar even though the dynamics are a little bit different we weren't projecting a baseline recession back then, but we had our down certain sites videos quite severely weighted back then.
Now we have a more severe base case than we did then but the starting point is a healthier one right and so those kind of kind of a mixed pieces that get us back to a similar position where we were.
In Q4 19, when we were somewhat bearish about the economic situation back then as well.
Okay. That's helpful I'll leave it there thank you.
Yes.
Thank you our.
Next question is from Sohrab <unk> with BMO capital markets. Please go ahead.
Thank you I have just a couple of quick clarification questions.
Unfortunately got dropped off so I may have missed this derek just confirming youre not changing your strategy and capital markets because if these credit marks or.
Kind of whatever the dislocation in the market over the last three months.
No not at all so Rob I think.
As I mentioned and apologies if he got cut off when we look back at the underwriting business.
I think financially it's been a very good business. It's been a positive revenue contribute contributor every year and it is a high ROE business over the cycle.
Strategically, it's an important area that we serve our clients and it can help drive other ancillary business through M&A and other financing products. So it is a business, we like and no change to.
That direction of our risk appetite around that that being said and as we've talked about in prior calls our real focus of our strategy has been to continue to grow our market share in some of the non balance sheet products in particular, our advisory and ECM.
And we feel very pleased with how we've executed on that we've been adding a lot.
People over the last few years that bring a focus and emphasis on.
The advisory and ECM products, we're seeing that translate into higher market share year to date in both of those products.
And so very consistent with with the strategic direction, we're going and that's the path that will continue to invest and focus alone.
Okay, perfect and just a quick one for me maybe this excellent picture or chart on the bottom of Slide 12, where you show where the.
Noninterest expense, excluding the variable comp and alike has been trending.
When you look at this I don't know, maybe you kind of have averaged around 6% so far quarterly growth year to date.
Is that the right sort of total bank kind of noninterest expense growth trajectory would you expect that to moderate over the next call. It four to six quarters.
Thanks, Sarah so in terms of the outlook for that we have been investing heavily in the business. So continue that we continue down that path given that we are seeing the tailwind associated with interest rates and we are feeling adequately provisioned in terms of the downside risk.
Backed by two to continue into next year, just given our investments in the business and we are seeing some of the inflationary pressures on salaries, but we we do have opportunity to toggle that if we continue any further slowdown in the economy.
So taking the lead from the NII line more or less as I think what youre, telling me get continuous and continue to invest correct.
Okay. Thank you.
Thank you.
As a reminder, please limit yourself to one question and re queue. Afterwards. Our next question is from Scott Chan with Canaccord Genuity. Please go ahead.
Good morning. Thank you I just want to ask the management you've talked about.
Dynamics with with GIC and mutual funds and I'm, just curious about your ETF product lineup.
How that product suite.
With Blackrock.
Has it been impacted positively or negatively recently.
Thanks, Doug.
I'll take that so.
We're very pleased with it frankly.
The market share gains that we've seen in that products have been affirming of the strategy. The concept of initiation as Youll recall was.
Not a prediction that assets would flow dramatically over to etfs, but but but a desire to have that product available for our advisers and our clients.
If they thought it was suitable for their portfolios so what's actually.
And happily as we've been able to open dialogues with advisors, who previously you might not have spoken with us because we had mostly product branded as RBC in some of our competitors should want to have RBC on there.
Client statements with the alliance, we have been able to add not just different asset classes.
But also branded as our Ishares and Thats found a welcome reception with some of those advisers. We've also been able to open dialogues with clients who.
Maybe.
The outset don't feel like they want to buy mutual funds and put them in their clients' portfolios are bias towards Etfs, because we have that on the shelf that affords us an opportunity to have a conversation with them and then frankly some of our mutual fund product.
Well, maybe not the first choice for some advisors.
In asset classes that are difficult to get to elsewhere, maybe emerging markets may be distressed debt.
Debt categories.
Have found a welcome home with some of those advisors. So it's.
We've been very happy with it.
Partnership has worked very well.
Where do you see any asset management performance in.
In the short term.
As a slight bias to fixed income. So you have seen the asset management assets under management decline on.
On the back of both parallel declines in both equity and fixed income markets, but every single channel in that asset manager has had positive net sales over the last year, whether it's individual or institutional north American or or.
For Europe , So we're happy with the performance across the board.
Alright, Okay. Thank you Doug.
Thank you.
Our next question is from Omar Saad with <unk> Securities. Please go ahead.
Maybe just.
Point of clarification, I think I heard you mentioned 10 to 15 basis points in <unk>.
Indian banking margins over the next couple of quarters and you are talking about personnel are you talking about Canadian banking.
At 10% to 15 sequential in that.
And can you talk about your assumption for deposit betas.
Sure. Thank you. So the 10 to 15 would be the range over next quarter slowing down into Q1, as we start to see the rate increases taper off in terms of deposit beta is there they are holding in quite well as I mentioned, we've got about 45% of our deposit base is low cost deposit beta.
And so that from the checking accounts side of things that's been that's been quite muted and staying quite low it's paper it up a little bit which is why you saw our interest rates sensitivity come off lightly.
However, it has not really been migrating up very high we would expect that to taper off a bit more we see the next 100 basis point increase from the bank of Canada.
That will start to probably move up to our longer term run rate average, but it has been operating below at this time.
Okay, Great. That's it for me and just a quick one there.
Thank you.
Our next question is from <unk>, Kim with Credit Suisse. Please go ahead.
Hi, good morning, and thanks for taking my question.
Wanted to go back to credit card growth was very strong up about 8% quarter over quarter.
I'm wondering if you could comment on what happened in terms of utilization and Paydowns, then and if we're seeing any meaningful pick up on beer on the revolver side and I thought I heard slowing card purchase volumes. There. So I'm just wondering if you could provide some longer term growth.
Credit cards going forward. Thank you.
Sure. Thanks for the question, it's Neil I'll start with.
The revolver question. So Dave mentioned, we have started to see a pickup in revolve balances.
So we're up about $1 billion year over year in terms of revolvers, but our revolvers. The revolving portion of the portfolio is growing slower than the transact or portion of the portfolio. So I would say we're about a third of the way back in terms of.
Peak to trough on revolver balances. So we still feel we've got about $2 billion of revolver balances that will come back over time and exactly what that timing is.
I think there is a little bit of uncertainty there.
So.
So trending back towards normal, but I think still there's still room to go.
And that obviously just goes back to all the liquidity that consumers have that we've talked about in terms of purchase volume.
Very strong purchase volume very active.
Consumer activity.
We're seeing about a 20% increase in spend year over year.
David I think mentioned about 30% if we go back to 2019 and benchmark that against pre pandemic being driven disproportionately by.
Our travel products, so our strong Avalon portfolio of credit cards West jet is doing quite well.
And I think one of the things to note. We've made comments on previous calls that we've seen really strong.
Consumer purchase activity outside of travel a couple of quarters ago, We've now seen travel actually bounce back and it's actually above 2019, so we'd say the consumer is active really across the board.
Thank you.
Thank you.
Our next question is from Nigel D'souza with.
Jason Bernstein Research. Please go ahead.
Thank you good morning, Thanks for taking my question I, just had a quick quantify application.
On your comments regarding internal analysis us mortgage portfolio and I understand it's a projection scenario analysis or want to change.
And you mentioned the majority of four we still have the capacity to absorb those projected payment increases, but I was wondering if you could size what the minority of that borrower base would be is that less than 1% of the portfolio less than 5% and specificity there would be appreciated.
And I don't think Thats great.
It's a good question I think thats again, its internal analysis in the study.
It's something we're going to put a number two again I think it was just one of the pieces that we wanted to call out and highlight that we.
In our disclosure there highlighted kind of the uninsured balances in the higher risk balances through the higher ltvs.
Aero down the set of what could be kind of the more at risk balances for at renewal, but we always wanted to highlight that with the size of that would be that's still a high quality portfolio and that's why we kind of provided some insights around the cycle on that.
Time to renewal on that in the payment and also we've undertaken but that's kind of some internal analysis that we weren't just going to put a number to.
Okay. That's it for me.
Maybe I'll.
Operator, I'll take it over here and thank everybody, we're going to wrap it up now I think we got just about all the questions and just quickly to summarize.
Messages that we wanted you to take away from the quarter are first and foremost.
Our long term investment in our deposit franchise, our low beta core deposits our savings deposits.
It's core to our franchise and its quarterly investments and we've made strategic investments in creating value for customers. We've grown that in now as investors you are seeing a significant benefits from margin expansion revenue growth pretax pre provision as Nadeem mentioned, we expect to see continued margin expansion in Canadian banking at a similar rate to Q3, we expect to see continued.
Pension and <unk>.
Nims at a similar rate to.
Q3, and Thats because of the heavy lifting that we did over honestly almost two decades now.
Also it also provides us with great information value on on risk and on our customers and on their needs as Neil pointed out.
In addition to funding and revenue growth and therefore, you can see why we've always called our core deposit franchises on consumers and businesses such an important point and while we continue.
Two invest you saw a very strong.
Consumer and commercial lending growth prudent you see a very strong balance sheet to absorb any uncertainty and ability to continue to return capital to shareholders and drive a premium.
CSR and to manage the uncertain environment for it and our reaffirmation of.
Some of the marks that we took to that Derrick and Graham talked about as a result of the success of our strategy and attracting more clients in our underwriting exposure as being a little bit above the long term trend is because clients are coming to us and we are becoming more senior and some of the <unk>.
The opportunities that we've seen so it's a result of expanding our vertical coverage, bringing in more bankers more mds, that's playing out. So it is not going out of our footprint just responding to our strategy and driving our business and that's about a 10 year successful cycle and therefore, we feel very positive about our ability to continue to do.
<unk> consistent profitability going forward. Thank you great set of questions look forward to our next call in Q4. Thank you operator.
Thank you everyone. The conference has now ended.
Please disconnect your lines at this time and we thank you for your participation.
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