Royal Bank of Canada Q2 2023 Earnings Call
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Please standby your meeting is about to begin good morning, ladies and gentlemen, welcome to Rbc's conference call for the second quarter 2023 financial results. Please be advised that this call is being recorded.
I would like to turn the meeting over to watch him, Iran. Head of Investor Relations. Please go ahead Mr. Enron.
Thank you and good morning, everyone speaking today will be Dave.
Mackay, President and Chief Executive Officer.
On these financial officer.
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, and insurance and Derek Millner Group head capital markets as.
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 would also remind listeners that the bank assesses performance on a reported and adjusted basis and considers to be useful in assessing underlying business performance to.
To give everyone a chance to ask questions. We ask that you limit your questions and then re queue with that I'll turn it over to Dave.
Awesome. Good morning, everyone and thank you for joining US today, we reported second quarter earnings of $3 six.
$1 billion or adjusted earnings of $3 8 billion.
Pre provision pretax earnings of $5 billion were up 1% from last year.
We also announced a three or 2% increase.
Quarterly dividend that's part.
Our cadence of twice so your increases in commitment to returning capital to our shareholders.
Net interest income was up 16% from last year.
Benefiting from solid client driven growth in Canadian banking.
And wealth management as well as higher.
Interest rates.
Yeah.
Capital markets.
Another strong quarter reporting.
For $1 1 billion and pre provision pretax earnings.
Despite a challenging environment for global investment banking fee pools.
The revenue contribution was equally split between global markets and corporate investment banking.
Reflecting.
This segment is well diversified business model.
Our all bank performance.
This quarter reflected the strength and diversity of our leading client franchises and strong balance sheet.
However, shifting client deposit preferences expenses and provisions for credit losses point to an increased cost of doing business.
Before I provide context on our key growth strategies.
And the expense trajectory I will speak to what remains a complex environment.
Markets are facing structurally different circumstances. Following the end of an era of low inflation low interest rates and increased globalization.
This is in addition to absorbing game changing challenges from technology.
And decarbonization.
As well as more near term risks, including implications from U S debt ceiling negotiations.
While recent stresses in the U S regional banking sector appear to have eased.
The fallout will likely include more liquidity and capital regulation and a subsequent tightening of lending capacity.
The financials Korean financial system is already subject to many of these liquidity and capital requirements and performed exceptionally well.
Through the recent U S regional banking liquidity crisis.
It appears that the magnitude and steepness of Central Bank rate hikes started to rein in headline inflation.
Given signs of softening consumer demand for discretionary goods and rising debt service costs, we continue to forecast a mild recession, partly due to the lagging impact of higher interest rates on economic activity.
However, with labor markets remaining firm despite declining levels of attrition and job postings combined with higher jobless claims, we do not expect central banks to cut interest rates through 2020 three is.
It is important that inflation doesn't become anchored into the psyche of the economy.
The importance of balance sheet strength comes to light and he's challenging moments and it is in this environment that we strengthened key ratios, including.
Ending the quarter with a CET one ratio of 13, 7%.
Looking ahead, we continue to expect that our <unk> ratio will remain above 12%.
Following the close of the planned HSBC candidate transaction pending regulatory approval.
We expect the transaction to close in the first calendar quarter of 'twenty 'twenty four is.
Mutually agreed upon time frame will help us ensure a smooth transition for clients.
In addition, the purchase price structured using a lock box mechanism.
Accordingly, all of HSBC Canada's earnings from June 32022.
The close will accrue to RBC.
We remain comfortable with the synergy and accretion assumptions, we made at the time of the acquisition.
Another important pillar of Rbcs balance sheet strength is the addition of a further $173 million of PCL on performing loans this quarter.
We increased our ECL in performing loans by over 20% since last year.
We also have a diversified funding and liquidity profile, which includes a leading deposit are hitting and deposit franchise built on deep client relationships.
Canadians appreciate the client value proposition that we offer including RBC vantage, our partnerships and leading digital banking capabilities.
No me forecast was recently recognized for best use of AI for customer experience in 2000, 22023 digital bank rewards.
Furthermore, we entered into a strategic partnership with Congress planning to leverage its artificial intelligence platform identify financial strategies for clients.
Our clients also by our continuum alternative offerings.
The current environment of higher interest rates and increased uncertainty our clients are looking for both safety and yield.
We continue to see a shift in personal deposit mix towards term GIC products.
In the quarter personal term deposits saw $10 billion of inflows, which a third were from external sources.
GIC as I've seen nearly $50 billion of deposit flow over the last 12 months alone.
We are also seeing a shift in mix for business deposits at the same time as we're seeing continued competition for assets.
Well theres been a significant trade offs to near term margins, we have gained new clients, providing valuable advice to deepen relationships, which will become increasingly profitable over time.
Furthermore, we expect to retain most of these balances and looking to support our clients and reallocating their assets into a leading investment franchises at the right moment.
Deposits are also an added source of lower cost retail term funding as we continue to support our clients financing needs or Canadian banking loan to deposit ratio has remained relatively flat and you're 100% over last year.
Well and the Dean well get into the details I want to provide my thoughts on the expense trajectory.
Our reported expense growth was 16% year over year. However, after excluding for acquisition and macro related factors expenses were up 8% from last year.
The largest driver of expense growth. This year has been higher head count to support client needs as well as base salary increases.
We are committed to actively reducing expenses.
They're using a number of different levers to do so.
Includes deliberate actions that we've already initiated such as managing head count growth through attrition and slower hiring but also preparing for a complex transition with respect to the planned acquisition of HSBC, Canada.
The remainder of the core drivers of expense growth reflect inflationary pressure and importantly, strategic investments to enhance our value proposition and infrastructure to drive future operating leverage and client driven growth, which I will speak to shortly.
In addition to driving strategic growth and accretive capital allocation one of my top priorities is an increased discipline around costs.
The entire leadership team is committed to actively executing on our efficiency playbook, we're focusing on curtailing expense growth and prioritizing investments without impacting our ability to serve our clients our opportunities or opportunities to attract new clients.
I will now speak to key growth drivers across our largest segments.
Starting with Canadian banking mortgages grew 7% from last year down from 8%.
Year over year last quarter origination activity is expected to continue moderating towards 2019 levels, There's limited supply and increased demand from immigration is muted by concerns around affordability.
We expect annual mortgage growth to slow to the mid single digits.
Earlier this quarter, we announced the acquisition of Hojo, Canada.
Fintech that supports Canadians at every stage of their home buying journey, including providing connections to real estate agents.
We're also investing to enhance the efficiency of our mortgage lending platform.
While credit card balances reached a record high of $20 billion with record new card openings revolver levels remained below pre pandemic levels, we expect revolver balance levels surpassed pre pandemic levels by early 'twenty 'twenty, four which will have positive implications for net interest margins.
Business loans were up over 15% from last year as we continue to see improving utilization levels and operating facilities and capex investments the growth was balanced the majority non CRE related.
We expect business growth business lending growth will continue over the next few quarters.
Moving to Canadian wealth management assets under administration were up 4% from last year, hitting a record level of $540 billion.
We also recently announced we will bring over all advisor teams from Gluskin Sheff part of the agreement also includes distribution of Onyx alternative investment strategies and funds.
And going forward.
We will look to continue expanding our set of alternative asset strategies, which currently includes a partnership with quad real and our Bluebay family of funds.
Despite challenging market conditions, RBC global asset management AUM increased from last quarter and last year, while also generating positive net flows in the quarter.
U S wealth management.
They were also up from comparative periods advisor recruiting will remain a key source of growth for wealth management USA and we added over 20, new advisors this quarter.
The beginning of fiscal 2022 we've recruited 135 advisors, who are expected to drive over $20 billion of assets under administration.
We also look forward to future contributions from RBC Brewin dolphin.
In the midst of volatile backdrop in U S regional banking city National deposits were down from last year as clients put their money to work, but most importantly deposits remained stable sequentially evidence of the new client relationships and the strength of the RBC balance sheet.
City National loan growth was up 14% year over year with our mid market strategy based on a diverse foundation of over 200 relationships.
Going forward, we expect loan growth to slow as the focus increasingly shifts to improving business profitability. While we continued to invest in enhancing city National's technology and governance infrastructure.
Capital markets generated $1 $1 billion of pre provision pre tax earnings despite declining global fee pools, which are down over 40% from last year due to the challenging economic environment.
In investment banking, we continue to invest in talent and.
In key verticals, such as technology, and health care as well as across important coverage areas, including M&A and equity capital markets.
These investments are increasingly reflected in new mandates as well as in our market share, which has improved the seventh place. So far in 2023 up from 10th through 2020 two.
We're looking to strategically add further hires in key positions.
We're also building out our U S cash management business, which we expect to provide a steady source of revenue and then an additional deposit funding capacity overtime.
We are excited about this opportunity and look forward to sharing more over the coming quarters as we look to launch it to market.
We believe we can meaningfully compete in this space given our existing corporate banking client relationships and leading credit ratings.
In global markets, we aspire to continue gaining market share over time, we are currently investing in technology to further modernize our client tools and infrastructure to drive scalable growth in the future.
In closing, while we continue to operate in a challenging macro and operating environment, we have momentum and are seeking meaningful gains across our core client franchises.
We are focused on enabling future growth, including through our intended acquisition of HSBC, Canada, and a moderating our expense growth to sustain a premium valuation.
Before I turn the call over to Nadeem.
Do you want to express our support for Western Canada in light of the ongoing wildfires across the region.
We have contributed to the Canadian Red Cross relief efforts supporting our communities clients and employees in the impacted areas.
Dean over to you.
Thanks, Dave and good morning, everyone. Starting on slide eight we reported earnings per share of $2.58. This quarter adjusted diluted earnings per share of $2.65 was down 11% from last year, largely driven by the impact of prior year releases, our PCL on performing loans.
Strong client driven revenue growth of 20% year over year or up 10%. Another P. B CAE was largely offset by higher expenses, resulting in pre provision pretax earnings growth of 1%.
Before focusing on more detailed drivers ever earnings I will highlight the strength of our balance sheet.
Starting with our strong capital ratios on slide nine our.
Our CET one ratio improved to 13, 7% up 100 basis points from last quarter.
Consistent with the guidance we provided in Q1 this quarter's increase reflected a 79 basis point benefit from Basel III regulatory reform.
Next turning to slide 10.
It's important to emphasize the diversity strength and stability of our funding and liquidity profile.
This quarter, we prudently manage to a higher LCR of 135% up five points from last quarter, which translates into a surplus of 102 billion.
Our liquidity levels remain robust and provide us with flexibility to execute our strategy.
Turning to our 900 billion client deposit franchise.
Canadian banking accounts for approximately 70% of total client deposits.
Our Canadian retail banking franchise is well diversified serving approximately 13 million personal banking clients with the median checking account balance of $2000.
Furthermore, over 85% of our mortgage clients have a personal banking accounts, increasing the depth of the relationship.
In the U S. As Dave noted city National deposits remained stable quarter over quarter, and our U S. Wealth management franchise has over 30 billion of sweep deposit.
Across our North American corporate and commercial deposit franchises, we have long tenured relationship based clients that we support with strong advice and a deep shelf with products and solutions.
The combination of our strong deposit base and robust capital position us well to continue funding future loan growth and meeting the needs of clients.
Moving to slide 11.
All bank net interest income was up 16% year over year or up 19% excluding trading revenue.
These results reflect our earnings sensitivity to higher interest rates as well as the benefit from higher volumes across many of our Canadian banking and wealth management businesses.
All bank net interest margin, excluding trading net interest income and asset was down seven basis points from last quarter, largely reflecting deposit trends in our north American personal and commercial banking franchises as well as higher enterprise liquidity levels.
On to slide 12.
We walk through this quarters key drivers of Canadian banking, NIM, which was down eight basis points from last quarter.
The embedded advantages of our structural low beta core deposit franchise continued to come through this quarter, reflecting the latent benefit of recent interest rate hikes.
NIM also benefited from changes in asset mix, including higher credit card revolving balances and strong commercial growth.
Well, we have seen a slight widening of mortgage spreads from historically low levels mortgage lending remains highly competitive.
However, these benefits were more than offset by both the continued shift in deposit mix into term products, along with lower GIC spread reflecting increased competition for non wholesale term funding.
Going forward, we now expect low double digit net interest income growth for 2023.
However, there are a number of variables that drive this outlook.
Embedded in our guidance, our modeled expectations for client behavior, including solid volume growth is slowing and the continued deposit mix shift towards GIC, and a favorable asset mix shift towards higher spread commercial and credit card loans.
With respect to spread we assume continued intense competition for deposits and mortgages and flat interest rate.
Any changes in the timing and extent of these spread and volume assumptions could have an impact on the trajectory of net interest income.
Turning to city National.
NIM was down 22 basis points from last quarter, mainly reflecting an adverse funding mix shift into interest bearing deposits as well as a full quarter's impact of last quarter's higher S. H L D borrowing.
It's more than offset the significant benefit of a fed rate hikes on city national asset sensitive balance sheet.
Moving to slide 13.
Non interest expenses were up 16% from last year approximately half of this growth was driven by acquisition related costs as well as by macro driven factors, such as FX and share based compensation.
Beyond these factors the core drivers of organic expense growth where investments in people and technology.
Salaries were up 20% from last year as investments in our people reflected FTE growth of 10% year over year as well as inflationary impacts of higher base salaries announced last year.
This trend was most evident in Canadian banking as elevated hiring to service increased client needs and to offset higher than average employee attrition rate has led to S. T E being 2600 higher than last year.
In capital markets.
Expense growth was underpinned by investments in upgrading our technology and building out product capabilities that Dave highlighted earlier as well as higher cost in support of increased activity, including trade execution.
At city National we continue to make investments in people processes and technology to enhance the operational infrastructure in support of the bank's next leg of growth.
More broadly business development costs, such as marketing and travel expenses continued to grow off of Covid related trials.
We are increasingly focused on controlling expenses through various levers, including actions to manage head count. While also curtailing discretionary spend we are also taking action to centralize certain operations rationalize vendor relationships and prioritize certain application development spend.
Looking ahead to the second half of the year, we expect adjusted all bank expense growth, excluding acquisition related costs and share based compensation did decelerate to the mid single digits.
In Canadian banking, we remain committed to leveraging our scale and achieving a sub 40% efficiency ratio.
Moving to our segment performance beginning on slide 14.
First of all in commercial banking reported earnings of $1 9 billion this quarter with Canadian banking pre provision pretax earnings up 11% year over year.
Canadian banking net interest income was up 16% from last year due to higher spreads and solid average volume growth of 8%, reflecting balanced growth in loans and deposits.
Non interest income was flat year over year as higher service charges and foreign exchange revenue driven by higher client activity was offset by lower mutual fund distribution fees, reflecting the challenging market condition, which weighed on average mutual fund balances.
Turning to slide 15.
Wealth management earnings were down 8% from last year due to higher PCL on performing loans, an elevated expense growth in U S. Wealth management and contrast, nine U S. Wealth management expenses were largely flat year over year, excluding the impact of RBC Brewin dolphin.
Revenues were up 11% year over year aided by a robust net interest income growth of 25%, reflecting the benefit of higher rates in both Canadian wealth management and U S wealth management.
Global asset management revenue decreased primarily due to lower average fee based client assets on the back of softness in global market.
Despite challenging market conditions net sales encouragingly turned positive driven by flows into institutional long term and money market fund.
Turning to slide 16.
Capital markets earnings were up 10% year over year, reflecting strong performance amidst volatile markets and the benefits of a lower tax rate.
Investment banking revenue was up 4% from last year as reversal of underwriting marks and increased client activities and municipal banking were partly offset by industry wide declines in global fee pools and macro uncertainty.
Global markets revenue was down 3% from last year as lower equity trading revenues across regions was largely offset by broad based strength in fixed income trading.
Lending and other revenue was up 17% from last year.
<unk> strong results in transaction banking underpinned by margin expansion and higher lending revenue driven by mid teen loan growth.
Turning to insurance on Slide 17, net income decreased 67 million or 33% from a year ago, primarily due to higher capital funding costs.
To conclude we are confident that the strength of our capital credit and funding profile combined with the strategic investments being made today will create long term value for shareholders.
And we are committed to driving towards our objective of positive operating leverage our full management team is focused on expense optimization and moderating our expense growth in light of the rapidly changing macro environment.
With that I'll turn it over to Graeme.
Thank you Nadeem and good morning, everyone.
Starting on slide 19, I'll discuss our allowances in the context of the macroeconomic environment.
During the quarter, we saw elevated volatility stemming from issues in the U S regional banking sector.
What was the trajectory of the overall macroeconomic environment was consistent with our expectations.
Inflation continues to moderate and central banks appear to be nearing the end of the rate cycle.
Relative to this time last year, the probability of a more severe inflation and interest rate outcomes has reduced.
Borrowers have been doing with the higher rate environment for several months now we are seeing insolvencies impairments and losses increasing toward longer term averages.
The full impact of higher rates and the economy will take time to translate into credit losses. We are still in the early stages of the credit cycle, we've been expecting for some time.
As a result, we built reserves on performing loans for the fourth consecutive quarter.
This quarter's provisions reflect the impacts of increasing levels of delinquencies and credit downgrades, lower forecasted housing and commercial real estate prices and portfolio growth.
And the retail portfolio most of this quarter's provisions on performing loans were taken on credit cards and unsecured revolving loans.
For credit losses have been the fastest to normalize consistent with a traditional credit cycle.
In the wholesale portfolio a majority of our provisions on performing loans were taken in commercial real estate.
Discussed last quarter risk in this sector continues to increase driven by higher interest rates weakening macroeconomic factors and behavioral trends.
Having said that our commercial real estate portfolio is well diversified and has been originated to sound underwriting standards and supported by a strong client base.
So the additional reserves out of this quarter or do you see all of them performing commercial real estate loans has increased 77% from a year ago.
[noise] remains sufficiently provisioned what are you referencing the downside scenarios reflect the decline in commercial property values ranging from 15% to 40%.
In total our allowance for credit losses on loans increased by 328 million this quarter to $4 8 billion.
Moving to slide 'twenty provisions on impaired loans were up $84 million were four basis points relative to last quarter.
I would note that our PCL ratio of 21 basis points remains below pre pandemic and historical averages.
And our wholesale portfolios provisions were up 74 million compared to last quarter with increases in capital markets and in Canadian banking commercial portfolios.
So far this year the majority of our losses in the wholesale portfolios have been from clients that had issues prior to where due to the pandemic.
Rate increases and subsequent acted as a catalyst for these borrowers to become impaired.
As we move further into the credit cycle, we expect to see losses, driven by more systemic factors arising from the anticipated economic slowdown.
And our Canadian banking retail portfolio provisions increased by just $10 million quarter over quarter.
This portfolio continues to benefit from persistently low unemployment rates and all of you to acquire deposits.
Notably provisions on impaired residential mortgages were lower this quarter as the rate environment stabilized and clients continue to prioritize payments on their mortgages.
As expected a large majority of the PCL on impaired loans was driven by credit cards and unsecured lines of credit, which as I noted earlier is consistent with expectations from a traditional credit cycle.
Moving to slide 21, gross impaired loans were up $294 million or three basis points this quarter.
With the increase primarily driven by a couple of markets.
Okay.
Well this marks the third consecutive quarterly increase in gross impaired loans, our ratio of 34 basis points remains below pre pandemic levels.
Additionally, new formations decreased compared to last quarter across all of our major lending businesses.
To conclude we continue to be pleased with the ongoing performance of our portfolios as expected our PCL ratio on impaired loans continued to increase remains below pre pandemic levels and historical averages.
Impact of inflation and higher rates is expected to play out over a number of years and we are still in the early stages of the current credit cycle.
We expect PCL on impaired loans to continue to increase through the remainder of this year.
Last fall I guided toward a range of 20 to 25 basis points for PCL on impaired loans, we are expecting to come in at the higher end of that range for the year Ulta.
Ultimately the timing and magnitude of increased credit cost continues to depend on the central bank's success, and curving inflation well, creating a soft landing for the economy.
We continue to proactively manage risk through the cycle, and we remain well capitalized with sound plausible where severe macroeconomic outcomes.
Operator, let's open the lines for Q&A.
Thank you, we'll now take questions from the telephone lines. If you have a question and you are using a speakerphone. Please use your handset before making your selection.
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Especially star one at this time, if you have a question there'll be a brief pause so participants register thank you for your patience.
And the first question is from many grauman from Scotiabank. Please go ahead.
Hi, Good morning, I, just wanted to touch on expenses, Dave you talked about some of the levers that you have and did you have that your disposal in order to slow expense growth. One thing you touched on was attrition my understanding is that companies are seeing attrition rate.
Rates come down very very significantly, which makes sense in the current environment I'm wondering what you're seeing and how significant attrition can really be and your goal of getting expenses down.
Yeah, a fair question and maybe I'll I'll go back because it's such an important part of our overall construct of improving our premium performance.
You know first I think we have to acknowledge that we have a number of complex strategic.
Programs under way HSBC.
Is frontloaded, but not all of Hsbc's costs can be quantified within a separate project for example, Neil would be carrying more call center employees and maybe some more branch employees just to.
Get ready for the conversion.
Process. So there are some embedded costs in the business. There are the majority of the systems costs. Obviously, we can isolate to do that so there are there are some some carry on effects to getting ready and spending all that money upfront to get ready for and HSBC smooth HSBC conversion, we are still seeing attrition to your P.
It is slowing having said that we've seen our numbers turn negative a month over month. So I think there is a way to manage this down while balancing the the significant strategic.
Uh huh.
Programs, we have in front of US don't forget we're also in the process of selling is attaching our investor services business and <unk> Bank, which is a complex technology play we've got Brewin dolphin.
So we have a number of strategic initiatives that are that blend in a little bit, but having said that we took him to dean's point on moving this down to mid single digits or better.
We feel confident in managing all aspects of our cost base and including hiring.
And like some other banks in the U S. You've heard over the last few quarters.
This was a very difficult transition from the volatility and supply demand shortages in the market that were very prevalent last year, we had to react strongly in the latter half of 2022 to staffing shortages given the technology firms that tech firms are hiring so aggressively.
In the latter part of 2022 we had to respond to that with aggressive hiring and anticipating high turnover rates persisting into the first half of 2023, well that was not the case almost overnight. The tech firms started laying off instead of hiring and therefore attrition came off.
Rapidly and honestly, we overshot, we overshot by thousands of people.
And some of those people are as I said are being.
Or are there to help us make the transition with HSBC and some will come off through attrition. So.
I think we were caught a little bit by how quickly the labor market's changed in Canada and in the U S, but largely Canada, we're adjusting to that overhang right now and we feel we can manage this through through all believers that we have but we have oh, we're going to come out at <unk>.
<unk> and if one method doesn't work we will we have other plans and strategies to back that up to make sure that we address this well. Thank you for that question, it's an important.
Construct to some of the challenges we faced this quarter.
Thanks, David and just a follow up just to understand the timing in terms of what's realistic given all the moving parts are you're talking about that.
What's the timeline for saying mission accomplished here from your perspective.
Definitely expecting to see more significant improvement in Q4, but all.
Q3 will be a transition quarter, we still expect to have strong off will have overall in the later half of this year Oh, we're going to execute a lot of this in Q3, and we expect a much better Q4, but Nadine do you want to add to that.
Yeah, no. The obviously given given the given the head count and coming off of Q1, we've been implementing into Q2 some of the some of the cost reductions I already spoke about but that's going to take a couple of quarters to really start to impact. So that's why many were commenting that the mid single digits and I eat growth.
For the second half, but a staggered more towards Q4.
Thank you.
Thank you.
The next question is from Gabriel to Shane from National Bank Financial. Please go ahead, Hi, I just wanted to ask you about the you know the deposit growth.
Growth trends.
In the Canadian Bank I'll use the word chase you might not but.
It seems to me like Royal.
Going out of its way to bring in more deposits to the bank and then you know maybe you're not but.
What is the motivation there is it you know market share did you Wanna.
Do you expect to convert some of these customers to core banking customers or is it a mix of factors like the structure of your business, you've got a bigger wealth franchise, you've got a bigger our independent broker.
Business the biggest in Canada. So some of the flows from wealth type and broker a broker money that might have a disproportionate effect on on on your deposit growth and you know it's good but it's also bad.
Yeah, Thanks, Gabe Neil I'll speak to it I mean, the first thing we'd say is you you touched on it which was new client acquisition, so that aligns to the Investor day goal, we've put out to grow that core checking account franchise. We do count that is that you know low beta stable funding and that has been going.
[noise] exceptionally well as part of our increased cost we've seen in the first couple of quarters because last year, we had pulled back on some of that marketing and Biz Dev just didn't see the returns on it whereas right now we'd say we've had the best Q2, we've ever had in terms of new client acquisition. So that would be the first pillar. The second pillar would be just to your point.
I'm on the franchise overall, we are we do have a very large financial planning business, we do benefit from Gam and a strong investment.
Investment product manufacturing there and so we are seeing this rotation that they deemed spoke of in terms of the GIC growth now when you look at the GIC growth.
It's important to call out about half of that growth has come from outside the company. So we're seeing a good portion of that being attracted through those advisory sales forces into the company, we're capturing that in the GIC product, which our full intention would be once we start to have a an equity market that feel more normalized that we will then.
Those clients into long term funds and then about half of it is coming from internally from mostly savings and then some core checking so that would be as you sort of asked about the flow in the mix, but it would be a combination of new clients external consolidation and then rotation internally.
And then a quick one unexpected it's just the way you display at a 16% growth about half of that I got I guess, calling out the HSBC acquisitions, but why should I.
Look at Brewin dolphin and in a in a distinct manner because it's in your revenue line as well.
Greig gave that for a minute from an operating leverage standpoint, you're absolutely correct. We're just trying to explain the N I E growth trajectory since they're the comparative on a year over year basis.
Thank you. The next question is from Mario Mendonca from TD Securities. Please go ahead.
Good morning can we go to slide 15, where you show the decline in your wealth deposits that 15% sequential.
The sequential decline in deposits as is.
It is noticeable but it's a big number can you help me understand how you fund that kind of deposit attrition is that true.
Selling securities.
And then it's about where these deposits are going.
Generally they're not leaving the bank entirely.
And we think that through.
Thanks Nadeem.
I'll take that one Mario so in terms of the part a lot of it is related to the deposit mix in the city national and so we have seen our attrition over all of them and a shift from non.
Noninterest bearing into interest bearing so we can manage that through some of our broker Cds. The the loan book trajectory has come off of it as you know as you'll notice, though when you look at it from our balance sheet. When it comes to city National We do have is that we've increased from about 73% to that 88% of our loan to deposit ratio.
So the what's happening there as it relates to the deposits coming off you're seeing more of a shift into other forms of higher cost funding. So whether it would be there's been a increase in our wrap H L. D that we noted primarily to increase our liquidity position overall.
To reduce our asset base, it's more that we're actually increasing it from a higher cost of funding and that's why you have noticed that you've seen the NIM drop on a quarter over quarter basis.
But that's that's that 'twenty, two or whatever maybe not something that's a meaningful drop in C. N B's.
It is reflective of this deterioration and deposits that I referred to those you would connect those two because all of them.
Correct and on a year over year, we also would've been removed investor services from that as well given the given moving not as a possible balance sheet base to available for sale that would've been on a year over year basis. Okay. And then my follow up My last question then relates to the LCR, that's again and.
Meaningful increase five points sequentially is there any way to size what that does to the all bank margin in a given quarter. When you take your LCR up five points.
Are you able to provide some kind of estimate on what that means to the Martin.
Yeah. So overall, you're looking at moving from about 88 billion surplus to about 102 billion and that's roughly at about a cost as you can think of them Mario around 50, 55 basis points roughly so from an all bank margin perspective, it wouldn't be as material, maybe one basis point.
Order.
Got it thank you.
Just back on the deposits Mario if you look at the footnote on that page over half of that move is that I guess change that Dan mentioned.
Investor services.
Yeah. Thank you.
Over quarter basis, the city National deposits were flat if you think about it from the mix shift from an F. H L B funding great.
Thank you.
Thank you. The next question is from Doug Young from Danielle Bank capital markets. Please go ahead.
Hi, Good morning, maybe for Derek capital markets seems to Buck the trend here, hoping you can maybe talk a bit about the drivers I think there was some impact from Mark reversals. If you can quantify that and I know, it's it's tough to kind of pull up the crystal ball, but I'll throw it out there you have a $1 billion.
Pre tax pre provision earnings target quarterly that you've kind of set up how do you feel relative to that given the business pipeline.
And then maybe you can mesh and just you know you're building out our cash management strategy here, how does that impact that Oh look as well thanks.
Sure. Thanks, Doug.
I mean, I'll start just with the macro drivers I mean, I think overall, where we feel we had a benefit this quarter was really won the diversified nature of our platform that while we've seen ebbing and flowing and activity across different products. The diversified nature of our business has helped us overall.
<unk> with strength in some of the areas that had been a little bit more active and then second I think we continue to see benefits of some of the strategic changes and investments. We've made over the last three years that are driving market share growth, that's helping to offset at least some of the weaker fee activity. So if I touch on specific areas obviously are.
Very solid quarter in our sales and trading business that was really driven by our macro business with the volatility we saw in interest rate and FX markets and then our credit business and you may recall last year, we've got a sizable and very successful credit trading franchise that was a headwind in 2000.
'twenty two as we saw credit spreads widening as we've seen a little more stabilization. This year. That's a business that has obviously benefited us and done well.
I think within our corporate banking business are we've been very disciplined with a moderate growth strategy. So we have seen a moderate growth in that business. It's a little more pronounced year over year given the growth that we saw through 2022, and then with the addition of the transaction banking business into the capital market segment. This year, that's a business.
It has performed well against a higher interest rate environment and the spreads we're earning.
And then finally on investment banking.
As Dave touched on we have been successful in continuing to gain market share year over year, we've moved up to seventh place. We've gained share across really all of the core products and so that has helped offset a slower fee pool overall and then one franchise, we don't speak a lot about but we have a very strong are you.
Municipal finance franchise in activity was quite good in the muni market over a over the quarter. So that was a position of strength. So it wasn't really one item I think across the board. We had a number of businesses that gain share and performed well in the diversified nature of the business helped.
To your question on the underwriting Mark to market, obviously again last year that was a headwind for us as we took some fairly significant marks as.
As the market has improved and we've been disciplined around our portfolio. We have captured some of that back which has been useful if you look at.
I don't think I want to disclose the absolute mark to market change, but if you look at any quarter. There's always some sort of one off items that mark to market benefited us we had some other things that were one offs that hurt us a directionally I would say, maybe that's $50 million of revenue in aggregate that to the positive.
So you know, it's certainly help but I don't think it was overly consequential in terms of the results.
You know we were obviously pleased to hit the $1 1 billion target in terms of your final question I think on just the outlook.
Overall, we feel quite good about the business. The trading businesses are are normalizing a little bit but continue to operate at quite a healthy run rate. We continue to expect good demand for our corporate clients for credit. So the loan book revenue should continue to be quite steady and then we are seeing some <unk>.
Any signs of investment banking fee pools coming back I don't think that that's going to be a you know a hockey stick recovery by any means but we're certainly seeing DCM ECM leveraged finance activity start to improve a post March we've got a very healthy M&A backlog deals are always a little harder to get done in a more.
Uncertain environment, but we've got a certainly a healthy backlog that as things stabilize should translate into a integrator transaction activity and then importantly, we have a number of strategic initiatives you referenced cash management that we're obviously excited about but you know a number of things underpinning the strategy.
That we're optimistic will continue to gain market share and drive growth away from just what happens with broader peoples.
I appreciate the color. Thank you.
Thank you the next.
Question is from Ebrahim Poon of Wallets from Bank of America. Please go ahead.
Good morning, I guess, maybe a big picture question, Dave Oh, well tying it back to the auto outlook. Oh, you you mentioned how quickly the environment changed over the last six months as you are managing the bank today, you talked about education capital liquidity just across all of these measures.
What are you managing for how you're managing for.
Oh, my recession deep recession, when you look out over the next year and if the outlook for the U S versus Canada, just talked through all of that and we didn't that framework. How do you think in terms of the resiliency of the auto relative to where we are today.
A really important question. Thank you ebrahim. So we are still forecasting and managing to a mild recession, hence the series of tools that we're using to manage our cost structure around attrition and we still see strong demand coming from businesses.
And investments and we still have strong employment in the economy and therefore, the purchasing power of an active purchasing of our consumer clients is still strong. So we are managing to.
As I mentioned in my comments say, a milder shallower a recession you know given the high interest rates the drag on that servicing and the need for us to get a strong control over inflation and get it out of an anchoring into.
Leadership and business psyche. So it's very important that we do that and that is the priority of our central banks and we support that so in doing that then we are very much Ah you saw strong capital ratios are strong capital ratios will allow us to grow organically and to acquire.
HSBC, Canada and remain above 12%. So I think that's a real strength of our balance sheet are there was a previous question around deposits, while you're getting deposit deposits are the lifeblood of a bank and they allow us to continue to lend. We're the only bank that are match funded in Canadian dollars in Canada and in the retail side and that's very important as it is.
It leads to better margins over time as you've seen Oh, the movement of clients into a higher cost deposits is a global trend one that obviously you have seen in both sides of the border with ourselves, but we're retaining the vast majority of those deposits and I think the point that we have to stretch.
Surround C N B, which is really important is they were they were flat to slightly up throughout that crisis in the United States with you know with <unk>.
Hardly affluence and commercial client base. They they they maintained their belief in the organization and in C. N V and we saw a number of new clients coming in notwithstanding.
That client segment tends to put their money to work and seek yield in the marketplace and you've seen that it is a global trend. So we're managing that that function as well as we think about margins and revenue profiles and in adjusting our cost base to that so.
We expect growth we are expecting.
So that margin impact that's come from shifting deposit or strategies.
Strategies, we have to adjust to that has come at us quickly along with the changes and volatility around hiring and cost structure. There and therefore, our strategy then is to continue to grow organically.
We saw good growth from very strong growth in capital markets and in relatively very strong performance in our U S wealth in Canadian wealth franchises. So very good organic growth in our Canadian retail franchises that'll all be funded by the strong castle a performance that we have.
You saw our business commercial bounce back so from that perspective strong organic growth, we have to execute on a number of complex.
Strategic acquisitions HSBC is a complex.
The.
Acquisition, and then all the work happens upfront and as we've talked about publicly the conversion and the clothes are on the same day and that will.
We expect to occur in early 'twenty 'twenty, four but all of that work's happening now and therefore, we're bearing the cost of that we're bearing the effort of doing that the complexity of doing that while divesting of I S Bank, which is also a complex divestment, but good for our shareholders. Good for <unk> shareholders, and obviously are moving brewer.
Dolphin and so.
Those are all the moving parts Ebrahim organic growth, we're very excited about the benefits.
That we've talked to the market about on the HSBC acquisition, we see the benefits. There are we've affirmed those benefits as we've gone through a deeper level of integration work along that side and we think that creates significant shareholder value from an M&A perspective, So I think youre seeing a unique opportunity for organic growth with the castle and liquidity that we have.
And you're seeing a unique opportunity with our Y and bringing in a significant acquisition that will be very accretive to shareholders. So I think from that perspective supports kind of our premium or are we.
Opportunity for us.
And just on U S. In terms of the market share opportunity at all did a great job, both GST and the capital market side in the U S. When you look at it right now given what's happened with first Republic FCB are the better opportunities in private bank digital bank Domo does that create some commercial opportunities.
Do you see those and like I said, we see ready to act on to us.
Are you talking from an organic perspective.
Yes, absolutely we've brought in a number of new relationships from both all those challenger banks and failed banks as you've mentioned and we'll continue to do so whether it's through teams coming in or are clients approaching us directly or C N b and taking them on.
Those accounts are starting to fund now so absolutely there's a significant opportunity given the capital that we have to continue to grow organically and that's our primary focus is to serve clients and integrate the HSBC acquisition all of that while remaining above 12%.
I think it's a unique opportunity to create premium shareholder value in a row.
Thank you.
Thank you.
The next question is from Paul Holden from CIBC. Please go ahead.
Thank you good morning.
First question for for Graeme I wish your revised PCL guidance, we're pushing to the upper end of C to range.
Are you thinking about commercial slash corporate versus consumer and I guess the reason I ask is consumer looks like it's still really strong for many reasons you've already cited whereas we're seeing some pockets of weakness on it I think on the on the on the business side. So is there any clear differentiation between the two.
Yeah, Hi, Paul Thanks for the question I'm going to break those down I would say on the retail side until we see retail has been trending consistent with our expectations overall.
This quarter that the some of the trends we were seeing theres sort of accelerate and we saw some improvements obviously in the delinquencies I quoted.
Having said that we do expect retail to continue to increase as we go throughout the year, because we're going to see a second leg of an effect here in terms of employment environment, creating so in order to kind of baseline forecasts, we do expect unemployment to pick up from the exceedingly low levels. We're at right now we're in that kind of five one range, we expect that to kind of get into the kind of mid six range as we trend through the end of the year.
Into 2020 for and so what we saw very strong performance there and some of the recent trends have been good we do expect that it will continue to increase as we progress through 2023 wholesale side. You know certainly we saw it tick up this quarter on wholesale is never quite as linear isn't quite as predictable it will kind of move up and down from quarter to quarter.
As we see certain files come in and are impaired we we had a a.
A period through 'twenty, 'twenty, one and 2022 or wholesale was exceedingly low rate, we were at kind of near zero levels for a very extended period and so you know last quarter to this quarter. We are starting to see the implications flow through corporate a little more of a I would say that's not unexpected although we've just won't be quite as consistent as we are seeing on the retail side. So again on wholesale similarly.
We'll continue to expect it to kind of trend back to more kind of longer term averages as we progressed through the year seems so the same economic factors will continue to play out in that space as we're seeing in retail, but it just won't be quite as kind of consistent path to get there.
And then anything or even some on the commercial side at all.
Commercial in Canada, you're saying specifically.
Commercial either either are there sort of either side of the border or really I guess, both right like obviously, there's been a lot of discussion on CRE and you provided some additional details there as you know are there are there other pockets of concern on the commercial side right. I mean, I think you called out the biggest pockets of concern is certainly around commercial real estate utilized in our area of oven.
Intense focus we've been doing a lot of analysis and work there to make sure we were.
We're taking all the right actions of our portfolio.
I indicated in my comments you know that has been that was one of the reasons. We did increase our loan loss allowances are performing allowances. This quarter just in anticipation of all kind of more challenged isn't more headwinds in that sector. You know it will take time to play out and you will see kind of different markets in different spaces play out in different ways.
But to give you just a little context on kind of how we've kind of changed your perspective on Korea, as a whole and maybe put some magnitude around that.
If you look at the ACL ratios, we have around commercial real estate now versus the pandemic. There are about two times, where we were pre pandemic. If you will and so then it gives you some sense for what we were thinking about loss rates are at a more normal environment.
Aggregate portfolio now, we kind of would expect more of a two times run rate there.
And certainly the U S probably more acute within that I think as people sort of ratios U S. It's about two and a half times higher than what we would see play out in Canada, but that's the mix of the nature of our client base, we have more of an institutional mix and in the U S and in Canada.
But again.
We've got I think very good client base, we've got good underwriting standards certainly in the commercial space as a whole as well as and Cree, we tend to get a lot of guarantees from our clients in Canada, that's about 95% plus for portfolio with guaranteed answers.
So our clients are very invested in kind of working these situations out in working with us. So we do expect to see headwinds.
In commercial real estate for sure, but overall, we do expect to see.
All commercial portfolio will shrink back to more normal levels as we progress through the year.
In the interest of time I'll leave it there. Thank you.
Thank you. The next question is from Lamar Prasad from <unk> Securities. Please go ahead.
Thanks, that's all maybe for Dave, but the other group has might want to chime in as well I think you referred to are increasing regulation in the U S from the fallout of the sale of the U S. Regional banks I'm wondering if you can maybe offer your thoughts on how much of a magnitude of these increased potential capital regulations liquidity changes and tightening of what.
The capacity will impact swirls and U S operations.
Actively making changes with respect to how you operate in the U S. And then it sounds like it's a net positive for city National but then what about the capital markets business.
Yeah, maybe I'll start and.
I don't know if Graham you want to jump in on that side. So yes, as we as we look at some of the root causes to the challenges the banks under question faced in the narrative back and forth between the industry and leaders in and on the regulatory side, we do expect to see some type.
Oh other liquidity or capital rules are combined rules around deposit concentration overall liquidity levels are the nature of duration.
In your asset for all the things that we account for how you account for that in your balance sheet and churches to your equity base in I O C. L. Although all those things that we do in Canada.
We do expect to see when we should all expect to see and there's been a strong public narrative on it some of those changes and therefore that will have some industry impact on margins and on profitability and a requirement for we would think at a minimum increased liquidity that some.
Degree May also impact.
N. B. In addition, there's a recovery charge from GIC to the industry on the recovery costs of signature bank and obviously SVP to starts and we haven't heard what that is for first Republic, yet and it's a fairly material recovery costs out.
You'll see we expect to see N V would be part of that over recovery charge, even though a very small part so from that perspective longer term, how does that impact the way we think.
We want to make sure you watch your concentrations in your depositor side. It doesn't really mean as much insured and uninsured, but overall, where do you have significant commercial or high ultra high net worth concentrations, we saw those to be quite stable to very stable, while they were unstable and many other banks and we.
Attributed that as do other observers to the strength of RBC combined with C. N V. But we do have to anticipate that there could be some regulation around that notwithstanding the enormous stability that we have that will have to absorb so does that change your strategy maybe at the margin Youre looking for everyone's looking for more operating deposits more.
Treasury management deposits lower beta deposits.
Whole world's competing for that somehow.
So how strong is your customer value proposition your customer profile.
One of the reasons, we're launching a U S corporate cash management capability.
Is to compete in a space that we feel we have a strong right to play given our relationships with large corporates were in their senior in her syndicates or double a rating. So from that perspective that will also help us maintain our growth profile in the United States and funding that growth. So I think it's I don't think.
We can assume that we're gonna be immune from it at the <unk> level, but we have you know very strong ability, we think to adjust for it and we will continue to plan for.
A balanced depositor profile over time, I hope that helps us it's an important concept that's evolving that we'll watch carefully.
Okay.
Jumping with one extra comment there Dave you you'd asked about the impact potentially a couple of markets I mean I would just.
Remind you that some of the <unk>.
Standards that are being considered to the policy changes that Dave referenced are all standards and policies at RBC as a group is subject to inherently have to adhere to.
And so even in the U S. Likewise, our U S operations in aggregate.
It has been treated as a large bank and subject to things like CCAR et cetera.
And so a couple of markets has been living and part of that for a long time and so we would certainly expect.
I'll see changes are uncertain at this point in time.
As David indicated.
Impacts at the margin it would be more in city National Bank and capital markets.
And we aggregate city national into RBC in there for all of those physicians are already aggregated into our balance sheet or income statement. So it would just be how they're distributed with it internally wouldn't be a top of the house impact.
Thanks, I'll limit myself to that just in the interest of time. That's important question. Thank you.
Thank you.
The next question is from <unk> Kim from Credit Suisse. Please go ahead.
Alright, Thanks, just some quick number ones for me.
NII growth target of low double digit what was that for all of 2023 or just the second half of the year.
That would be a full year 2023.
Okay. Thanks, and just a last one for me on your expense outlook for the remainder of the year I'm just trying to get a sense of what the levers you have to tell just on them and I think you've done a good job of kind of talking about on the FTE side, but just wondering if if capital markets expenses could play.
A big role here I do see over the last few years seasonal decline.
In capital markets expenses from first half to the second half.
Wonder if we could see a similar dynamic.
This year in that and whether that's a big driver of your expense growth all those things.
Yes. Thank you good question.
I'll tackle that a few ways I think I would be careful a little bit looking at the last few years because as we've discussed on a few of the prior calls given given the volatility we saw coming through the pandemic and post we saw more intra year movement in our compensation accrual where in 2000.
'twenty one.
We had a sort of.
Larger accruals.
Accruals through the first part of the year and we were able to scale that back in the second half and then last year with a number of the environmental surprises and challenges we saw in the second half. It was the opposite so we ended up having to increase our accruals through the second half. So the last two years I would say the compensation was less.
Linear throughout the year as we would normally like and we are very focused on being more consistent or linear if you will on how we're accruing throughout the year. So I would just maybe caution away from looking at that too much over the last few years I think in terms of our our our expense profile overall.
I think first you know, where we're actually theres more to do but we're reasonably pleased with our expenses in the second quarter, where you saw our revenue was up 5%. Our expenses were up six so we did have negative operating leverage in Q2.
But a number of initiatives we've been implementing have have kept a N I E to a reasonable level taking into account some of the strategic technology investments cash management investments other things were doing when you look at the second half of the year given revenue environment was quite weak for capital markets in H two last year.
We do expect very strong positive operating leverage in the second half. So I think we will continue to execute on some of our cost programs, but in a stronger and just revenue environment than last year, which we expect that should contribute to very positive operating leverage in the second half.
Thank you.
I think we have time for one more question.
You.
And the last question will be from Mike or Zenovich from our BW Research. Please go ahead.
Good morning. This one is probably best for Neal I just wanted to go into the deposit growth since pre pandemic in Canada.
More details. So one thing that I think is a bit surprising us is wheels underperformed the peer group a little bit on the demand and notice side and then on the fixture side.
<unk> had a lot better growth than anyone else. So what's what's driven that underperformance in the demand and notice category in your view.
And we've actually been growing our checking market share so our core our core checking business in the Canadian retail bank is actually up.
Over the last year.
And I would say in the last while.
If we look on a combined demand and term basis market share is also up so I think we do we do have a lot of confidence just about the momentum we see in consumer deposits. So.
Yeah that would be that would be the take there and I think part of that is also related to the new client acquisition, we'd spoke of Ah I had mentioned earlier, we've had very aggressive targets in terms of new clients and after the pause we put we put in place during the pandemic we're back out.
Playing offense investing with that Biz Dev.
<unk> expense to drive that new client acquisition, and it's pulling well so we feel quite bullish on consumer deposits.
But it just just in terms of the mix shift so if I look at your demand and notice as a percentage of your total Canadian deposits, 63% as of March. This is just yahtzee data.
You're about 5% lower than you were pre pandemic and this is the lowest level that I can see since 2012 I'm wondering how this mix.
Sort of.
What's what's the trajectory going forward assuming rates drop later this year early next year.
Trying to understand do you now have needs for the foreseeable future less or less of a benefit of having that bigger.
Concentration of demand and notice category than you maybe.
We typically see a benefit from it looks like it's diminished a little bit I'm wondering how that sort of moves from here.
I mean, I've I've spoken to the consumer side and I would say you know just.
Everything we would look at we're seeing increased market share on both sides of that.
Quarter over quarter year over year, we have seen them I'd say, where we feel we don't feel satisfied is where we see the higher end commercial deposits and particularly where we serve as cash management and some of the larger corporates, we have seen about a 100%.
Rotation on our commercial and corporate deposit balances into those term categories that would be one very strong trend there and then we have seen.
Our energy book, we've seen some large.
Large deposits move out for capital expenses, we've seen a couple of public sector.
Clients.
Spread those deposits out, but other than that I would need to sort of really maybe take the question offline Oh it could be the trends we're looking at.
Okay. That's helpful. Maybe we can take it offline thanks for the color.
Okay, well, thank you to Steve hero. Thank you for.
All the questions today and.
You know what I'll summarize kind of where we feel we came out over the first last quarter first six months of the year and I think.
On the real strong positive story is our core client franchises you know very strong performance across the board from Derik in the in the capital markets team in and hitting our targets and good momentum a climb momentum moving up to seven months overall in market share. It talks to the strategy really working you know very strong performance relative.
Performance in our Canadian wealth asset management and U S. Wealth franchise is continuing to execute organically grow clients growing.
A L M at high Rois and and really executing.
Very well on our plan our funding continues to be a real advantage and as Neal talked to we continue to aim to match fund our portfolio. It's a real strength, we continue to gain overall market share in deposits as you know it's.
Last question and we see more money in motion clearly, it's a global phenomenon, including our own client base.
Which tends to be an affluent client base in many parts of the organization. So strong volume growth a couple of areas. We can definitely do better or that were pointed out on the volume side, but our client franchise is healthy we're building it for the medium and long term and we feel very good we have very strong capital capital I think exceeded expectations continue.
To build capital very well and in a number of ways as we've guided you to and that allows us to do both organic and inorganic execution, where we thought having said that we were caught out on a couple of things which have hurt our results.
No one.
Sort of that length too we didn't foresee this environment nine months ago, we didn't see the volatility the velocity of deposits moving out of core demand into higher yield at that rate. It was it started before the U S banking crisis it accelerated journey the crisis in that.
Caused a real shock to our overall forecast and what the revenue would be would.
It would be off our balance sheet and the second way we were calling in we have to adjust he was on our cost structures.
We knew we were going to have these big programs are complex and expensive, but we did not forecast the rapid change in hiring markets, where we were hiring aggressively given our attrition levels were two three X what they would normally be in the latter part of 2022 only to see the stock almost over.
For a night and we overshot, we overshot by thousands of people, it's a real drag on our cost structure is a big part as you can see in our waterfall of the overall costs are moving up 8% and we're committed to getting that down and as the Dean walked us through where we have a line of sight to the mid single digits and below or on.
We have a number of levers, but that's kind of the tale of tape from my perspective strong client franchise, great great opportunity with HSBC.
Brewin dolphin, we feel confident in executing against those benefits, but we got caught out on the magnitude of the revenue drop and the expense increase and were going to manage that and we're going to manage that like all good teams do and we're gonna get hold of it and we're going to drive.
Shareholder value. So thank you very much for for your attendance today and your questions and we'll see you in another three months.
Thank you. The conference has now ended please disconnect your lines at this time and we thank you for your participation.
Yeah.