Q2 2025 Royal Bank of Canada Earnings Call
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This conference is being recorded so it's close to home that don't go as you see.
All participants please standby your conference is now ready to begin.
Good morning, ladies and gentlemen, and welcome to the RBC is 2025 second quarter results Conference call.
Please be advised that this call is being recorded.
Speaker Change: I would now like turn the meeting over to Jim <unk> Senior Vice.
Jim: This president Investor Relations. Please go ahead Sir.
Dave Mckay: Thank you and good morning, everyone speaking today will be Dave Mckay, President and Chief Executive Officer, Catherine Gibson, Chief Financial Officer, and Graeme Hepworth Chief Risk Officer also joining us today for your questions Erika Nielsen Group head personal banking, Sean I'm Gonna go G Group had commercial bank.
Neil Mclaughlin: Neil Mclaughlin group head wealth management <unk>.
Jim: Melnor group head capital markets, and Jennifer public over group had insurance.
Speaker Change: As noted on slide two our comments may contain forward looking statements, which involve assumptions and have inherent risks and uncertainties.
Jim: Results could differ materially.
Jim: I'd also remind listeners that the bank.
Jim: Assesses its performance on a reported and adjusted basis and considers both to be useful in assessing underlying business performance.
Dave Mckay: 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.
Dave: Thanks, Alison and good morning, everyone and thank you for joining us.
Dave: Today, we reported second quarter earnings.
Dave: A $4 4 billion.
Dave: Adjusted earnings were $4 $5 billion and included two.
Dave: $260 million of earnings from the acquisition of HSBC Bank.
Dave: This quarter, we generated strong pre provision pretax earnings of nearly $7 billion as we continued to execute our strategy as we shared at our Investor day.
Dave: Adjusted pretax pre provision growth was up 16% or $971 million from last year more than offsetting a prudent reserve build a $568 million this quarter.
Dave: Revenue growth of 11% year over year was underpinned by strong average volume growth in personal banking and commercial banking.
Dave: As well as higher spreads in personal banking, we also reported robust fee based revenue growth in wealth management and strong global markets revenue.
Dave: Capital markets, our results demonstrate the strength of our diversified business model and earnings power as well as the value of the insights and advice, we deliver for our clients as they navigate the uncertain macro environment.
Dave: Our revenue growth is noteworthy considering the evolving market conditions. The strong performance was generated from a position of balance sheet strength, which continues to be through the cycle competitive and a strategic advantage for RBC.
Dave: We continue to grow our core deposit franchises across our segments, including a Canadian banking, whereas the loan to deposit ratio improved to 97%, helping fund loan growth in an efficient and stable manner.
Dave: We ended the quarter with a common equity tier one ratio of 13, 2% well above regulatory minimums translating to excess capital of approximately $5 billion relative to a mid 12% range.
Dave: Underpinned by a robust capital and earnings power of this morning, we announced a 6% or 4% increase in our quarterly dividend.
Dave: We also announced our intention subject to relevant approvals to commence a normal course issuer bid to repurchase for cancellation up to 35 million common shares.
Dave: We also remained disciplined with respect to our risk management framework and risk appetite the allowance for credit loss ratio increased to 74 basis points. Following a prudent reserve build which included increasing weightings toward downside scenarios amidst heightened economic uncertainty.
Dave: Our through the cycle approach to risks to managing risk takes into consideration elevated market volatility. We did not have any trading loss days this quarter and Furthermore over the last four years, we've only seen five days, where we generated a trading loss R.
Dave: Our strong balance sheet creates a resilient foundation that allows us to navigate uncertainty, while creating value for clients and shareholders.
Dave: Turning to the macro environment changes to long standing U S and international trade policies have resulted in a volatile and uncertain operating environment, given the potential for structural disruptions to global supply chains and capital flows.
Dave: These changes are taking place concurrently with other large secular forces of change, including the increased role of artificial intelligence and private capital.
Dave: Magnifying the complexity that businesses are facing.
Dave: We saw market volatility through much of the quarter evidenced by movements in credit spreads.
Dave: <unk> and bond market volatility indices.
Dave: Ever as the U S administration implemented a 90 day pause and reciprocal tariffs a volatility of outcomes sentiment and market has narrowed significantly.
Dave: While we can't say for certain where global trade policies will settle we are cautiously optimistic about the path forward reciprocal tariffs imposed on Canada are currently at the lowest end of the global scale, reflecting strong bilateral trade in Acousma agreement.
Dave: Although we are not projecting a recession in either Canada or the U S. The prevailing uncertainty is dampening confidence sentiment and client activity in certain parts of the north American economy, including housing.
Dave: North American consumers have remained resilient they are continuing to spend albeit less non discretionary items.
Dave: And savings are growing.
Dave: Businesses are in a holding pattern holding pattern on large capex, but have built inventory in short up supply chains moving consumption forward.
Dave: As under these complex circumstances that policymakers are looking to navigate the options to sulfur inflation unemployment and growth.
Dave: We expect the bank of Canada will continue to take a more dovish stance to.
Dave: Consumer sentiment in growth.
Dave: Furthermore, we hope to see the increased political uncertainty in Canada drive structural improvements in our country's productivity and competitiveness, including more effectively leveraging our abundant natural resources and skilled workforce.
Dave: But the federal reserve signaling a holding pattern on interest rates given opposing forces. We similarly expect a more dovish stance and U S monetary policy, albeit on a lag timeline.
Dave: To reiterate what I said earlier, we believe we are in a strong position to navigate this period of uncertainty given the strength of our balance sheet, our diversified business model and a strong risk culture.
Dave: With this context I will now speak to the trends, we're seeing across our businesses as we continue to focus on delivering advice insights and value to our clients.
Dave: Starting with our leadership position in Canada personal banking, we are the leading distribution network in Canada with a full suite of award winning products and solutions.
Dave: Average deposits increased 13% year over year or 8%, excluding the acquisition of HSBC, Canada led by outsized growth in our lower cost core banking and savings products.
Dave: As noted at our Investor day growing core deposits remains a priority. This provides us with data to support personalization underpin our risk models and our interest rate hedging strategy, while being an important source of funding.
Dave: Residential mortgage growth was largely supported by stronger client renewals higher origination volumes driven by strong mortgage switching activity, partly offset by higher paydowns.
Dave: We expect housing resale activity and mortgage growth to remain contained in the near term as the uncertainty around tariffs outweighs lower debt servicing costs from lower interest rates and its ongoing intense competition, we will maintain the disciplined mortgage growth strategy, we articulated over the past year.
Dave: And our credit card business spending remained relatively resilient despite low consumer sentiment going forward, we expect spending to soften and revolver balances to increase year over year should the current environment persists.
Dave: Turning to commercial banking, where we have leading market share across all segments.
Dave: Average deposit growth remained strong up 15% year over year or 10% excluding deposits acquired through the acquisition of HSBC, Canada.
Dave: This growth continues to be supported by investments in our people and capabilities, including digital client Onboarding and transaction banking.
Dave: Average net loans and acceptances were up 22% year over year or up 9%, excluding loans acquired through HSBC, Canada.
Dave: Adjusting for these acquired loans larger commercial and corporate loans and small businesses.
Dave: Loans grew at a similar rate utilization rates have remained largely unchanged.
Dave: While the lending pipeline and client activity remains solid across many parts of our diversified portfolio. We continue to see signs of cautious business sentiment in certain areas as clients assess how global tariffs could impact their strategies and investment plans.
Dave: Loan demand was notably softer for companies in the automotive consumer discretionary and transportation sectors.
Dave: Going forward, we continue to expect commercial banking loan growth in the high single digit range for next year.
Dave: But moderate to mid high mid to high single digit growth range in the back half.
Dave: Turning to HSBC, Canada, Youre, continuing to bring new capabilities to market as we've now completed the migration of the largest and most complex commercial clients acquired through the acquisition of HSBC, Canada pursuant to the transit transition services agreement.
Dave: As we exit Q2, the execution of cost synergy initiatives is largely complete and we are increasingly confident of.
Dave: Achieving our targeted annualized cost synergies by next quarter.
Dave: Now to segments in which we are expanding our reach in global fee pools.
Dave: Starting with capital markets, which reported strong pre provision pretax earnings of $1 4 billion.
Dave: Were a record $3 $1 billion in the first half of the year, reflecting its diversified business model.
Dave: Global markets had a strong quarter driven by increased client activity amidst market volatility, which largely benefited our equities and broader macro trading businesses. This was partly offset by the impact of a challenging market backdrop on credit trading.
Dave: The strong performance, both cash equities and equity derivatives was particularly notable as they are a key area of focus for market share gains over the medium term.
Dave: Like commercial banking utilization in our corporate banking loan book remained relatively steady we continue to pursue our strategy to moderately grow lending activity with average loan balances up mid single digits year to date.
Dave: In contrast investment banking activity was muted this quarter given the volatility in markets going forward. The policy uncertainty could continue to impact activity as clients wait on the sidelines for clarity while the second half of the year is seasonally lower or slower in the first half client dialogue is robust and we are well positioned to deliver.
Dave: Ever as dealmaking momentum improves.
Dave: Moving to wealth management, where we reported assets under administration growth of 11% in Canada and 9% in the U S.
Dave: Our clients remain engaged and we had solid net sales and transactional activity in our Canadian platforms, including an RBC direct investing.
Dave: RBC global asset management assets under management increased by 11% to $694 billion.
Dave: Net sales were robust across asset classes with client flow shifting from fixed income and equity mandates.
Dave: Earlier in the quarter to a more balanced funds in April highlighting our clients' confidence in a wide range of investment strategies across geographies.
Dave: As a leading asset manager RBC Gam consistently delivered strong performance through our leading distribution network. This point was underscored with RBC Gam, yet again being named the top gun investment team of the year in Canada for 2025.
Dave: To close this quarter builds on the strong start we've had to fiscal 2025 amidst an evolving operating environment, while macro related uncertainty remains we are confident in our ability to pursue the ambitions of medium term targets outlined at our Investor day in March this.
Dave: This includes our one RBC approach to extending our leadership in Canada growing in global fee pools, and leveraging our strong balance sheet data scale and AI investments to create more value for clients.
Dave: The key strategic initiatives designed to accelerate our ambitions are expected to continue to deliver leading risk adjusted returns and long term value for our shareholders through a wide range of economic cycles.
Kathryn: Kathryn over to you.
Kathryn: Thanks, Dave and good morning, everyone. This quarter, we reported diluted earnings per share of $3.
Dave: Adjusted diluted earnings per share of $3 in 12.
Dave: It is up 7% from last year, driven by strong revenue momentum across our businesses and prudent cost management the acquisition of HSBC, Canada and foreign exchange translation impact also benefited results.
Dave: Turning to capital on Slide 10, we've demonstrated our through the cycle capital strength and resilience despite the market disruption.
Dave: Our CET one ratio came in at 13, 2% flat sequentially solid internal capital generation net of dividends was partly offset by net credit migration, primarily in our wholesale portfolio.
Dave: We also continue deploying organic capital across our businesses towards trading related activity as well as wholesale and personal lending.
Dave: A key part of our capital deployment strategy is returning capital to our shareholders. This quarter, we repurchased 3 million shares for $488 million, an increase from the $2 3 million shares repurchased over the last two quarters.
Dave: We will continue to be practical with the cadence of share repurchases, while operating with a strong CET one ratio.
Dave: Next quarter, we expect a modest negative impact to our CET one ratio as a result of changes to our retail capital parameters.
Dave: Moving to slide 11, I'll bank's net interest income was up 22% year over year or up 14%, excluding training revenue and HSBC, Canada.
Dave: Our bank net interest margin, excluding trading revenue was down two basis points from last quarter, partly due to the impact of higher investment securities balances and capital market.
Dave: You're right on our funding and securities portfolio incorporate support also impacted all thank him as the benefit of certain hedging transactions. This quarter was recorded in non interest income with a related offset reported in net interest income.
Dave: These factors were mostly offset by a favorable product mix in personal banking.
Dave: Canadian banking NIM was up five basis points from last quarter benefiting from a favorable product mix higher mortgage spreads and continued benefits related to our attractive strategy, which provides protection in a declining rate environment.
Dave: Benefits from changes in product mix were driven by strong growth in checking and savings account and seasonally higher credit card revolve rate.
Dave: Ladder, which we expect to reverse next quarter.
Dave: In addition to our client acquisition strategy declining interest rates and uncertainty in the markets are driving clients to hold cash non maturity deposit as shorter duration term deposits mature.
Dave: Well, we expect to continue benefiting from the tailwind in the near future. We don't anticipate this level of margin expansion to continue.
Dave: Looking forward, we are maintaining our 2025 all bank net interest income growth guidance of.
Dave: High single digit to low double digit net interest income excluding trading.
Dave: Moving to slide 12 reported non interest expenses were up 5% from last year.
Dave: Core expense growth was up 8% year over year.
Dave: As a reminder, core expense growth includes run rate costs related to the acquisition of HSBC, Canada, which contributed 1% expense growth.
Dave: The impact of foreign exchange translation and share based compensation, which are largely driven by macro variables.
Dave: The main drivers of growth were higher staff related costs, including higher than average suffering targeted amendments to our defined benefit pension and higher variable compensation commensurate with strong results in wealth management.
Dave: Going forward, we continue to expect all bank core expense growth, which is awesome.
Dave: <unk> 2020 for expenses to be at the upper end of our mid single digit guidance range for 2025.
Dave: We remain prudent in managing our cost base admin and uncertain macroeconomic backdrop and have proactively identified leavers to do so.
Dave: Higher than expected core expense growth outside our guidance range for this year will likely reflect higher than expected variable compensation commensurate with higher revenues in our market sensitive businesses. Consequently, we continue to expect positive operating leverage for the year.
Dave: On taxes, the adjusted non <unk> effective tax rate was 26% this quarter.
Dave: From 19, 8% last year.
Dave: The increase reflects the impact of changes in earnings mix and pillar two tax legislation, partly offset by the net impact of tax adjustments.
Dave: Turning to our Q2 segment results beginning on slide 13, personal banking reported earnings of $1 6 billion focusing on personal banking, Canada net income was up 15% year over year.
Dave: <unk> <unk> HSBC, Canada personal banking candidates net income rose, 8% year over year.
Dave: From the operating leverage of approximately 6% was partly offset by higher provisions for credit loss.
Dave: Personal banking efficiency ratio improved to 41% this quarter underpinned by strong revenue growth higher year over year revenues, excluding HSBC, Canada benefited from a 14% increase in net interest income and an 8% increase in noninterest income.
Dave: We are maintaining that sub 40% efficiency ratio target noted at our Investor day.
Dave: However, as a reminder, benefits from the purchase accounting accretion of fair value adjustments from the HSBC, Canada transaction are expected to largely run off by Q2 2026.
Dave: Turning to slide 14, commercial banking net income of 597 million rose, 3% from a year ago.
Dave: Results were impacted this quarter by an increase in stage, one and two provision.
Dave: On a pre provision pre tax basis earnings were up 25% or 11%, excluding HSBC, Canada, driven by solid average volume growth offset by lower credit fees and higher expenses, mainly reflecting higher staff related costs.
Dave: Excluding HSBC, Canada average deposits and loan growth were strong at 10% and 9% year over year, respectively.
Dave: Turning to wealth management on slide 15, net income of 929 million.
Dave: 11% from a year ago, driven by strong growth in fee based client assets across our businesses benefiting from market appreciation and net new assets.
Dave: We added $6 5 billion in net new assets across our Canadian wealth advisory business, reflecting the benefits of a holistic strategy as we highlighted at our Investor day.
Dave: Global asset management net sales were slightly negative this quarter as a result of net outflows from institutional clients largely due to one client mandate.
Dave: These outflows, however were partly offset by a fifth consecutive quarter in positive retail fund inflows as we continue to grow our leading market share in Canada.
Dave: Higher segment revenue was partly offset by higher variable compensation measure it with increased results and higher staff related costs.
Dave: City National generated 88 million U S. In adjusted earnings up 21% from last year. We are encouraged by the momentum we are seeing and remained focused on enhancing city national's profitability.
Dave: Turning to our capital markets results on Slide 16, net income of $1 2 billion decreased 5% from last year, reflecting a 1% decline and pre provision pretax earnings off of a strong second quarter last year and a higher effective tax rate this year.
Dave: Global markets revenue was up 23% year over year as a volatile market backdrop drove high client higher client activity, particularly in our equity and FX trading businesses across all regions.
Dave: Corporate investment banking revenue was down 7% from last year investment banking revenue was down 22%, reflecting lower M&A activity across all regions. The second quarter of last year was very strong due to the timing of several large M&A deals that closed in the quarter.
Dave: Lending in transaction banking revenue was up 8% underpinned by higher lending revenue primarily in Europe.
Dave: Turning to slide 17 insurance net income of $211 million was up 19% from last year, mainly due to higher insurance service results from improved claims experience.
Dave: <unk> also benefited from higher insurance investment results and lower capital funding costs and favorable investment related experience.
Dave: Lastly results for corporate support in the quarter included higher than normal severance costs, representing approximately half of the total severance incurred this quarter as.
Dave: As we look forward, we continue to expect corporate support to generate a net loss of $100 million to $150 million per quarter.
Dave: Before closing I want to note a couple of disclosure updates in our analyst slide we are providing new disclosures related to the performance of our U S region, which we highlighted as a key geography at our Investor day.
Dave: Secondly, while we commit to providing updates on synergies related to the acquisition of HSBC, Canada. This is the last quarter, we'll provide detailed financials as the acquired business becomes fully integrated into comparable period.
Dave: Lastly, we will look to provide annual updates on our Investor day targets every fourth quarter.
Dave: To conclude despite the market and macroeconomic uncertainty we delivered strong results. This quarter, we are maintaining the annualized guidance provided last quarter, our net interest income and core expense growth, while continuing to drive towards the medium term targets, we outlined at our Investor day are.
Dave: Performance reflects the resilience of our diversified earnings stream and financial strength, all of which position us to navigate the quarters ahead.
Graeme: With that I'll now turn it over to Graeme.
Graeme: Thank you Catherine and good morning, everyone, although discussed or allowances in the context of the current macroeconomic environment and ongoing trade uncertainty.
Graeme: After a stronger than expected start to your Canadian and U S economic indicators softened over the second quarter.
Graeme: Rental installed by global trade uncertainty.
Graeme: U S trade policies and boats of market volatility or creating uncertain conditions increasingly yards of recession in North America.
Graeme: Although tariffs imposed on tenant that were not as severe as broad based as initially expected global and sector specific impacts or cooling economic risks, including reduce trade higher input costs and supply chain disruptions.
Graeme: The final report of a terrorist is still unknown. It is too soon to know how they will work through the economy.
Graeme: Because of this backdrop, we continue to lean on a robust credit provisioning process to inform our allowances because.
Graeme: As a reminder, we are not managing to one scenario or forecast.
Graeme: I have personally framework, we employ five separate scenarios a base case and optimistic through the three downside scenarios of varying severity.
Graeme: This allows us to better handle forecasting uncertainty and incorporate a larger range of potential risks.
Graeme: Compared to last quarter, our base case reflects a greater slowdown in the north American economy from tariffs already known and imposed which we expect will be in place for at least six months before easing.
Graeme: We expect Canada to the U S will narrowly avoided recession as higher inflation and unemployment are expected to be offset by interest rate reductions in both countries, providing relief to borrowers and stimulating investments.
Graeme: Given the trade related uncertainty, we implemented a new trade disruption downside zero this quarter, which replaces our previous oil and gas down so it is true.
Graeme: This new scenario reflects the potential for a severe north American recession, driven by an escalating global trade war and rising geopolitical risk.
Graeme: Translate into a rapid rise in unemployment or inflation disruptions in supply chain and a sharp decrease in asset prices.
Graeme: The trade disruption scenario another downside scenarios help us evaluate risks that we have not yet observed.
Graeme: Given the high degree with geopolitical and economic uncertainties, we have reduced the weighting of our base case and reallocate it towards trade disruptions there.
Graeme: We would expect to decrease the weighting of the underdog play through as and when there is greater clarity of tariff related outcomes and those are captured in our base case scenario.
Graeme: And the retail portfolio clients continued to demonstrate resilience with credit performance improving as interest rates cuts wage growth have made it easier to service debt.
Graeme: Mortgage renewal pricing and refinancing risk hopefully do better than we anticipated closing prices. So those will generally hold up well.
Graeme: So we're seeing more balanced conditions of the Canadian housing market with improving home portability due to lower interest rates and rising inventory levels. We are monitoring risks, including the risk of further slowdown in the Congress islands in certain regions harder hit like economic weakness.
Graeme: We remain well provisioned nonperforming loans in the home equity portfolio, we built higher allowances in segments of the housing market, where we see higher risk.
Graeme: We also continue to monitor the volcker.
Graeme: It was new condo sales cool for context, our exposure to high rise condo developers represents only about 1% of total loans and acceptances.
Graeme: This portfolio was a very strong credit profile that reflects our focus on talk to developers.
Graeme: Courted by prudent underwriting standards, such as minimum pre sales by buyer deposits minimum core equity and outside Rick recourse carrying sufficient liquidity to support our project.
Graeme: Turning to slide 18, we took a total of $568 million or 23 basis points with provisions on performing loans this quarter, an increase of $500 million from the prior quarter.
Graeme: Mainly reflecting unfavorable changes toward macroeconomic tourists scenario weights or macroeconomic forecasts and credit quality.
Graeme: The significant increase in provisions on performing loans is meant to capture a broad range of potential outcomes due to the heightened uncertainty I spoke to earlier.
Graeme: As a reference point the ratio of ACL to total loans and acceptances at 74 basis points will reach the COVID-19 piece of 89 basis points in 2020.
Graeme: This marks the 12th consecutive quarter, where we added reserves in performing loans, resulting in a total ACL of $7 5 billion.
Graeme: Moving to slide 20, gross impaired loans of $8 9 billion were up $1 1 billion or 10 basis points from last quarter, primarily driven by commercial banking and capital markets.
Graeme: In capital markets, we saw new formations in the U S commercial real estate office portfolio, reflecting continued softness in the U S office market conditions.
Graeme: In commercial banking, while new formations increased 512 million quarter over quarter.
Graeme: This increase was driven by administrative factors that essentially had been resolved.
Graeme: The largest long ago impairment this quarter was related to the insolvency of a large retailer in Canada, where we had related commercial real estate exposure.
Graeme: Turning to slide 21, PCL on impaired loans of 35 basis points was down four basis points for 133 million quarter over quarter with lower provisions across most segments.
Graeme: In personal banking provisions were down $17 million, driven by lower provisioning the provisions and other personal lending and residential mortgages.
Graeme: And so our clients continue to show resilience with her employment is expected to lead to higher losses versus unsecured portfolios.
Graeme: And our commercial banking portfolio provisions were down $22 million, reflecting a moderation of tcl familiar HSBC, Canada commercial portfolio as we had anticipated.
Graeme: Overall, the commercial portfolio continues to be impacted by softer economic conditions and consumer spending in Canada, we expect PCL in the commercial side with remain elevated in the coming quarters, considering the added uncertainty from tariffs.
Graeme: Capital markets provisions were down 100 million, because we had a large particular one account to the other services sector in Q1.
Graeme: Offset by a few impairments from U S office real estate this quarter.
Graeme: Within our broader commercial real estate portfolio headwinds still exist because he didn't play out over an extended period.
Graeme: As we have seen impairments can be uneven and less predictable on a quarterly basis wherever realized losses have been welcome team on the back of our strong client base in underwriting standards.
Graeme: To conclude despite the uncertainty in the macroeconomic and policy environment. We are pleased with the overall diversification and performance of our portfolios.
Graeme: We'll sustain treat uncertainty could create recessionary conditions. The ratable. It comes we're well within the suppressed in downside scenarios. We currently consider giving us confidence in our financial resilience through the cycle.
Graeme: We're navigating this uncertainty from a position of strength with PC, all expected to be manageable under multiple scenarios.
Graeme: Our lower PCL on impaired loans this quarter was positive and within our expectations. We are prudently building reserves to account for the uncertainty ahead.
Graeme: To date, we are seeing some slight pull forward of losses because of trade related uncertainty, which if sustained they pushed full year losses to the higher end of our previous guidance.
Graeme: However, we expect the impact of tariffs to play out mostly in 2026 potentially pushing out peaks reached three credit losses into fiscal 2026.
Graeme: Moving forward, the likelihood timing and direction of allowances and <unk> well can be continued to be dependent on the extent and duration of terrorists or tell three measures there'll be a fiscal support measures. Maybe if you have changed and unemployment rates the direction related to changes in interest rates and commercial real estate prices.
Graeme: As always we continue to proactively manage risk through the cycle and we remain well capitalized to withstand a broad range of macroeconomic and geopolitical outcomes.
Speaker Change: With that operator, let's open the lines for Q&A.
Graeme: Thank you.
Graeme: We will now take questions from the telephone lines. If you have a question. Please press star one on the devices keypad you may cancel the question at any time by pressing star two.
Graeme: So please press star one at this time, if you have a question there will be a brief pause while the participants register.
Graeme: We thank you for your patience.
Graeme: Yeah.
Speaker Change: The first question is from Gabriel <unk> from National Bank Financial. Please go ahead. Your line is open.
Gabriel: Hey, good morning.
Speaker Change: I didn't expect to be first anyways.
Speaker Change: I'd like to ask about your you.
Speaker Change: The increase in gross impaired loans, you did mentioned that a big chunk of that was tied to large Canadian retailer.
Speaker Change: Uh huh.
Speaker Change: Thanks for that.
Speaker Change: Do you how much discretion are you using to classified loans as the parents because one perspective is that maybe this is the.
Speaker Change: Royal specific issue, we've seen a couple of quarters of prior gels.
Speaker Change: Uh huh.
Graeme: But maybe the bank is just being a bit more active in how they classify as something as impaired there could still be paying you, but you're assessing.
Graeme: Assessing the risk in deciding what to classify those as well.
Graeme: Parents are your more conservative in a sense then.
Graeme: Maybe another bank might be.
Gabriel: Gabriel it's Greg.
Graeme: I'll take that thanks for your question.
Graeme: Some broader context on the G. I L. Build this quarter, we just were over a $1 billion increase quarter on quarter as I noted in my speech about 40% of that was related to some administrative concerns and those have all been resolved and subsequently so the overall build isn't quite maybe as large as the headline relates to chip.
Graeme: To your question on kind of discretion.
Graeme: Can't speak to what others doing their processes I would say, we have very well defined processes and rules and how we work with.
Graeme: And how do we determine when something is impaired.
Graeme:
Graeme: Those rules and when we compare something isn't strictly driven on when a company stops paying or not it would be on our forward views of that company as well and so right at some of the companies we have put into impaired loan status over the last two quarters are still paying interest to us.
Graeme: In turn picked out and just build that into our reserves as we receive that interest. So there is some discretion in that regard, but I would say, we're very consistent in our process. Since we certainly haven't changed our approach in that.
Graeme: In recent quarters.
Graeme: Also notably we're gonna be impaired again, the wholesale it just can be a bit more episodic quarter to quarter, it's not quite as consistent in the way retail is I think if you go back to the latter half of last year, where we had I would say very little impaired PCL in our wholesale business as we know that the time that that was probably not representative the cycle either.
Graeme: So I think again, you just got to look quarter to quarter and maybe how this trends over longer periods before.
Graeme: I don't think that we saw this quarter was something unique or kind of really indicative of where we see things trending.
Speaker Change: And can you clarify that that administrative.
Speaker Change: Comment so 40% of the billion increases.
Speaker Change: Administrative and neither or technical so and they've been resolved so.
Speaker Change: That's going to go in the other direction next quarter or two.
Speaker Change: It is.
Speaker Change: As relates directly and indirectly to us just kind of finalizing some of the final pieces of integrating HSBC into our processes.
Speaker Change: So as we worked through the final kind of credit elements of that.
Speaker Change: There was some cues, particularly related to two some terminals that were up for renewal, but just didn't get renewed on a renewable timelines I suppose tripped into impaired none of those were credit issues. Those have all been supposed to be renewed and resolved and so yes. Those will go the other direction next quarter.
Speaker Change: Got it thanks for that clarification.
Speaker Change: Thank you.
Speaker Change: The next question is from Ebrahim <unk> from Bank of America. Please go ahead. Your line is open.
Speaker Change: Good morning.
Speaker Change: I wanted to follow up actually Graham with your own credit.
Speaker Change: Yes.
Speaker Change: So sorry, if I missed this I'm not sure if you talked about what your expectations were on.
Speaker Change: On impaired PCL for the back half of the year and just talk to us.
Speaker Change: You think about <unk> being pushed into 2026.
Speaker Change: Are there new areas of tests within the book so.
Speaker Change: Other areas inside of the commercial book, where you think Steph maybe due to that is on a prolonged kind of a slowing economy that are emerging which.
Speaker Change: Informing that feel I'm, just trying to think about.
Speaker Change: As we think about.
Speaker Change: All these macro does all of this is it just conservative management of building reserves or do you have a sense of a line of sight on how this plays out and assess areas maybe already beginning to emerge.
Speaker Change: And future losses could control thanks.
Speaker Change: Yeah. Thanks, everyone.
Speaker Change: Just to be provided a few different pieces on that.
Speaker Change: In our slide there on the on the ACL build truly.
Speaker Change: Truly kind of breakdown the drivers of what's building that ACL rate and so.
Speaker Change: The three really big component parts. There one is credit migration, so that that's a direct reflection of what we're seeing with our clients they're there.
Speaker Change: Risk profiles, if you will their financial profiles.
Speaker Change: This quarter was about 20% of that build and that's kind of the line it looks like quite a little bit lower than what we've been seeing in prior quarters. So.
Speaker Change: I wouldn't say at this point, we're seeing newly emerging kind of credit pockets of concern at least directly through our client base.
Speaker Change: 80% of the build is really more on kind of our go forward view and just the uncertainty around our go forward view right. So.
Speaker Change: Our base case was a weaker this quarter.
Speaker Change: Hugely weaker but certainly we've increased our views on unemployment going forward, where we pulled back a little bit of her views on each P. I N G D P.
Speaker Change: So that's contributing to it and that's just reflecting the current uncertainty in the market right now and there is some real director of economic impacts of that.
Speaker Change: But.
Speaker Change: The third part was just really increasing the weight suite. We introduced this new scenario, just really try and target.
Speaker Change: Certainly we're seeing that play itself didn't really increase our reserves because we already had some fairly pessimistic scenarios in there, but it was really attributing more weight to that and the more we does just again just trying to I think address this uncertain environment and get ahead of that to some degree.
Speaker Change: Understood.
Speaker Change: And maybe I guess, just one for you Catherine alone.
Speaker Change: Sensitivity of you think about on a go forward basis. I. Appreciate you are sort of guiding to NII.
Speaker Change: Well.
Speaker Change: Perhaps if you can tell us what would drive into the low double digits high single digits.
Speaker Change: Balance sheet growth loan growth needs to pick up to get us dead and.
Speaker Change: And then.
Speaker Change: Then as we think about future sort of bank of Canada need cuts, how do you sort of think about the impact on NII.
Speaker Change: Relative to what the bank of Canada or the fed does.
Speaker Change: And then if he the disclosure on slide 26, but would love some color on that thank you.
Speaker Change: Good morning, Ebrahim. Thanks for the other question.
Speaker Change: And so in relation to I guess your outlook on the NII ex excluding trading is I'll just take you through our underline assumptions on how we arrived at that guidance and as I go through that you'll get a sense of what could move us in that range. So if I start off with volume our volume we're holding to that.
Speaker Change: Items that we disclosed back in Q4, showing the mortgage basis.
Speaker Change: We are still targeting low single digit and as David mentioned in his remarks.
Speaker Change: We're cautious on the outlook on that front, but we're still seeing progressing up low single digits as it relates to commercial for the full year looking to still hold volumes at high single digits, but for the second half again, given the cautiousness that we are seeing from some clients were expecting that to be more towards the mid to high in the second half.
Speaker Change: Half of the year and then on our corporate banking continuing to see moderate growth in expecting that tough or does it go through the second half of the year. So overall on the volumes. It was your expectations, where it could shift is really around the the client behavior for the second half the year and around the cautiousness and how we see that play out as we move.
Speaker Change: Move to NIM that was obviously another key part of our guidance a couple of items. There. So on the tractor front continue to see that positive moving through what could continue.
Speaker Change: Continue to underpin that is a strong growth in deposits that we're seeing which is obviously key to our overall deposit acquisition strategy and so what we're seeing with that higher growth as with any more into tractors not an immediate impact but its positive overall.
Speaker Change: As I said in my remarks, we had the seasonal movements. So that will impact you need to go for it and then I guess a couple of unknowns that I've spoken about before really ties into the mix shift as well as competitive behaviors on the mix shifts we've been seeing that as a positive tailwind as routine GIC start to come down.
Speaker Change: We're seeing the non term maturities continue to grow.
Speaker Change: Lions are holding their funds there and so that's accretive to NAND. So as we go throughout the rest of the year. If we continue to see that trend that would be accretive.
Speaker Change: And then on the competition front, we continue to see pressures on the GIC front, a little bit on the mortgages it starting to pull back and but.
Speaker Change: But depending on how that plays out through the second half of the year. That's another item that can move us in our guidance on the net interest income excluding trading.
Speaker Change: Thank you.
Speaker Change: Thank you the next.
Speaker Change: Next question is from Mario Mendonca from TD Securities. Please go ahead. Your line is open good morning, Graham you sound a little bit more cautious on credit then I'm hearing from other banks like your point about PCL is peaking in 2026.
Speaker Change: A little different.
Speaker Change: Hearing slightly different sentiment for many other banks.
Speaker Change: This morning, you probably would've seen that the U S court of international trade.
Speaker Change: Sort of struck down the reciprocal tariffs at 10% baseline terrorists.
Speaker Change: I know this is hot off the press, but does that does that change your outlook. If in fact this whole tariff scare with just one giant head fake.
Speaker Change:
Speaker Change: With that.
Speaker Change: Build greater confidence for you on Pcl's ROI.
Speaker Change: Mario It's fair questions, Dave and I'll I'll start on a macro side and hand, it to Graham and obviously when we set our scenarios a number of things you said are scenarios well over a month ago.
Speaker Change: You know the world is evolving because it continues to be volatile and thats part of our challenge and part of the reason we've rebuilt formations as the uncertainty in the world around US we still have to go through Acousma renegotiation with the U S and we still don't know the impact on the auto industry. We don't know the impact on the dairy industry and agriculture soldiers.
Speaker Change: And forestry, so yes, while the short term reciprocal tariffs appear to be.
Speaker Change: It doesn't mean that we have an overall extended agreement with the United States on future trade. Therefore, very much involved in that and we have to kind of manage that going forward. So I think our uncertainty is still applies in the medium term that we still have to progress through a number of other elements. So I think it's fair some of the.
Speaker Change: Shorter term volatility and reciprocal tariffs and the cost of that all of this is creating uncertainty is creating uncertainty in allocating capital from mortgages right through to M&A and therefore wireless cloud overhangs. The Canadian economy is having a real impact and we think.
Speaker Change: The momentum dividend potentially economy going forward. So I still don't think we're shaking the overall uncertainty level, just because of that ruling last night, but.
Speaker Change: But it helps it helps set the stage for kind of renegotiation of U S. MCA that we expect will happen over the coming six months Graham.
Speaker Change: I think they've covered well I mean, certainly you know what's transpired in me there would be some positive signals in me that didn't exist in April but I would also say a bunch of those positive signals or tickets anywhere towards conclusion on kind of where this is going to land, where it's going to land are quite quite frankly, when it's going to land either so.
Speaker Change: I think yes, we'd have a degree of caution with that Mario and we will certainly evaluate kind of what we learn in the coming months and adjust accordingly, if we feel are.
Speaker Change: Stronger that this is going to land sooner and better than we were thinking right. Now then that will lead us to kind of adjust our weights and reserves accordingly.
Speaker Change: Were intended to be dynamic, but I think at this point in time, it was prudent to be building against that uncertainty.
Speaker Change: I think just back to Dave here I think it's just important that this is the stage one and two provision we haven't spent it it's in our pocket right halfway if we're wrong then we haven't released it.
Speaker Change: Good day, so it's just there's no downside and being cautious given this uncertainty as to how we feel.
Speaker Change: Got it thank you.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Next question is from Paul Holden from CIBC. Please go ahead. Your line is open.
Speaker Change: Thank you good morning.
Speaker Change: Quick questions hopefully the first one maybe maybe maybe for Derek and sort of Dovetailing off what Mary I was just asked.
Speaker Change: Given your pipeline for say, M&A, ECM et cetera, and maybe some improvement and certainty around tariffs.
Speaker Change: How quickly do you think the activity can bounce back as the market gets more comfortable with the with the tariff outlook.
Speaker Change: Sure. Thanks for the question Paul.
Speaker Change: I would really break into two things sort of how quickly does activity bounced back and then how quickly does activity actually lead to consummate transactions and revenue in the business because there obviously is a time lag depending on the nature of the transaction I think if you look at where we were sitting in April at the peak of uncertainty around.
Speaker Change: Tariffs and the economic outlook, we saw a very short short, but very pronounced slowdown in activity as Dave alluded to there was a lot of uncertainty and clients really hit pause whether that be on financing activity or longer term strategic capital allocation decisions, including M&A.
Speaker Change: As we have seen.
Speaker Change: More signs of optimism.
Speaker Change: <unk>, obviously some of the announcements last night and this morning.
Speaker Change: We certainly are seeing a pickup in activity as we've come through.
Speaker Change: Weeks.
Speaker Change: Tend to see that in different phases. So the first is you see that pick up in your flow of financing activity, whether that'd be DCM ECM high yield issuance term loan issuance.
Speaker Change: And already in May there has been a reasonably healthy.
Speaker Change: Proven to in that regard both in terms of activity, but also just client dialogue.
Speaker Change: Any of that kind of flow activity also then results in transactions being completed quite quickly.
Speaker Change: The second part then is longer term more strategic M&A activity.
Speaker Change: We certainly are seeing an improvement in sentiment and more dialogue and lots of client dialog going on but where there's still there's uncertainty as how quickly does that actually translate into announced transactions and then what's the period of time through closing I think in the month of may across all of our geographies we've seen.
Speaker Change: Some some very nice transaction activity and some deals being announced but theres, a lot where boards and executive management teams are still evaluating what what the world's going to look like over the next 12 months to 24 months.
Speaker Change: So there will be a delay in some of that coming to fruition and then obviously depending on the sector the nature of the transaction.
Speaker Change: Closing can be anywhere from three months to 18 months, depending on regulatory approvals or otherwise.
Speaker Change: But overall certainly the outlook has notably.
Speaker Change: Improved from where we were six weeks ago.
Speaker Change: Okay. That's very helpful. Thank you and then I'll just sneak in a second quick one if you don't mind.
Speaker Change: For Sean just very strong growth in commercial banking and.
Katherine: We're from Katherine sort of the outlook somewhat slowing in the second half, but just maybe a reminder, on where you're at.
Katherine: Where you're growing and commercial so it looks like you're picking up some share based on what we've seen from from your peer banks.
Speaker Change: And then two quite a big difference in the.
Speaker Change: Net interest margin Q over Q.
Speaker Change: Commercial banking versus the personal bank, so maybe just want to better understand.
Speaker Change: Why the NIM is going lower and our commercial banking given the strong loan growth. Thank you.
Speaker Change: Maybe I'll start with thanks for the question, Paul maybe I'll start with the second one it's primarily driven by the VA migrations.
Speaker Change: And the shift between NIM.
Speaker Change: NIM and other income.
Speaker Change: So it's a it's mostly.
Speaker Change: Mostly offset on sort of the other side of the the other contributor to revenue.
Speaker Change:
Speaker Change: And on a year over year basis that starts to have less of an impact as we complete in the next quarter.
Speaker Change: With respect to growth.
Speaker Change: The portfolio your first question.
Speaker Change: This is the continued execution of a sort of a multi year strategy to.
Speaker Change: Invest in coverage and underwriting expertise and structured banking.
Speaker Change: Expertise to drive growth.
Speaker Change: In the larger segments of the portfolio.
Speaker Change: Sort of our senior commercial and corporate client client group segments.
Speaker Change: And that's been executed really well.
Speaker Change: He is also returning off of a base of underperformance in the early part of this decade and so on a five year basis, our growth rate is actually very close to the industry average.
Speaker Change: At about 1%.
Speaker Change: 1% greater.
Speaker Change: In terms of recency of growth.
Speaker Change: As Dave mentioned to you through.
Speaker Change: All of the uncertainty there, we're definitely seeing sequential growth slow.
Speaker Change: On a rolling four quarter basis for example.
Speaker Change: Our quarterly sequential growth was averaging about two 5% in.
Speaker Change: In Q1 that was one 8% in this quarter relative to Q1, it was one 6% and as Catherine highlighted we our outlook is sort of in the.
Speaker Change: Mid single digits to the low end of high single digits on a full year.
Speaker Change: H two basis, this year, which would imply about a one to one 5% sequential growth on a quarter over quarter basis for the next two quarters.
Speaker Change: Alright, that's it from me thank you.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: Next question is from Sohrab <unk> from BMO capital markets. Please go ahead. Your line is open.
Speaker Change: Okay. Thank you Graham roughly half of that performing builds looks to have been kind of charged to the commercial bank can you talk a little bit about.
Speaker Change: The industry sectors there.
Speaker Change: That where a targeted by their bill.
Speaker Change: Yes, thanks, Rob.
Speaker Change: Yes. So commercial again this is all about kind of the go forward macro and how we see things.
Speaker Change: Putting all going forward I would say the sometimes it's going to continue to put pressure on some of the same sectors that have been under pressure to date.
Speaker Change: Was it very much that supply chain sector, the industrial the manufacturing and transportation sectors. So that's really I would say the core components of where we see that that that's being hit there we do.
Speaker Change: We have done bottoms up analysis here to really kind of try and assess which sector is overall, we think we're gonna be hit most directly.
Speaker Change: Directly by tariffs I mean, that's again, a challenging exercise because those tariffs seem to change day to day week to week within their magnitude in and where they're gonna be applied. So we go through the book really looking at those sectors that have kind of the biggest import export kind of dependencies, and then within that kind of refined which of those we think of it.
Speaker Change: We're showing the ability to absorb costs or not and so that's kind of the analysis, we do that kind of supports that.
Speaker Change: It was a significant chunk of that really kind of pointing back to some of those same sectors that have been cut a challenge to date.
Speaker Change: Okay, and just with Sean just staying with the commercial I mean, your ROE, obviously, reflecting the reserve build.
Speaker Change: Lower than that.
Speaker Change: Capital markets are really this quarter you have an 18%.
Speaker Change: Target out there how long do you think before you hit that 18%.
Speaker Change: Yeah, as we articulated in our Investor day presentations at a three year target.
Speaker Change: So to your point.
Speaker Change: A number of contributing factors, that's driven at lower than recently, obviously the reserve build this quarter as Catherine highlighted last quarter the allocation of the Catholic capital methodology into the businesses was about 70 basis points.
Speaker Change: And then the about 90 basis points of the reduction is also the goodwill allocation from the HSBC acquisition and so are our projections are to rebuild to 18% in three years.
Speaker Change: So.
Speaker Change: It would be very hard to fiduciary anyway right.
Speaker Change: Yes, that's what I did not thank you.
Speaker Change: Thank you.
Speaker Change: The next question is from Mike Donovan from Scotiabank. Please go ahead. Your line is open.
Mike Donovan: Hey, good morning, a question for Graham and this is more of a qualitative question, but when I when I look at your G. I L ratio on the mortgage book.
Mike Donovan: Get it that it's it's relatively low among your peers, but it's actually deteriorated the most over the past year and I'm sort of wondering if that's largely related to the HSBC client base coming in I do think there's a perception in the market that loyal customer base, including on the retail side tends to.
Mike Donovan: Better quality lower risk, probably better FICO score or are you still sticking with that narrative. If you do agree with it and.
Mike Donovan: Is this largely HSBC related.
Mike Donovan: Yeah. Thanks, Mike.
Speaker Change: No I do not think that's HSBC related the client base, we absorbed from HSBC has a very high quality actually skews higher than the rest of our consumer reports and mortgage books, although that is not what's driving that narrative.
Mike Donovan: I think be partly what's driving that is it mix question and in the markets that are that.
Mike Donovan: Our most challenged by kind of the higher payment environment. This would be the GTA of the world that are really driving our impairments. These days.
Mike Donovan: Think again overall the quality of our client base continues to be very strong. The performance. There continues to be very strong and we feel very good about that book and the structure there and the ultimate write off if you follow that through had been very low because of that but we are seeing impairments as more clients are facing more challenges in this higher rate environment.
Speaker Change: Okay. That's helpful. And then just one quick one for probably for Erika.
Speaker Change: Just in terms of the mortgage business.
Mike Donovan: In your segment or are you are you able to provide at least maybe like a high level of what the revenue contribution is so if you.
Mike Donovan: To the extent that you might have that handy. So if you look at the spread and the fees related to originations and any any activity in the reservoir book or or just the mortgage book per se.
Mike Donovan: Could you ballpark that like is it is it 10% of revenue is it closer to 20 in your segment.
Mike Donovan: Okay.
Mike Donovan: So I think what we do in the like if I think about where we've been over the last 12 months in that mortgage book, what we're seeing is.
Mike Donovan: The balance that we talked about how we think about the volume that we're putting on the books and the margins that we're putting that business.
Mike Donovan: Business on at and I would say on a year over year basis, we are seeing our ability to continue to have the mortgage business start to come back.
Mike Donovan: From low levels of profitability, but when we saw our spreads really degrade ah to levels that probably from an ROE perspective, we need to be back up to a higher degree of ROE in the business and so I think on a on a year over year basis, we continue to see green shoots in that business contributing more than the profitability of <unk>.
Mike Donovan: Of the aggregate earnings of the personal bank.
Mike Donovan: But we're certainly not at the levels of profitability that we would have seen him you know.
Mike Donovan: 24 months ago 36 months ago in terms of the contribution of that mortgage book back to the earnings at the personal banking. So we still are balancing our growth expectations and how were pursuing growth in that market with the returns in that business and taking a calculated march to them getting back to higher.
Mike Donovan: <unk> earnings from the aggregate mortgage business.
Speaker Change: It's just again, it's just I'm not sure if you're comfortable providing a ballpark number or we can take it offline, but it is 10% a reasonable number would with the mortgage business contribute roughly 10% of the segment revenue.
Mike Donovan: Or is it something a bit higher or lower than that so let's do that.
Mike Donovan: Take that question offline.
Mike Donovan: Uh huh.
Mike Donovan: Okay Alright.
Mike Donovan: Thanks.
Mike Donovan: Thank you.
Speaker Change: The last question is from Lamar Purcell from <unk> Securities. Please go ahead. Your line is open.
Speaker Change: Yes, Thanks, My question's for Graham.
Speaker Change: I guess going back to last quarter I guess, the bank felt the downside scenario appropriately accounted for trade uncertainty can you walk me through what drove your decision to introduce another scenario because I would've thought that you know with a sufficiently conservative downside scenario before the ability to shift waste between scenarios.
Speaker Change: And later in E. C. J, there would've been a very compelling reason to introduce a whole new scenario. So I guess walk me through like why you decided you needed to go through the trouble of introducing a new scenario rather than using some of the levers I mentioned.
Mike Donovan: Because those seem to be much simpler than that introducing a new scenario does it feel like perhaps a trade war has a real risk of persisting far longer into the future than perhaps the banks are messaging this quarter.
Mike Donovan: Yeah.
Mike Donovan: I would say at least where we were after Q1, you remember like I mean things have just started to play out literally in the early days of February.
Mike Donovan: After we close every quarter and so we well we had been doing analysis of using this scenario kind of in the background as we kind of persisted through Q2 and things really amped up I mean really at the beginning of April with Liberation day like this this kind of went through a whole different level of concern and uncertainty while we had a pessimistic scenario that was kind of broad in nature and have similar.
Mike Donovan: <unk>, we really wanted to kind of invoke something that really address the current kind of concerns and what that might look like and so the risks we're facing here now as well it didn't by itself seems the overall numbers. It certainly those change where we're allocating reserves and really highlights the pockets of risk that we'd be more concerned about and so that.
Mike Donovan: Just again it allows us to do.
Mike Donovan: Directly leverage our framework as opposed to just kind of using overlays management judgment and kind of.
Mike Donovan: I would say a little bit more.
Mike Donovan: Subjective waves. If you will so I think we just released the framework, we have and we like to use that framework rather than just overwrite it with our judgment.
Mike Donovan: Yeah.
Mike Donovan: Thank you.
Mike Donovan: Okay.
Speaker Change: Okay. So I think that's our last question and I will I will wrap things up and we appreciate your comments.
Speaker Change: Went through the quarter and we prepared for the call today.
Speaker Change: We knew that your focus would be on <unk>.
Speaker Change: Our reserve built in the <unk> in the portfolio and now let me just take us back to the top though we did show very strong pretax pre provision growth very strong client levels activity levels, particularly in personal and commercial banking and under deposit side.
Speaker Change: <unk> delivered a really really good revenue growth, we had very strong operating leverage and as you heard on the credit side as we went through these scenarios in our stage one and two reserve build we knew there is conservatism.
Speaker Change: Conservatism, we didn't know what it would be that different than our peers at the end of the day, but we do these things obviously in isolation, we knew that would cause us at the top of the house to to Miss expectations that we still took them at the end of the day because that's what are the scenarios advisors, but they are two service scenario, where 80% of that reserve builds.
Speaker Change: As macroeconomic estimates.
Speaker Change: The future and everyone can have a different view, but we took that it's not like we spent that money that goes into an ACO and if we're wrong. We'll release. It. So we knew that conservatism may caused the types of questions. You asked today and the other fair questions you've asked us on our gross impaired loan build you heard.
Speaker Change: Graham say, 40% of that build was administrative right and matured credits that had to get renewed so you offset that and they go to 60% builds and we didn't even talk about how we're confident in our in our allowances for for that GL build because of collateral and structure and the types of.
Speaker Change:
Speaker Change: Of clients that we know we have so.
Speaker Change: We expect it to kind of your conversations.
Speaker Change: <unk>.
Speaker Change: To come back to that but but don't forget in a very strong overall performance, we saw execution HSBC with execution on city national and all of that led to very strong overall revenue and pretax pre provision profit results and strong net income results and I'll remind you again, we increased our dividend by <unk> <unk>.
Speaker Change: Showing our confidence and we're continuing to do buybacks, because we know where the intrinsic value of the firm is and will continue to buy back shares even at these elevated <unk>.
Speaker Change: <unk> all that signifies notwithstanding we took some prudent reserves that you're reacting to our confidence in the future. So thanks very much for your questions and we look forward to seeing an exporter.
Speaker Change: Thank you. The conference has now ended please disconnect your lines at this time.
Speaker Change: And we thank you for your participation.