Royal Bank of Canada Q1 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: John Aiken - Jefferies - Analyst : I was hoping that you could expand upon the performance of City National in the quarter. If we take into account the incremental provisions that you indicated for the California wildfires, performance seems to be quite solid. Can you talk to where you stand in terms of the ongoing operational improvement and profitability increases that you've been looking for? And what we may be able to expect for the rest of the year?

Question: Mario Mendonca - TD Cowen - Analyst : So at first blush, that big increase in formations seems concerning, but on closer review, like page 22, I could see that the majority or like a meaningful amount of it relates to that one credit and other services. So maybe help me understand what's going on there. What happened in the quarter that led you know something was up with this credit because you built up a meaningful performing? And something happened in the quarter that caused you to impair it? If you could just speak to what that was. And then how do you get confidence that the collateral is good that you don't need to build more provisions against this?

Question: Mario Mendonca - TD Cowen - Analyst : And Graeme, is it common for Royal to have like a $1.5 billion hold on a single credit? It's my impression that seemed a lot high to me. But perhaps that's normal, maybe Royal is really that big and can absorb that.

Question: Mario Mendonca - TD Cowen - Analyst : One quick thing on US margin. I was a little surprised to see that come down considering what we've seen from the US regionals in their Q4 and all the chatter about better deposit dynamics, rates higher for longer. The US regionals were talking of margins in a big way but we didn't see it. Can you speak to that?

Question: Ebrahim Poonawala - Bank of America - Analyst : I guess maybe just sticking with the margin, Katherine, if I heard you right, you talked about when you gave your NII guidance, that mortgage and GIC spreads were better. Just talk to us , is that margin expansion in Canada driven by just balance sheet dynamics, hedging, et cetera? Or is there also a reflection that competitive environment is well-behaved at the moment?

Question: Ebrahim Poonawala - Bank of America - Analyst : Got it. Dave, a quick one for you. How do you manage the business right now? Is the marching orders to the group play offense, play defense? Or are there different orders depending on the market? Just give us a sense, even during the call, there were new headlines on tariffs. I'm just wondering how you're going about putting -- running the bank right now in terms of growth versus managing for sort of a downside scenario.

Question: Meny Grauman - Scotiabank - Analyst : Dave, as we think through the worst-case scenario for tariffs, I'm just curious your perspective in terms of what's a bigger challenge, tariffs or COVID, both from the overall economic perspective and RBC specifically?

Question: Meny Grauman - Scotiabank - Analyst : Got it. So you're saying it will take longer to play out, this tariffs scenario.

Question: Gabriel Dechaine - National Bank Financial - Analyst : Just a couple on the performing provision. So the actual performing piece that was low, but that's because you released some Stage 2 to book into Stage 3 for that one loan. Can you give me the number of Stage 2 releases associated with that account. And then on slide 36 where you're giving us some sense of the economic scenarios underperforming or performing ACL. And if I look at the pessimistic one with 7% GDP contraction, 10% unemployment, that does line up to the worst-case scenario as if we get the more severe tariff situation. Are you able to tell me if that becomes your base case, what's the uptick in the performing ACL, because it's not your base case now?

Question: Gabriel Dechaine - National Bank Financial - Analyst : No, no, that's great. Very, very clear. I mean I have to reread the Graeme Hepworth section of the transcript again, but very helpful.

Question: Paul Holden - CIBC - Analyst : Just to follow up on that topic, Graeme. Just to be very clear, you didn't increase performing PCLs for potential tariff risk because you believe your pessimistic scenario is plus, the way you've put towards those pessimistic scenarios are already adequate enough.

Question: Paul Holden - CIBC - Analyst : Okay. That's helpful. And that leads to my second question. So no change in the impaired PCL guidance for the year despite obviously a high start to the year, and you've highlighted why. Your previous guidance, I think, incorporated an expectation that impaired PCLs would peak second half of the year. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 27, 2025 / 1:30PM, RY.TO - Q1 2025 Royal Bank of Canada Earnings Call So maybe let's attribute that to sort of Canadian retail. Is that still your expectation or maybe that has improved or changed just because of the point you highlighted, Canadian economy ex tariffs has actually started to do better than previously expected?

Question: Lemar Persaud - Cormark Securities - Analyst : Maybe for Katherine. Just wondering if you could just double-click on what gives you the confidence to take the NII guidance higher, just given the uncertain outlook of the impact of these tariffs on volume growth, increased macroeconomic uncertainty and the potential implications on competition that could impact like mortgage spreads. Is there some element of revenue synergies on HSBC incorporated in there or maybe FX benefits that you didn't mention? Or is it really just down to the benefits of the non-maturity deposits and spreads in mortgages and GIC that great?

Question: Lemar Persaud - Cormark Securities - Analyst : But you're not adding in revenue synergies expectations on HSBC that you haven't quantified yet. Is that part of it? Is that a piece of it or no? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 27, 2025 / 1:30PM, RY.TO - Q1 2025 Royal Bank of Canada Earnings Call