Royal Bank of Canada Q3 2024 Earnings Call Transcript

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

Question: Ebrahim Poonawala - BofA Securities, Inc. - Analyst : I guess maybe a question for you, Dave. I think I heard you say we should expect a pick-up in buybacks given how you view the intrinsic value of the stock. So I guess the question is on capital allocation. One, correct me if I'm wrong, but not sure unless something macro-wise goes on why Royal should be earning a lower ROE relative to the 60% you reported this quarter and if the stock continues to perform well, maybe trading north of 2 times price to book. We've seen this with the likes of JPMorgan in the US, where would you rather accumulate dry powder to fund organic growth next year, leave some room for M&A? Just how are you thinking about capital allocation given the capital that the bank is accreting and the possible use and your patience to allow capital to build in the near term?

Question: Meny Grauman - Scotiabank - Analyst : Question for Graeme, just on the impaired PCL ratio, 26 basis points this quarter, below the average historical loss rate. So I'm just wondering, can you -- in your view, has this ratio peaked and -- or are we still likely to head back above the historical loss rates, the average historical loss rate as you look forward?

Question: Meny Grauman - Scotiabank - Analyst : And just as a follow-up, you talked about the peak on the retail side being lower than what you originally expected. Is that just a commentary on rate cuts? Or is there something else?

Question: John Aiken - Jefferies Financial Group, Inc. - Analyst : I was hoping you could give us a little bit of insight in terms of the integration going on with HSBC. I mean, obviously, we're seeing the financial benefits. But are you able to talk about some of the metrics like cross-selling to HSBC clients or customer attrition. I mean, I'd love to hear it on an absolute level, but basically, I'm assuming this is what you had planned for would probably be a little more reasonable.

Question: Paul Holden - CIBC Capital Markets - Analyst : Since we've entered the rate cutting cycle certainly in Canada and probably soon in the US. Just wondering if there's anything you can point to or how you're thinking about the NII and earnings sensitivity to rate cutting beyond the simple disclosed NII sensitivity, like is there any nuances why this cycle maybe could be different than past cycles because of some of the funding mix shifts we've changed, et cetera? Some additional thoughts would be helpful.

Question: Paul Holden - CIBC Capital Markets - Analyst : Okay. That's helpful. I mean there's a number of things you gave us to think about in Canada. My read based on the answers you provided, I think, maybe less NII sensitivity from rate cuts than we might see based on the disclosed numbers? Is that a fair takeaway then.

Question: Doug Young - Desjardins Capital Markets - Analyst : Just on City National Bank. Just hoping to get a little bit of color, you talked about the back of the adjustment, earnings $115 million. Can you quantify the performing loan allowance release the noncore losses, maybe a little more detail. And I guess what I'm trying to get at, is this kind of a reasonable jump ox spot. Like have you turned the corner? It seems like the progress in the last two quarters is moving in the right direction. Just to hope to get some color on that.

Question: Doug Young - Desjardins Capital Markets - Analyst : Maybe just. Sorry, go ahead.

Question: Doug Young - Desjardins Capital Markets - Analyst : Okay. And then just second, there's been a steady decline in market risk RWA over the last, call it, three quarters. Is that intentional? Or are you taking down risk in capital markets? Just hoping if you can elaborate maybe a bit on that.

Question: Sohrab Movahedi - BMO Capital Markets - Analyst : Okay. I think the question will probably be director at Dave, Graeme and maybe Derek. I think the cautious tone I heard, Dave, around the macroeconomic environment. And I think Graeme basically suggest that we will have some sort of elevated perhaps PCL outlook. But -- but I'm just trying to kind of better understand if that's just being uber conservative, given the comments that -- but you still plan to also do some buybacks and whether or not if a declining rate environment, even if it's coming at us at the pace that it is, is actually going to be it's steepening yield curve, like I think that's going to be really additive to Derek's business as well here. So can I just better understand the degree of conservatism, I think that Graeme is placing in the PCL commentary and Derek's outlook for pretax pre-provision, especially in the capital markets and that dovetails with buybacks and pace of buybacks and your view of intrinsic value, please?

Question: Sohrab Movahedi - BMO Capital Markets - Analyst : It's super helpful. Graeme, if you had to probability weight if you're going to be increasing the weighting to the base case higher or lower in your IFRS 9 modeling in 2025, knowing what you know today, what would it be, do you think?

Question: Mario Mendonca - TD Securities - Analyst : Two quick things I wanted to clarify that I didn't quite follow on the call. First, Katherine, you talked about -- I think it was you talked about the sweep accounts in the US bank feeling -- not feeling a need to adjust rates there. Could you just maybe speak to that first.

Question: Mario Mendonca - TD Securities - Analyst : Helpful. And then Graeme, one other thing that I want to clarify on page 18, you referred to $452 million reduction as some certain loans were converted to investments. Did I read that -- did I listen to that correctly?

Question: Mario Mendonca - TD Securities - Analyst :

Question: Mario Mendonca - TD Securities - Analyst : Okay. And then a more broad question for Dave. Canadian investors are probably too polite to say it, but they've kind of lost patients with large US deals that do nothing but destroy value. And I'm not suggesting that City National was one of those wasn't large enough, I think, in the context of Royal to do much damage. But clearly, the US deals in the last little while have not been good for Canadian shareholders. So in your response to Ebrahim, and you were talking about capital allocation, what I'm getting at here is -- would the bank consider a large transformative transaction in the US or when you think about allocating capital to the US, is it all about fixing City National maybe buying something small that might enhance value there. What's your thinking about allocating capital to the US going forward?

Question: Gabriel Dechaine - National Bank Financial, Inc. - Analyst : A couple of questions here. First, for Derek, can you talk about the credit performance in your US leveraged finance portfolio. I think it's around $20 billion, the stuff you keep on balance sheet and how those credits are behaving in this higher rate environment? And then on HSBC Canada for Neil, last quarter, you showed the balances at closed versus where they were when the deal was announced, showed some deterioration, and we don't have that disclosure anymore. And I'm just wondering if that decline has stabilized and maybe we had a bit of growth legacy HSBC, if you will. And then City National, what's the outlook for loan growth there? The balance has been pretty flat for a few quarters. I know there's some macro challenges and all that. But what's your timing expectation of when that loan book can start growing again?

Question: Matthew Lee - Canaccord Genuity Group, Inc. - Analyst : So cost management this quarter was really good across pretty much every business. And maybe when we consider the synergies and some pretty good trends in the market-related businesses that you've outlined. Is there any reason why all bank positive operating leverage shouldn't be sustainable over the medium term? And then maybe as a follow-on, are there any particular areas of investment that can maybe weigh on operating costs when we think about 2025 against '24?

Question: Lemar Persaud - Cormark Securities - Analyst : My question is for Graeme. I'm wondering if you could talk through the comments you made on the timing of peak retail credit losses. I think you mentioned you see it growing through 2025. I would have thought that maybe it suggests that we could see the peak in the next kind of quarter or two as we see the benefits of rate cuts playing out, but it sounds like you're thinking the peak is sometime beyond 2025. Can you clarify that? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 28, 2024 / 12:00PM, RY.TO - Q3 2024 Royal Bank of Canada Earnings Call And then also, is it because of your view on unemployment continuing to move higher despite the benefit of rate cuts? And I'm just wondering if you could provide some color on that.