Royal Bank of Canada Q3 2025 Earnings Call Transcript

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

Question: Ebrahim Poonawala - Bofa Merrill Lynch Asset Holdings Inc - Analyst : Good morning. I guess, maybe a question for you, Dave, there's a lot of conversation just investor focus around where some of these ROEs are heading? And when we look at Royal's performance today, if you look at the 17.7% ROE for this quarter, 16.5% year to date. And I think you said in your prepared remarks, at least 16%. I would love to hear that at least 16% in reality is more like at least 17%. And two questions there: one, do you think the bank is over earning anywhere within the P&L or do you think there is upside? And second, give us a sense of your appetite to build capital from here versus just keeping it at least relatively neutral from a CET1 perspective, which obviously is helpful to the ROE? Thank you.

Question: Ebrahim Poonawala - Bofa Merrill Lynch Asset Holdings Inc - Analyst : Yeah, no, helpful. So thank you very much for the detailed response.

Question: Gabriel Dechaine - National Bank Financial Research - Analyst : Hey, good morning. A quick one on the trading result, which was quite strong this quarter, I know client-driven is often the factor here. I'm just wondering if any of the shift in market dynamics between Q2 and Q3 played a role in accounting sense. I know the high-yield business or the leverage finance business was weak in Q2, and the marks must have been much more favorable in Q3.

Question: Gabriel Dechaine - National Bank Financial Research - Analyst : Okay, great. And then a question on the credit outlook, I know, Graeme, you gave a lot to chew on there, and I'll definitely go over the transcript. But I just want to kind of look at a couple of things here. One, you released some performing provision, and I see there's a favorable change to your macro outlook which reflects some of the support programs that you're anticipating, one that have been announced as well. Then maybe some signs that there is deterioration in the health of the Canadian consumer. We're seeing rising 90-day delinquency rates in certain categories, unemployment is going up, especially in the major urban centers. And I don't know if this is related, but some of your fastest-growing categories in the Canadian business are HELOCs and credit cards. I'm wondering if that's a sign of stress as well. So balance all these factors are you still anticipating peak loan losses sometime in 2026 or are you getting more or less optimistic? How would you describe it?

Question: Gabriel Dechaine - National Bank Financial Research - Analyst : So no major shift up or down from what you were seeing in Q2. I know there's a lot more going on in queue, but it sounds sort of stable. 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 27, 2025 / 12:00PM, RY.TO - Q3 2025 Royal Bank of Canada Earnings Call

Question: Sohrab Movahedi - Bank of Montreal - Analyst : Okay, thank you. Dave, I just thought I'd maybe go to you. I mean, obviously, you feel good about the quarter. I think the commentary you suggested you made us believe anyway that you feel good about meeting the targets. I think you actually inadvertently slipped up and called it a 17% plus ROE as opposed to the 16%. So like I think you're feeling really good about that. And Graeme is talking about certainly the uncertainties for sure, but probably a little bit less so quarter-over-quarter. And I guess what I'm trying to kind of figure out here is, is the uncertainty enough to outweigh the feel good if an inorganic opportunity presented itself or are you feeling good enough about the fundamentals of the franchise that notwithstanding some of the uncertainties that we're all kind of talking about, you would be willing to be opportunistic in an inorganic situation?

Question: Sohrab Movahedi - Bank of Montreal - Analyst : Very helpful, thank you.

Question: Mario Mendonca - Cowen and Company LLC - Analyst : Good morning, Dave. Let me stick with you. $3.84 this quarter, if you annualize that, you're getting to a number well above what the Street is forecasting for 2026. So I don't think you would want us to annualize this number. So what I'm asking is if you could do my job for me to this morning (laughter) and tell me what you think Royal over-earned this quarter? Like, is there some way you can help us think? Because I don't suspect you want us to annualize this quarter. You don't want to set yourself up that way. So help me think through how much you have earned.

Question: Mario Mendonca - Cowen and Company LLC - Analyst : I'll do my best. But on this assumption review in insurance, can you give us an order of magnitude, like is this something meaningful, you've mentioned a couple of times, so I suspect it matters.

Question: Mario Mendonca - Cowen and Company LLC - Analyst : All right. And if I could, let me just finish up with Graeme. On these calls, we often listen to what you say and we try to parse your words, and you sound as others have suggested more comfortable today than you did in Q2. Your peers, however, several of them are sending less comfortable. And I'm referring specifically now to the retail book. And how you think about your write-offs in retail, I think it's something worth looking at, to believe it's page maybe page 25 or something of your supplement. So the write-offs in retail continue to move higher, but you're suggesting that, that's starting to stabilize. Your peers, several of them use the pig in the python analogy in describing how things would continue to deteriorate right until 2026. So I'm trying to figure out if there's a difference between Royal's book of personal loans, cards, lines of credit, at all that sort of thing. If it's different from some of the other peers that are giving us the pig in the python analogy. Does it matter that Royal's business mix and exposure is to the more affluent versus, say, the mass affluent and some of the other banks? Does that matter? And have you ever seen periods where that difference has appeared in Royal's results?

Question: Mike Rizvanovic - Scotiabank GBM - Analyst : I have a couple of quick questions. I wanted to start with Erica. On slide 6, on my eye is the chart on the top left quadrant. So it's that recent outperformance in discretionary and travel spend on the cards. Just trying to get my head wrapped around just in light of tariff risk and the unemployment market not looking as robust as it has been as it had been prior to the tariffs dynamic coming into play. What's driving that? Is this just largely unit gains and in gaining market share? Or I'm not sure what I'm missing here. Is it inflation, but what do you think is driving that?

Question: Paul Holden - CIBC World Markets Corp - Analyst : Thank you, thanks for taking my question. It's for Sean. So trying to really figure out the outlook for commercial lending, and let me frame it quickly, if I can, like, I think Dave made comments around commercial customers a little bit more cautious. I think Graeme has suggested something similar in terms of the sort of credit outlook for commercial. 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 27, 2025 / 12:00PM, RY.TO - Q3 2025 Royal Bank of Canada Earnings Call But then at the same time, I think corporate clients, some more positive outlook? And then also when I look at your actual loan growth, it's pretty good, including a small business. So just trying to figure out what is kind of the right outlook here, robust growth, sort of lukewarm growth or the potential for something that get better, particularly if we get a final trade negotiation with the US done? Sean Amato-Gauci - Royal Bank of Canada - Group Head - Commercial Banking Yeah, thanks for the question, Paul. Let me just maybe add some context of Q3, and I'll give some guidance on Q4. So to your point, our sequential growth in Q3 was 1.2%, and so in line with the guidance from last quarter of 1% to 1.5%. Just for context, so that's quite a bit lower than sort of on a rolling 4-quarter basis, we were averaging about 1.7% to 2% growth. At this point, we're maintaining our guidance into Q4 of about 1% to 1.5% with potential to be at the upper end of that range. As you mentioned, sort of the Q1, Q2 levels of uncertainty and I'd say, historically low business sentiment definitely drove a significant reduction in sort of the conversion onto the balance sheet from our pipelines. But I'd say, relative to four to six months ago, uncertainty has definitely improved. The business sentiment has definitely improved. But those pipeline conversions haven't really activated yet to, let's say, previous levels. So that's partially why we're maintaining our guidance into the back half of the year. I'd say we're also encouraged by the narrative around fiscal stimulus. But as you know, action hasn't really sort of driven the activity yet in the marketplace. But the other factors maybe I'd guide you to with respect to our portfolio and why we continue to support our confidence in our Investor Day target, obviously, we benefit from having the largest, most diversified portfolio, as you mentioned, from small business to large corporates across every segment, segment, sector and geography. And we are looking to extend our leadership position in all of those sectors. We will see the increased contribution from the HSBC portfolio as well. Those pipelines remain quite robust. But similar to the broader RBC portfolio, and I'd say similar to the broader commercial industry, kind of that uncertainty is what's driven the pause in some of the investment activity. And so those are how I would think about it. Slower than recent growth. Outlook remains consistent with Q3 with some sort of green shoots that could drive that to higher growth levels in the midterm.