Royal Bank of Canada Q4 2024 Earnings Call Transcript

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

Question: Ebrahim Poonawala - BofA Securities - Analyst : Good morning. I guess, maybe just to start with Dave, I think you talked about the RoE and you laid out on slide 6. Now this in a context where Royal has one of the best RoEs among global banks period. But how should we think about that 16% plus RoE in the context of where the capital requirements are today? Is that 16% plus aspirational? Or as a shareholder, do I expect Royal to be delivering a 16% RoE year in and year out on a consistent basis as we look forward?

Question: Ebrahim Poonawala - BofA Securities - Analyst : Got it. And the other side of that there is capital is at 13.2% CET1, stocks at 2 times price to book. Not sure what your effort is to buy back stock. Just give us a sense like organically can you deploy this capital? And if not, in the past, you've talked about wealth M&A, North America, global. Like what does that opportunity set look like as we think about capital deployment over the next 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. DECEMBER 04, 2024 / 1:00PM, RY.TO - Q4 2024 Royal Bank of Canada Earnings Call

Question: Ebrahim Poonawala - BofA Securities - Analyst : That's helpful. Thank you.

Question: John Aiken - Jefferies - Analyst : Good morning. Graeme, I understand your commentary on the macro, completely on side with that. But one of the things that's standing out this quarter is the ongoing uptick in terms of residential mortgage impairments. I was hoping we could get underneath the hood on that a little bit, particularly with when we take a look at what's been going on in terms of the mortgage. The past due has seen a steady incline over the last couple of quarters, where we've seen a bit of a more mixed approach with some of the other consumer lending products. Can you give us a sense in terms of what you're seeing in terms of residential mortgage market? What's causing the increase in impairments? And hopefully, some sort of outlook in terms of what you expect through 2025 on residential mortgage in terms of credit quality?

Question: John Aiken - Jefferies - Analyst : So Graeme, the reversal of stage two provisions that we saw in the quarter on residential mortgages obviously not expected to continue moving forward. We should see some level of more normal PCLs for 2025.

Question: John Aiken - Jefferies - Analyst : Fantastic. Thanks Graeme. I'll requeue.

Question: Doug Young - Desjardins Capital Markets - Analyst : Hi, good morning. Just wanted to go back to the RoE discussion because by my math, it's really difficult to get the cash RoE to breach 16% plus without bringing the CET1 ratio down to 12.5% or lower. But it sounds like you would disagree with this. But I guess I'd like to hear more about what -- like what are two to three drivers that would help push you towards that target if you are going to sit at a 13% CET1 ratio. Just trying to get a little bit more detail. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 04, 2024 / 1:00PM, RY.TO - Q4 2024 Royal Bank of Canada Earnings Call

Question: Doug Young - Desjardins Capital Markets - Analyst : Okay. And then just going back to the second question, just I think last quarter, you talked about potentially providing revenue synergies from HSBC Canada in a few months. I know you didn't mention that you were going to provide it that maybe you'd provide it in the foreseeable future. But can you provide any details today because it seems like that's obviously an important part of even the RoE expansion as you just mentioned. Like any further details that you can provide on that front?

Question: Doug Young - Desjardins Capital Markets - Analyst : Appreciate the color. Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 04, 2024 / 1:00PM, RY.TO - Q4 2024 Royal Bank of Canada Earnings Call

Question: Meny Grauman - Scotiabank - Analyst : Hi, good morning. I'm trying to assess the outlook for next year specifically for your Canadian P&C business and putting all the pieces together. As you're talking, the impression that I'm getting is pretty negative, and I just wanted to check if I'm missing anything, especially on the more constructive side. You're talking about rising unemployment, population growth slowing, potential for tariffs, competitive dynamics, and you've talked about that for a while. They're tough, maybe getting tougher. So trying to understand as you think about next year, more big picture, it sounds pretty negative. So I wanted to give you a chance to respond to see if there's anything there on the plus side that I'm missing.

Question: Meny Grauman - Scotiabank - Analyst : Okay, I just wanted to check, and then maybe just as a follow-up just in terms of tariffs, obviously a big question mark, it has macro implications. But does that question mark change how you manage the bank in any way in terms of capital allocation, in terms of underwriting? Does it have any implications right now?

Question: Meny Grauman - Scotiabank - Analyst : Thank you.

Question: Sohrab Movahedi - BMO Capital Markets - Analyst : Okay, thank you. I wanted to go to maybe Derek. There the risk capital with your business is grinding higher, and I think Dave in his opening remarks talked about I think lending related type opportunities for your bank or for your segment of the business. Can you just talk a little bit about where you think how much capital you think you need for the type of target they have on your back? And whether or not that is going to be overall accretive to the RoE of the bank or neutral?

Question: Sohrab Movahedi - BMO Capital Markets - Analyst : And just if I can just sneak one more in for Graeme and Katherine as the -- as I guess Graeme's outlook on PCLs. Does that -- should we be expecting the RWA to asset type density for the bank to grind higher from here? Do you have any guidance as to what sort of an RWA growth relative to asset growth we should be kind of factoring into our thinking?

Question: Sohrab Movahedi - BMO Capital Markets - Analyst : Okay. Thank you very much. Congratulations on a great year.

Question: Paul Holden - CIBC Capital Markets - Analyst : Thank you. Good morning. So I've heard the message on building pipeline for commercial and in capital markets. Wondering what you're seeing on Canadian residential mortgages. Have heard a few others comment that they're seeing higher application rates and expecting better volumes in '25. So just maybe you can provide an outlook there.

Question: Paul Holden - CIBC Capital Markets - Analyst : Thanks for that. I'm going to sneak in a second one as well. Just as we think about tariff risk and, I guess, more broadly sort of geopolitical risk, is there in any way something that makes HSBC business more susceptible to US, China relations just because of the history of that business? Or is it now mostly a domestic business? Just kind of maybe want to understand a little bit better the customer profile of that and if there is any still some strong linkages back to that part of the world.

Question: Paul Holden - CIBC Capital Markets - Analyst : Okay, thanks for that. That's it for me.

Question: Gabriel Dechaine - National Bank Financial, Inc. - Analyst : Okay, good morning. Asset yields were down less than funding costs, fell this quarter. Is that a trend continuing part of your NII outlook for mid to high single digit growth in '25? And then as far as credit, that guidance, I'm just wanting to confirm, you have unemployment peaking in the first half, and then PCLs peaking in the second half, unless I'm mistaken. Are you factoring in any impact from a possible trade war with the US? I know there's a lot of debate on how it may take shape or not take shape, but it's certainly a risk out there if certain industries are hit from not being able to sell to their biggest customer. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 04, 2024 / 1:00PM, RY.TO - Q4 2024 Royal Bank of Canada Earnings Call

Question: Gabriel Dechaine - National Bank Financial, Inc. - Analyst : That's very helpful.

Question: Gabriel Dechaine - National Bank Financial, Inc. - Analyst : Great. Thanks. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 04, 2024 / 1:00PM, RY.TO - Q4 2024 Royal Bank of Canada Earnings Call

Question: Mario Mendonca - TD Securities - Analyst : Katherine, you provided some pretty good guidance at a detailed level. I want to take one big step back and ask, does the 7% plus medium term EPS growth guidance? Does that apply to '25 or is there something special about '25 that you would steer us away from the 7%?

Question: Mario Mendonca - TD Securities - Analyst : Yeah. The reason I ask is with PCLs moving higher and the tax rate obviously moving a little higher, it does seem like it would be a challenging year to hit the 7% plus and -- but I think what I'm interpreting from your answer is that you're not moving off the 7%.

Question: Mario Mendonca - TD Securities - Analyst : Maybe for Dave and this -- I'm not sure you can really address this one and try anyway. It would appear loan growth has been soft now in Canada for some time. We're probably heading toward a further slowdown, as you say, as unemployment peaks. What I'd like you to think about is are the conditions in place for a reduction in the DSB? It's been elevated now for the domestic stability buffer. It's been elevated for some time now, and it hasn't really moved. Do you think that the conditions are in place to ease in that respect to allow for a little more room for lending from Canada's largest banks? Is that plausible? Can you address that?

Question: Mario Mendonca - TD Securities - Analyst : Okay, thank you.

Question: Matthew Lee - Canaccord Genuity Group, Inc. - Analyst : Hey, thanks for taking my question. Maybe one for Derek here. C&IB activity seems like it's kind of still in the early stages, especially compared to the U. Can you maybe just talk about what you're hearing right now in terms of feedback from clients or general trends that maybe get you more excited about the business in '25, and how quickly we can start to see activity start to pick up?

Question: Lemar Persaud - Cormark Securities - Analyst : Yeah, thanks for taking my question. I appreciate the new disclosure on slide 37 with the mortgage renewals. But I want to come at it from a different perspective than the credit that question. If we think about these payment increases in the I guess high teens to low 20s for 2025 and 2026, what does that mean for the earnings outlook on the personal banking or wealth businesses? Like should we expect some slow down there as these borrowers refi to higher rates, perhaps some of that flow of deposits and GICs off the sidelines won't go into wealth management, and set the debt servicing. Is that something that could be meaningful in your view, because that's an awfully large amount of mortgages renewing? Thanks.