Royal Bank of Canada at National Bank Financial Services Conference Transcript

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

Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : One place I'd like to start is on the -- the Royal has been pretty transparent and is talking about low interest rate environment, and mix shifts on the balance sheet has been a $2 billion revenue erosion -- source of erosion.

Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : And I think that's a consolidated figure, but the lion's share of it would be in your business. And if you could talk maybe a bit more about where that's coming from?

Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : The credit card business, which you mentioned is one of the -- that's an obvious one and one where a lot of questions around what's the direction of revolver rates, when are they going to normalize or whatever. Do you think that with inflation with higher rates, that can actually accelerate the return to normal if it pushes consumers to have to carry balances?

Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : So one thing that I think people underestimated was the amount of revenue contribution that carrying balances on the credit card actually represents for a bank. And I think of it in a couple of ways. One, we hear from banks, not just yours, where our credit card customers are high net worth, ultra-high net worth. But how do you square that against, well, these ones that are individuals, consumers that are carrying monthly balances that doesn't exactly line up to that description? Does that mean we have an underappreciated sense of maybe the lower end of the market as well? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 22, 2022 / 3:40PM, RY.TO - Royal Bank of Canada at National Bank Financial Services Conference

Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : Another card-related risk or substitution that might be -- I don't know, I don't want to say flash in the pan, but everyone is talking about buy now, pay later. And now we're seeing some of the bigger players in that industry experience some difficulties. Do you think that, a, that risk has been overstated? And b, how do you see that competitive threat evolving over time?

Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : Auto lending, you're top 3 in that industry. I'll ask the question I ask everyone. The mix of origination, how does that compare to pre-COVID you

Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : Another -- something that I think about that there is a threat -- that's overstating it, but substitution might be more accurate, risk to auto lending is people instead of taking out a car loan, which is higher spread to the bank, they say, "Well, my house has gone up, and I'm buying these combined HELOC mortgage products. I'll just use that. It's much, much cheaper. I mean if I have to buy a truck tomorrow, that's what I'd do or a tractor." Is that a big thing that the substitution effect is...

Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : Yes. Okay. Now home equity lines, the combined mortgage HELOC product is drawing some regulatory scrutiny. Like how -- the stuff that OSFI's talking about or focusing on, how much of a business is that for Royal? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 22, 2022 / 3:40PM, RY.TO - Royal Bank of Canada at National Bank Financial Services Conference

Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : Like 1% of the ones that have this product are like perpetually levered kind of thing? Is that the...

Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : And how do you -- is it just you have this one small bucket of customers that equity just doesn't -- it's staying flat or...

Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : Switching gears a bit to the -- what I think has been underappreciated in your business' growth over the last year or 2, let's call it, is that you're at or above -- in the ballpark anyway, on mortgage growth and above on deposit growth and certainly not from a small base effect. So we're seeing big growth rates off of a big base already. And how do you quantify the future growth potential that what you've just delivered adds to the business. I mean that's a wordful, but after 3 years, the mortgage customer will do this and that type of thing.

Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : And if I -- just on the deposit, the numbers have been astronomical as far as absolute growth. I think last time I checked was on the personal side, an extra $100 billion in the industry. If you look at your slice of that, how much of that has been core to I'm getting a paycheck deposited there?

Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : On the last earnings call, something that stuck out to me was Dave talking about the economic outlook and picture -- he talked about a couple of good things, but he mentioned labor shortages probably 3 or 4 times during the call. Broad question, how is it affecting your customers? Probably more on the commercial side. And is it -- it's as simple as it's just restricting our growth potential right now and that's it?

Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : I asked, I think, most of the presenters today about the private equity business in the commercial banking book. What's Royal's approach? What's the exposure as far as the amount of leverage volumes? And then how much co-investing or whatever term you line -- 2 separate things, right? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 22, 2022 / 3:40PM, RY.TO - Royal Bank of Canada at National Bank Financial Services Conference

Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : Okay. So you are -- and then as far as the lending exposure to the private equity investments, not the funds that you're investing in, but the lending exposure?

Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : Okay. Operating leverage target, 1% to 2%. With inflation the way it is, is that still achievable? And I guess the revenue picture is supportive of that still?

Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : Another question I've been asking others and I've asked you this before, one day, I'll get a surprising answer, but the future of the branch, digitization going up and -- but there's no real business case to take a more aggressive stance on branch count? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 22, 2022 / 3:40PM, RY.TO - Royal Bank of Canada at National Bank Financial Services Conference

Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : Question from the crowd? Unidentified Analyst I have a few follow-up questions. You said you had more deposits and I wanted to ask where they're coming from? Is this property sales? Business sales legacy? Or just the deposits, if you could give us some idea.

Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : I've got to put the questions down for the -- the first question was on -- the second question is blockchain and the regulation thereof and the sources of deposit growth, which has been phenomenal.