Neil McLaughlin: Yeah. Hi, Paul. It’s Neil. I’ll start us off. So, I think the factors there within the retail business, I would point to two of them. One is the mix of deposits. So, we’re seeing in our core noninterest-bearing consumer deposits, those are marginally down year-over-year. Our savings accounts are, again, while they pay interest, it’s still a very valuable deposit for us. Those are also down modestly year-over-year. In stark contrast, it’s the GIC book Dave referenced. We were up about $10 billion quarter-over-quarter in GICs, and it’s the same trend we’ve commented on for a couple of quarters, which is excess liquidity, still not having mass retail investor confidence to step it to, in our case, the fund business or in Doug’s wealth business into more equities or securities.
And so, there — while some of those client rates are off, they’re still quite attractive. So that continues to be a rotation that we’ve commented on before. The second part of that I would say is, the spreads within the GIC book, while still very strong, are — they have come down over the last year as we’ve seen a lot more competition for those term deposits. So, it’s both rotation and mix and then competitive pricing on the consumer book. It’s basically the same trend as we get into our commercial deposits. We’re seeing a larger growth at the upper end in our larger commercial and corporates. There is — those are lower-margin deposits and really point to a mix. And there has been on, again, steep price competition for the term product amongst those commercial and corporate.
So, very much mirrors, I’d say, the same themes on both sides of consumer and then corporate and commercial.
Nadine Ahn: Yeah. And I would just add to that, I mean, they, obviously, are still a very strong good source of funding, right? So, it drives down the overall wholesale funding requirement. But in addition, I think given when we talk about with Dave’s comments earlier, where that flow of funds may be given the dominance that when Neil mentioned around the Wealth Management business, while we may not capture that through as a funding source, it does actually look to come back in from a fee revenue standpoint.
Neil McLaughlin: Yeah. Just to provide some context on Nadine’s comment, in the quarter, about half of that flow into GICs would be coming outside of the Canadian retail business, with the majority of that coming from outside the institution.
Paul Holden: Got it. And I mean that kind of leads to my second question, the point that Dave raised just previously. Is at some point in time when rates go down, you’d expect these GIC deposits, these term deposits to flow into other savings vehicles, mutual funds or what have you. What kind of then becomes a liquidity solution at that point in time? Obviously, those deposits have to be replaced by something. Is it what Nadine referred to maybe it’s wholesale funding or how do you think that plays out?
Nadine Ahn: Well, I think that’s one of the reasons we’re so focused on our deposit franchise and have been in a lot of the client acquisition that Neil has spoken to in the past and particularly our record client acquisition last year and into this year and our newcomer to Canada. And you think about HSBC, that’s just giving us a more opportunity to grow on our demand deposit book. While there is an expectation that when markets come down that the — or some markets improve and rates come down that those deposits could flow into things like mutual funds. I think there’s also the growth that we continue to have overall in our client franchise that will help stem that. And then, we also do have a leading — from our wholesale funding, we do price quite lower than the rest of the peer group on that. But I think that we’ve got opportunities also in cash management that we’ve discussed in the U.S. to help supplement our asset growth.
Paul Holden: Got it. Thank you.
Operator: Thank you. Our following question is from Sohrab Movahedi from BMO Capital Markets. Please go ahead.
Sohrab Movahedi: Okay. Thank you. I also have hopefully two questions not too long. Dave, number one on this City National, I’m just curious what’s the lesson learned here? Is it that if it grows like [weed, it’s weed] (ph), or how do you — what — I mean at some stage you will do another acquisition in the U.S. What are the lessons learned from this one?
Dave McKay: No, I think it’s a good question. I think our growth outstripped our operational capability. We emphasize maybe growth over the profitability of the growth a little too strongly. Certainly, the franchise was tested to see if it could grow geographically. It was important part of our investment thesis, which it has done. We wanted to see how it could scale. So, I think from all those perspectives, and I equated that back to some of the growth we’ve seen in other parts of our businesses historically have exhibited similar trends. So, I think now there’s opportunity to really push the profitability of the existing balance sheet and I think that’s a nice tailwind for investors. And it’s really important for us to build a really solid technology and operational foundation, so in the future, we can continue to roll up within our strategy.
So I think that is the objective. It’s an important outlet for capital in the long term for RBC and it’s an important part of the franchise. And we’ve got an outstanding leadership team there that has done this before in a large regional bank led by Greg Carmichael. So, we’re very fortunate. Greg has built a strong team very quickly there that have done this before and led a bank to sustainable growth with a strong infrastructure. So, we’re feeling really good about things. It was a tough year last year, I admit. And those are kind of — it’s a fair question. Those are the learnings.
Sohrab Movahedi: Perfect. And just, I guess, it’s for you, maybe just for the broader team, if I can maybe even start with Derek. Just trying to get a feel for what’s the revenue environment you envision over the next, call it, four to six quarters? And what sort of growth? Where do you think it’s going to come from? Is it going to be volumes? Is it going to be fees? Which business maybe might be contributing more or less than the other businesses given the diversified mix? If I can just get some commentary around the revenue outlook?
Dave McKay: I think your last part of the question there was is part of the investment thesis for RY that we have such strong diversified NII and noninterest income capabilities. And I think where you can see a lot of excitement building in our comments is around the other fee income, noninterest income, particularly around Capital Markets and the pipelines that will start to convert and our ability to leverage our growth there and drive fee-based business. We’ve talked about it a couple of times already in the call and the flow from fixed income into other higher-yielding equity investments and managed investments within our franchise in the United States, Canada and the UK now, which is an emerging strength for RY that’s starting to differentiate itself from some of our peers, which we’re getting more and more excited about.
While we may see some NII pressure from rates, we’re seeing strong growth. We’re seeing strong growth in commercial, which is a higher-yielding product for us. We’re seeing the leverage that comes from our market-leading deposit franchise, which should help mitigate some of that more than maybe some of our competitors, I think is a strong support of that. So, volume, other income strength is certainly a big part of that. And there’s an opportunity. We’re hopeful, there’s, as I said in my words, intense competition in a number of markets, including mortgages. We’re probably at historic lows. I would think there, and there’s always hope that we come off the floor of historic lows into some more normalized margin environment for some of our secured lending products in Canada as well.
So, I think all that pertains to we’re feeling generally quite positive.
Sohrab Movahedi: Thank you.
Operator: Thank you. Our following question is from Lemar Persaud from Cormark Securities. Please go ahead.
Lemar Persaud: Yeah. I kind of want to bolt on to Mario’s question on the divergence in growth and commercial versus retail. But I wonder if you — I’m wondering if you could talk about how long this cross-sell to existing clients can last? Like, is this a 2024 phenomenon, but then largely abating it to 2025? Or is this something that could persist into the future? It just feels like anytime we talk about commercial, we typically thinking about — we typically think about this as having some element of persistence where it could last for even a few years, whereas on the retail side, you see some banks turn on and off the taps depending on competitive factors and spreads in the market. Thanks.
Neil McLaughlin: Yeah, thanks. It’s Neil. I mean, I think for the most part, on our commercial business, I mean, our strategy has been, for quite some time to grow with our best clients. So, as clients continue to invest and grow their franchise, we continue to be there with them and the majority of our growth has come from our existing clients for exceptionally long time. I think what you’re hearing is, we have pivoted to a more profitable client segment with just broader needs where we can put in more products, and that is something we’re feeling quite good about. And maybe the last thing I would say is that we touched on the timing of HSBC, but we do see that as, obviously, a very profitable and a very attractive client set that we continue to be impressed with the capabilities HSBC has brought, but we do see opportunities to bring products to the table that they don’t have.
And so, I think that is another vector of cross-sell we probably haven’t talked that much about. And maybe on the consumer side, you heard Nadine and Dave both comment on our new client origination of consumers. And that’s something that has been on a very steep trajectory, and we’re starting these new relationships and we’ll continue to grow with our consumers as well. So, I do think on both sides, we feel it does have staying power.
Lemar Persaud: Got you. And then maybe for my second question, turning to Graeme. What do you — I’m wondering if you could flush out what you mean by the implied loss rates on impaired loans of 28% on your Slide 28. Is that intended to suggest that on the impaired CRE, 72% is covered by tangible collateral and guarantees, so you reserve to 28%? Is that the way I should be looking at that? Or is there some risk that maybe if collateral on these guarantees aren’t as good as you’re expecting that maybe that implied loss rate couldn’t move higher? Any thoughts there would be helpful.
Graeme Hepworth: Yeah, sure. I appreciate that. To be clear, what we’re providing you there is just an indication of what our actual outcomes have been on those commercial real estate accounts of default. We’re just highlighting that while this catches a lot of headlines and valuations are hard, on average, we’re still realizing an amount there that’s still quite strong and consistent with kind of expectations. And so, in any given account, we’ve seen kind of worse outcomes in that, but we’ve seen lots of accounts where we kind of get fully repaid as well. So overall, in this even more distressed and difficult environment, we’re still realizing at relatively healthy levels.
Lemar Persaud: Appreciate the time.
Operator: Thank you. Our last question is from Nigel D’Souza from Veritas Investments Research. Please go ahead.
Nigel D’Souza: Good morning. Thank you. Thanks for taking my questions. Just two for you, if I could squeeze them in. The first on HSBC Canada. The first line of defense is underwriting the portfolio ahead of a more challenging environment and RBC didn’t underwrite HSBC Canada’s portfolio. So, I’m wondering if you could share any thoughts on what you’re seeing in terms of the credit performance metrics for HSBC Canada. How are you thinking about their commercial book as well, which has automotive, manufacturing and real estate exposures? And how does that tie into the credit mark on purchase price accounting on [disclosures] (ph)?
Graeme Hepworth: All right. There’s a number of pieces there, but — it’s Graeme, Nigel. Maybe I’ll start and turn it over to Neil. Certainly, you go back to the diligence we did at the inception of transaction, credit was a huge part of our focus there and it’s where our kind of size and scale comes into play. We brought a lot of people into the room on that from the risk management side and the business side to go very deep on their portfolios, really understand their mortgage portfolio, their commercial portfolios. We did that from both an aggregate portfolio view as well as right down to reviewing and understanding the underwriting they did on sample portfolios there. So, through that process, we got very comfortable with their portfolio that if anything it skews a little bit better than some of our portfolios.
The nature of their retail client base is a fairly high net worth one and so that tends to skew well. And likewise, in commercial and particularly in this environment, their commercial portfolio, again skews to a larger commercial accounts, which in this environment is performing better than as I noted earlier, kind of the smaller commercial and smaller business piece. So overall, I think we felt really good about the diligence we did at the time. Obviously, we’ll get the full details as this transitions across on March 28 as Dave indicated. But I don’t think at this point in time, we’ve seen anything that was new there that would cause us concern. But maybe Neil can talk to some of the performance and discussions he’s been having.
Neil McLaughlin: Yeah. I think very much aligned with Graeme’s comments. I mean, maybe start with the consumer. These are generally more affluent consumers. They have FICO scores that actually skew higher than our overall portfolio. And to Graeme’s point, it’s hard to do due diligence and do extensive file reviews to really understand their processes and their policies. I think all of that really took away and mapped us to the experience we saw in the data room and everything in their performance. Very similar, I’d say, on commercial. Higher — larger clients, they do skew very much to the highest segment that we serve. They don’t really participate that much in the sort of under $10 million, under $5 million credit segment.
So, larger clients, better rated. And the last part of that we’d say is, we did go through an extensive exercise to really just [indiscernible] and do a deep analytical exercise to get comfort, all to say extensive due diligence and we feel quite good about the book.
Operator: Thank you. We have no further questions registered at this time. I would now like to turn the meeting over to Mr. McKay.
Dave McKay: Thank you, everyone, for attending today, and thank you for your questions. Maybe I’ll just kind of summarize the themes that we hoped came out from our comments and your questions. One, I would say a very strong start to the year characterized by really good client flow across all our businesses. Our compete level was very high from global markets and investment banking to Wealth Management, asset management and distribution to the majority of our sectors, particularly commercial and in the retail bank and insurance, very, very strong compete levels and quality of business that we brought in, I think, drove the story today, matched by very good cost control. So, as you see our focus on cost in the face of good volume control, good cost control and we are very focused on that for the rest of the year into 2025, producing us a strong fortress balance sheet of 14.9%.
We gave you a glimpse forward into where we think we’re going to close the HSBC transaction and very strong capital levels, which gives us a lot of flexibility given the power — capital generation power of this franchise going forward will be even enhanced. Great progress on HSBC, albeit we lost three months in the approval process. We’re on track, again, for that March 28 close. Kind of reaffirmed our synergies, gave you greater clarity around the timing. And then, obviously, as we’ve signaled a lot of great work at CNB, we have a path forward there. We’re at full run rate to strengthen this platform. We have an opportunity to create more profitability from the existing platform and position ourselves for strong integrated growth across the United — all our businesses in the United States.
So, thank you very much. Look forward to see you in Q2, and have a great day.
Operator: Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.
