Royal Bank of Canada (RY) Earnings Call Transcript & Summary

[Audio Gap] open up the conference. My name is Darko Mihelic. I am the bank analyst here at RBC Capital Markets. I'd like to formally welcome you all to the RBC Canadian Bank CEO Conference 2020. Thank you all for joining. Should be a very exciting day. We have all of the bank CEOs here to talk about the outlook for 2020, a little bit of a backtrack on 2019 and all the interesting things that we saw there. You will notice that it is a fireside chat format. And my intention is to not do big, flowery introductions for all the CEOs, we prefer to have as much time as possible to ask questions and as much time as possible for you here in the audience to ask a question. So if you are interested in reading up on their bios, we have them available for you. But I prefer that we just get right into the Q&A portion of the fireside chats. So once again, thank you all for attending today. And I think what I'd like to do is right away jump right into it with our first bank CEO, Dave McKay. So good morning, Dave.

Good morning. Happy new year everyone.

Happy new year.

We're seeing better weather this year for the first time.

Yes. We usually get some bad weather this...

It's not an ominous start.

Well, hopefully, the day isn't going to be an ominous...

We always start this with bad weather and have a good year.

So before we begin, I've been asked to tell you that Dave McKay's comments today may include forward-looking statements. Actual results could differ materially from forecasts, projections or conclusions in these statements. Listeners can find additional details in the public filings of the Royal Bank of Canada.

So to open, in 2019, RBC grew adjusted earnings per share about 4%, generated a 17.1% adjusted ROE. The bank targets medium-term EPS growth of 7-plus and 16% ROE. So by way of introduction, let's just generally discuss what might be the biggest challenges to attaining those medium-term objectives in 2020. And what might help RBC this upcoming year? What might be a positive surprise, given how much gloom there is out there? I thought maybe we can put a positive spin, if there is one, on the...

Absolutely. So maybe I'll flip that and start with the positives. I think to generate your EPS growth and your targets, you've got to have customer activity. Customer franchise activity. And you look at our retail bank, our Canadian retail bank and the momentum we have there across all the businesses, and customers are buying homes, you're seeing strong housing markets, customers are starting businesses, they're investing in businesses, you're seeing customers investing across the spectrum, so I think the activity levels are strong. And I think that is kind of one of the big starting points. The second thing you have to do to drive ROEs is to really cross-sell well off of your origination. Now our success and our ability to drive 17% to 18% ROEs is to cross-sell strongly off of our credit card franchise, off our core deposit franchise, off of our mortgage franchise. And I think when you look at the Ipsos Reid survey, which is the only kind of pan-competitor survey that you can look at, our cross-sell ratios are at 18% at the 3 core products. Deposit product, core lending product and core investment product at 18%. And our peer average would be 12%. And that cross-sell ratio drives your economies of scale, drives your higher ROEs because you're not constantly reacquiring customers. So what you have to start with is what momentum do you see, what customer activity do you see, can you cross-sell off that franchise to drive premium ROEs. And that applies that cross-sell ratio from the smallest consumer to the largest corporate. We run our Capital Markets franchise in very much the same way, where we're putting out our balance sheet. We're building lending relationships with a client. But it's really that fee-based activity, that M&A activity, that DCM, ECM, FX activity that gets you to your target ROEs. So again, you look at the health of your client, you look at the health of your client franchises. And despite all the gloom, to your point, clients are transacting. We exited the quarter, Q4, with strong momentum across our core businesses, as I said. So we're feeling good about how we entered the year. We ended a bit softly, as you saw, in our Capital Markets operation. Our investment banking, in particular, our trading was quite strong. But we saw a deferral of activity and a deferral, as we commented in the analyst call, into the early part of November and December. So we generally felt pretty good about the pipeline in Capital Markets and the activity levels going into the beginning of the year. So I think starting on the positive side, the client franchise activity across all our franchises is strong. So what are the headwinds that are going to make it challenging to get to a 7-plus percent when we grew retail volumes at almost 8%, double-digit volume growth, in the mid-teens, in City National deposits and lending and very strong AUM growth and market share gains across our wealth franchise? In Canada, what's going to make it a little more challenging, obviously, first is the rate environment. And the rate environment manifests itself most acutely in the United States given the structure of your balance sheet and your assets, which tend to be short-term-nature versus Canada. Where we put a lot of our deposits, our asset structure on our mortgage business, the rate reset duration is 4 to 5 years. Well, the rate reset duration in the United States is largely short term. And therefore, as you can see in the U.S. bank income statements and NIMs and our own City National franchise in the U.S., that the NIM compression happens much quicker, and therefore makes it more challenging year-over-year, even though you're growing at double digit to offset that. The NIM compression in the United States makes a fairly significant headwind for us. There is NIM compression you've seen in Canada, much slower because it takes longer to bleed into your balance sheet and into your income statement. And therefore, you'll see slower NIM compression, and you've seen that, given the nature of our balance sheet. So the interest rate environment, the uncertainty of that environment and planning around that environment even in the last 2 weeks, where we saw a fairly nice expansion of the 10-year, 2-year spread in the United States only to compress with the recent disruption in the Middle East and Iran. So you're seeing those types of things make it tough. And that global uncertainty around business intention, particularly in senior markets, M&A activity, investments in businesses, ability to raise capital to grow all those activities creates a higher level of uncertainty. So I think those are some of the headwinds that make it harder to plan. But the core franchise and the core activity levels, we feel generally pretty good about.

Okay. So picking up on the core franchise, in Canada, what we saw last year at -- well, depending on how you want to cut the numbers, #1 or #2 in almost -- in many consumer categories for financial services...

All in all.

Let's say all.

Most.

And you've got a lot of market share last year.

Yes, we did.

You grew well ahead of the industry in a lot of things. So the question I get a lot from a lot of people is, do you do it on price? Do you do it on terms? Like how do we look at that growth? Is it sustainable going forward? And maybe just speak to that first, and I'll dive into a little bit of that with you.

Yes. No, we've been talking about our growth strategy for a while. We've executed against it. And I'm really proud of the team for executing. And it comes down -- we're not using price and we're not using risk for the most part. And one area where we are using risk, I'll talk about. But certainly, where it's coming from is investment in what we call sales power across all our divisions. Sales power is a simple function of capacity of your sales force times capability of your sales force. And it's an exponential function. We look at that function, and we have for over a decade now. We've invested in the capacity of our sales force from the mortgage business, the investment business, straight through to our capital markets investment banking business. We're adding capacity to our core markets because we see client activity, which I just talked about, and an ability to grow our business with good clients, sustainable client business within our risk appetite. So we've invested in capacity. We've added mortgage specialists, investment specialists, commercial bankers, investment bankers, private bankers in the United States, commercial bankers in the United States, and we're growing because there's good business out there. But really where the magic happens is we've invested in technology around the capability of our sales force, whether that's the MyAdvisor tool, the invest edge capability that you saw last night, the tools that you bring to enhance the productivity, to enhance the effectiveness of your sales force. So you're not competing on price is where the real magic has happened. We have over 1.3 million, I think, financial plans already in MyAdvisor and growing rapidly. And it's not just launching a tool into a sales force's hands because lots of companies and banks launch tools, it's how do you get your sales force to actually use it and use it well. It takes time. And sometimes it fails. Sometimes sales forces reject technology. So the magic happens when you have capacity times capability, you can bring it together, and that's what you're seeing. You're seeing us really create value for our shareholders. We track price very careful. And we look at, are we discounting more heavily? And we -- I have marks inside the organization, and I have external benchmarks with third-party suppliers, particularly in the mortgage industry, where you can see whether you're using price. And I can tell you, we're not. In fact, our competitors, we think, are. But it's the ability of our sales force to create value. So we don't -- we feel quite strongly that it's not a price play in the marketplace. From the retail consumer perspective, it's not a credit play. We're still originating super prime business. We've seen, if anything, an improvement in the FICO scores across our core consumer business, roughly stable in our cards market, but still a super prime cards customer. And our portfolios are stable. So it's certainly not a credit perspective. And you're seeing a little bit of risk into the commercial portfolio but still well within a risk appetite that we believe commercial -- when we look at our average default probability and expected credit loss in our commercial business, it's tweaked up a little bit, some of it migration, some of it origination, but not material in any way, which is well within our historic risk appetite, which is a through-the-cycle risk appetite. We don't change it in good times and then cut back in bad times. We think through a cycle when we take on risk because we want our customers to manage their debt appropriately, whether it's a consumer, commercial, corporate customer through a cycle and, therefore, take the long view on the lending side. So I think that explains kind of where the market share -- we had significant gains across consumer lending, consumer deposits, business lending, business deposits, AUM and on the retail investment side, City National. So we're very conscious of a risk -- we’re late cycle. Our risk appetite and our limits are strongly adhered to. And we feel good about the investments we've made, and we’ve talked about those investments, and our NIE run rates have been a bit high. But those investments are paying off in customer flow at good margin and good ROEs. And I think that we're feeling generally pretty good about the mix

And sustainability, how do we think about that? I mean competitors often respond. Last night, we had a tech night here. I don't know if any of you -- many of you were here to see it, but we saw some pretty cool technologies coming out. They're all good. By the way, every bank says they have the best app. So what do you -- do you think that there's going to be a competitive threat this year? Do you think somebody competes on price? Is there anything that could challenge RBC's growth in -- specifically in Canada, is the one honing in on.

Our strategy is to create more value for customers and invest in that value, and we create value through data and insights. We create value through our scale and our ability to attract partners and create value. Look at the value creation of Petro-Canada and the link loyalty that we have with Petro-Canada. And we're looking at other partners to do a similar thing. That type of value, you can't replicate; and it's driving traffic, it's driving client acquisition, it's driving satisfaction. We look at our record-high customer satisfaction levels. We look at our record-high employee engagement levels, all our signals of how we're running the business for our customers. So we're always prepared for someone to take a different vector. But it doesn't deviate from our core strategy, which is to create more value for a customer, use our scale, use our brand, use our innovative technology capability and use partnerships to do that. And I think we've talked about that strategy from the Investor Day forward, and we're executing against that. And I think we've got a lot more in the pipeline coming, a lot more, new product launches, new partnership launches. So I think from that perspective, we're not standing still either. And we're ready. So I think that is -- our strategy is to create margin and grow margin, if we can, through value creation.

So one of the things that may have benefited the banks is the mortgage stress test that was introduced a while back on the B20. There's been some talk about relaxing it. Do you have a view on the mortgage -- on the stress test?

And I think it's generally been good policy. In the absence of monetary tightening to slow down demand, some stress tests certainly delayed purchases, caused consumers in Canada to look at less expensive homes and to adjust their desire for the cost of the home they're purchasing or delay. I think that generally was good policy. And I think we have to be a little bit careful how we adjust it but if done in the right way and with the right objectives, can be achieved. I think our bigger challenge is, it's not on demand management, it's more on supply management. And we're still attracting an increased number of immigrants into our society. We're having still strong household formation. And therefore, the demand for housing is going to continue to go up, whether you manage it by a stress test or not. It's the supply management side, which is at really the municipal potential level in many ways. We need to create more supply. I think that's where the acuteness -- where we've moved into a strong seller's market again from a balanced marketplace and we haven't been in a buyer's market for quite some time because of those supply-demand dynamics. So I would say those are characteristics for a healthy price market and a stable to growing price market in Canada.

So we can shift gears maybe to credit quality. And just when I look back on 2019, it was the year of what I call the one-offs. There was a lot of idiosyncratic commercial corporate losses. So when you look back at that and you see these sort of one-offs, I think we haven't seen that for quite some time, and we got a bunch in 2019. Is there anything that caught your eye on the credit quality side? Is there anything that you guys are really honing in on as we go into 2020?

No, I think if anything caught my eye, there was a little more fraud in the system. Some of the one-offs, we call credit loss, but there are fraudulent representations of receivables or inventory. And then you look at and reevaluate all your control and evaluation processes. You'll challenge sometimes the external auditors who are auditing your customers' balance sheets and income statements. So I think that was a bit of a trend, I think, last year that we don't talk about. If anything, nothing really in Canada. I think there was, as you said, a couple of one-offs. The energy industry had a little bit of weakness last year. Some of the price strengthening that happened in oil alleviates a bit of that. But these were persistently weak energy players in the U.S. particularly and a little bit in Canada, and therefore did not -- were not able to strengthen their cash flow and got into trouble. So I think that, we saw coming for a long time and didn't come at us quickly. But we had been working with a number of those firms for a little while. So there wasn't a big surprise there. A little bit of surprise on the quick service restaurant industry in the United States, where that's been an important vertical within the City National franchise. You look at the quick service restaurants which tend to be countercyclical in some ways are getting caught up with change in taste in the United States but also the cost of labor going up and margins getting hit and some of the weaker franchise got into trouble a little quicker than we expected. We've been through that portfolio. And we've looked at it quite strong. But we had a couple of one-offs there that we think are one-offs that if you asked me 2 years ago, I probably wouldn't have predicted that. So I think those are the types of things that caught us in the one-off. But in general, when you look at gross impaired loans, you look at the strength of all kind of the macro factors around credit loss, we're predicting largely kind of an in sync year with 2000 and a normalization of credit, as we call it, from being well below the 10-year average to coming back slowly towards the 10-year average.

And there's been a little bit of media splash on insolvencies recently here.

There has on the consumer side in Canada, Québec also, to change the payment terms around credit cards. Might have accelerated even though there seems to be a little bit of backlash against that policy in Québec. We'll see where it goes. But certainly, that created a little bit of in-year volatility that might have moved some customer activity forward on the delinquency side. And there's certainly been an activity around insolvencies, and a little higher than you'd think, given the strength of employment in Canada. And there's been aggressive marketing by the industry around insolvency management to consumers and some have responded to that. And I think we're watching that carefully. But net-net, you look at originations, strength of FICOs, the quality of the portfolio, gross impaired loans. We don't think we're going to come back to those absolute low years that we had over the last 3, there is a normalization there. But still, overall, in the context of historically a 10-year average, we're still in a pretty good place.

So we're in a good place, but I think earlier in one of your remarks, you said -- you used the term late cycle. So it feels like it's late cycle. I get the question all the time which is, how do we assess the reserves? And how do we know that Royal's got an adequate amount of reserves on its balance sheet? And is there anything else you can do to prepare for an economic shock? I mean is there anything you can tell the shareholders here today that suggests that we're on if not better footing than we were last year or something to that effect?

I think you look at the Stage 1 and Stage 2 reserves that we took over the last couple of years, I think we're at the more conservative end of shifting some of the weights in our scenarios, as we've disclosed in -- we've taken I think roughly $200 million in Stage 1 and 2 in 2019, a mix between origination-driven Stage 1 and also some migration in that portfolio. And sort of -- not migration, but more kind of migration and risk weights within the cycle and the model. So I think from that perspective, there is a conservatism. And how do you benchmark that? You look at your ACL ratios to -- largely to gross impaired loans and you look at your ACL ratios to Stage 3 PCL the previous year. And from all the benchmarks that I can see, we're more conservative, a little bit better than the average of our peers. We've got what, 115% coverage of GIL, which seems to be appropriate going into a later-stage cycle. You have about 160% to 180%, depending on the ratio of coverage of Stage 3 in your ACL, which is just below 2x. So that seems to be well provided for and consistent with how you've entered other cycles. So I think those are the benchmarks that we look at as a team. And they all -- we're not cutting corners there in any shape or form. And I think we've been quite conservative in shifting weights and building that reserve. Nothing seems off to me as far as the ratios. And we're a little bit better than peer averages.

Okay. Fair. So shifting gears a little bit. In 2019, there was -- when we look at the business of the Investor & Treasury Services, there's some ongoing investments and repositioning, some severance in Q4, tough market conditions. Is this business now where you want it to be? Is it running optimally? And if 2020 is supportive, what level of earnings growth do you think we can get from that business?

Yes. I think, no, we're not happy where we are in that business, and it came at us quite quickly. And we struggled with some systemic changes within the market. Lower rates certainly affected our activity there as we have a significant -- roughly $50 billion of funding comes out of that business to the rest of the organization. So it's a provider of funding, strong provider of funding. But certainly, market changes, the active to passive, your customer health is part of the challenge systemically across all providers. As their margins are getting squeezed, as you know, on the asset management side, and you look into your custody and your fund administration providers to tighten the belt, so therefore, kind of your roll off, roll on renegotiation spreads are tighter across the industry, and you have to deal with that. The rate environment changed more quickly than we had planned. And therefore -- and we pride ourselves on getting ahead of secular change. And I think it's a characteristic of our organization we don't take large restructuring charges and therefore, for us to take a restructuring charge means we kind of miss things. And we had to pivot quickly within that business and look at cost takeout much more aggressively. So we're doing that. We're moving employment from Europe to Asia, where, as you saw, we're exiting with the sale of the Australian marketplace and stopped doing an expensive technology project and moving that business over to a new provider, and that transition is going well. So this was all kind of a pivot, given our performance wasn't where we're at. Our messaging to the market stands, kind of in the first kind of 2 months of this quarter that we think we've stabilized the business and the run rate from Q4 forward is sustainable, and we look to improve upon that. It's going to take us 4 to 6 quarters to get the cost structure down. And -- but we see that happening, and we're executing against that. So you'll start to see those benefits and that improvement in performance towards the end of 2020 into 2021. But we certainly think we stabilized the business and look to improve upon it in the coming 8 quarters and get it back to kind of the better-performing business. There's 3 businesses, right? It's Investor Services; Treasury Services, which is liquidity management for the bank and our customers; and correspondent banking. So those comments I just made pertain to the Investor Services business. But we did not have a good year -- excuse me, in the Treasury Services business either, given structures of interest rates and the yield curve, and it was tough for us to earn the historic yields we had on our liquidity management plan on our balance sheet. So I think we'll look to a better year in Treasury Services and correspondent banking should have a stable year. So those are the 3 businesses. But the one that's kind of more strategically challenged, obviously, is the Investor Services business. And we have a new management team, and we're taking a different path, and we've reacted aggressively and appropriately to the change.

You mentioned new management team. That business was taken out of Capital Markets. We now have a new leader of Capital Markets, Derek Neldner has taken over, got a new boss. So the question is -- I mean last year was a tough year, you mentioned it in your opening remarks. What's your outlook for 2020 for this business? And given the year, has anything changed for you? I mean, we've always -- you've spoken in the past of the earnings contribution from Capital Markets, the amount of capital that's there. Is there anything that's changed for you? Or what are you challenging Derek with in 2020 and beyond?

Nothing new that we didn't challenge Derek and Doug with in the last 12 to 24 months. And that's to lever the balance sheet that they have and to cross-sell off that balance sheet and to generate the target ROEs that we have for that business. And I think we were a little disappointed, obviously, with Q4. But we had a very strong start to the year and it tailed off towards the end of the year. And we carried a lot of, I think, pipeline and momentum into some of the business we thought was going to close, as we've mentioned, in Q4 didn't. I mean that's customer activity, that's regulatory approvals, whatever it is, just didn't close. So we carried some of that momentum into Q1. So certainly, I think -- but the core strategy hasn't changed. We put our balance sheet out there. We're cross-selling off of that, we're upgrading our teams. We're growing our teams in the United States. We're adding bankers and sector coverage. And we're trying to compete with the top players for that advisory business and the M&A business, and you're seeing examples of that success, whether it's the BB&T-SunTrust merger; or in others, Raytheon, Disney, you're seeing us achieve some of those premium advisory roles, and you're seeing the success of that business. It took us 15 years to get to where we are in the top 10. It's going to take us another decade-plus to continue to build this business. But really, it's about leveraging the balance sheet more. You saw our RWAs start to slow. I think that's part of the strategy, right? We put -- and we took advantage of the secular opportunity over the last decade. Particularly when our competitors in the U.S. were more challenged in putting their balance sheet to work, we put our balance sheet to work. We acquired a number of relationships, we're cross-selling in those relationships. And we're really more focused on, if we cannot achieve the cross-sell with the customer, we're going to reposition that RWA into a customer relationship where we can. I think that's really important. And that discipline is something that Derek and the team have been working on for a couple of years, and Patti Shugart, and we're going to continue with that discipline. So no change in strategy really to focus on the U.S. marketplace, Canadian marketplace and European marketplace as our core markets for Capital Markets and to continue to cross-sell and compete, but using, I would say, less balance sheet growth than we have in the past and to continue the balance sheet growth, I would think in the lower single digits to mid-single digits, not in the higher single digits to double digits we saw in the past. So I think we've got enough balance sheet out there. We're looking for cross-sell success. That's how you get to the ROEs that we've targeted and keep our premium ROE. And we feel good about where we are, and we're going to continue to compete.

So revenue environment, tough last year. Getting tough into -- let's say, for 2020, given the rate environment. So there's a lot of work going on with many banks on the cost side. On the efficiency side, what we've seen from some is a movement towards restructuring charges. So maybe we can just touch briefly on a few things. First, would you consider a restructuring charge? Secondarily, can you talk to your expense growth expectations, your efficiency expectations for 2020?

I think if we were going to take a restructuring charge, we'd probably have taken it in Q4. So the fact that we didn't, and we don't have a plan to take one right now. And we took one -- sorry, I'm referring to the broader organization. We took one, as we talked about, for Investor Services, a small one. But for us, a broader one, no. We have -- we are challenging ourselves to go at it a different way. And I think the challenge with just doing restructuring charges is unless you take out the work, you don't really take out the cost. And if you just take out employees without taking out the work, the employees creep back into the system to do the work. It's very hard to make it permanent. You really have to go after the work and take out the work and help your team find that work that's not creating value anymore. And then you can manage your activity levels and your cost structure down from there. So we've taken that approach, and we've taken a completely different tack. We've gone to 0 cost budgeting, we're going through and helping our teams really go through the entire $23.9 billion cost base and to really look at where activity levels are creating value and not. And we're bringing different tools and different insights to that. And that takes the work out of the -- which allows you to take the cost out. And I think we're going after that. So we've taken a different paradigm. It's not just the same old, same old going after the same cost structure. It's a different approach for us. And we're getting ahead of that, and we're using that mechanism to really go after our cost structure. And I think you saw a slower growth by 50% from kind of the 6% level, where we're investing heavily down to 3%. We plan -- given the more challenging revenue environment, we plan to create at the retail bank level op lev in the 1% to 2%. And certainly, operating leverage, we feel confident at the top of the house this year in that range, at least. So I think you're seeing us bring the cost structure down, I think, in a more sustainable, long-term way by getting after the work, recognizing that this is a multiyear journey and that if we are at the end of the cycle, we have to prepare for revenue maybe to step down yet again and therefore, it's not just a onetime activity that gets you through 2020. It's more of a DNA change within your organization to get after that cost structure. So very aware of it. We create -- we've done lot of great work in building capabilities and creating value for our customers and building technology. And the challenge for a CEO and a challenge for any banker is this dilemma of this is not a normal world as far as it has been for the last 20 years. You're not just thinking about your traditional competitors, you're thinking about your nontraditional competitors who are well funded, with lots of cash in their balance sheet who continue to build competitive products in the financial fintech space, and therefore, you have to continue this evolution because your customers are on an evolution of how they use your services and how you build your capabilities for the mobile channel, how you build value, how you stay connected in the digital world to your customer. All this is changing. So banks have to adapt to this in a world where we had the benefit of tailwinds from rates. And now we don't have that benefit. You have to get more creative. And this is where scale plays a huge role, and continuing to adapt our organization to long-term secular change and how customers are going to use your product. You can't stop because the platforms aren't stopping. And your customers aren't stopping. And it's not just creating a new channel. You have to reinvent your processes and your products and your value propositions for this new digital world. So this is a change that will I think really benefit customers and shareholders over the long term, and you can't deviate too far from this journey in managing a given quarter or year. Having said that, that's why we're going back after the entire $23 billion cost base to say, how do you create room to continue to invest and reward shareholders and take everybody on this change journey over time? And I think that's what we spend a lot of time talking about in balance. And I think we found a good balance. And we're going to deliver positive operating leverage through this declining rate environment.

So I'm going to switch over to the questions that we have coming in online. So the #1 upvoted question. On credit, consumer insolvencies are trending higher, 14th straight month with 135,000 insolvencies in the last 12 months. In 13 million households in Canada, one individual in 100 household had filed for bankruptcies. What are your thoughts?

We've certainly seen that trend happening, and you're seeing kind of that migration. And you've seen some of the -- certainly, the Stage 3 PCL a little bit elevated across those. But we're coming off, I think, historic lows. And I think as you think about lending through a cycle and the overall quality and how those types of customers perform through the cycle, we still feel really confident in the credit strategy and our credit risk appetite. I mean, our mortgage portfolio is a super prime portfolio with very high FICOs. Our credit card portfolio has very strong portfolios. So as you look at these, you're going to have a migration through time. Some of that weakness is certainly manifesting itself out west, right, with the real challenges that we're seeing in Alberta. Some of the anger you're seeing coming out of particularly Alberta is they've hung on for so long. But without the investment in drilling and services, without the creation of new jobs, it's getting tougher and tougher to hang on. And I think the anger -- part of the anger is manifesting itself where you're starting to see defaults. So I think some of that is manifesting itself out west. But what we're seeing is kind of -- you're coming off historic lows back to longer-term averages and employment is strong. Employment is really strong. And we are seeing a little bit higher, elevated debt service ratios, obviously, as you see, I think, 175 in Canada. So they're creeping up. So it's something to watch, for sure. But as I said, we lend through a cycle. And we think about the cycle effects when we lend. It's not that we have to time this and shut down riskier lending activity, we've -- because you can't time it. We lend through a cycle. We know these cycles happen. And we've seen the volatility cycles over time and we have experience in managing through them.

Okay. So like I will do with every speaker, I'm going to hold back the last minute or 2 for your final thoughts, some key messages that you'd like to send to the shareholders in this room today. What do you think -- what would you like to share?

I think just back to the opening. So to grow your franchise, you've got to have client activity, and we're seeing good client activity. We're -- we've got good momentum in our core businesses, which we're really happy about. We're seeing market share gain across our consumer, commercial franchises. You're seeing strong performance in our City National franchise. I mean they're obviously going to have to deal with a lower rate environment that's hit them more quickly than we thought. But the expansion of our network, the capacity expansion, we think, will continue to drive sustainable long-term customer growth. Adding that sales power formula really works. We're adding capacity, and we've added capability, meaningful capability, and that has an exponential curve to it. So I think you're seeing the result of that investment and the execution against that across all our businesses. City National has improved their treasury management -- launching a treasury management product, launching a new mobile product, acquired FilmTrack, Exactuals. We just upgraded Datafaction. So the technology that's coming into the City National franchise, we're quite excited about over the coming year, notwithstanding everything we've done in retail banking, the strength we have in Canadian Wealth. And the capital markets operations, we had a soft finish, doesn't mean it's going to be a soft year next year. We've got, as we said at the end of Q4, a good pipeline and good activity, and we've invested in capacity there. That sometimes takes a while to ramp up. We've got some good bankers that have joined the platform across a number of verticals, and we're expecting a better year there. So I think, overall, the client activity level's there, and we'll deal with the macroeconomic factors in the way we talked about. We're going to watch our cost structure. We've got a new approach to that cost structure as far as coming in with a longer-term, zero-based cost budgeting. We're finding opportunity that we didn't see before. And therefore, it allows us to get ahead of the problems and therefore, I'll never say we'll never take a restructuring charge, but we don't have a plan to take one, and we didn't take one in Q4. And I think that's been the strength of the value creation and shareholder value and returns that we've done in getting ahead of these things. And the management team's on it.

Okay. All right. With that, Dave, thank you very much for participating.

Thanks.