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

Good morning. My name is Darko Mihelic. I'm the research analyst in Toronto here, and I cover the large Canadian bank space for RBC Capital Markets. And I'd like to formally welcome you all to the 2021 RBC Canadian Bank CEO Conference. This is the first time we're holding this conference virtually. But similar to prior years, the presentations today will be in a fireside chat format, and we also have a keynote speaker from OSFI. We've put the biographies on the website. It gives me time to dive right into the Q&A and hold a lot of questions for our CEOs. Now today's conference will kind of focus in on about 3 major themes. The first is the economic recovery. We really want to understand how the bank views the economic recovery. In fact, they are concerned about it. Does the bank actually have to pivot, make some alterations? What are the -- what is the outlook for interest rates and loan growth and effectively, revenue growth? So what are the bank customers saying? We'd love to get some insight here from the CEOs on the economic recovery. Clearly, a second theme would be credit, and we'll ask our normal questions about credit quality and how we see that evolving. And the third sort of theme that I think we'll focus in on is capital. In Canada right now, we're under some capital relief and some restrictions on capital as well. We'd like to see how the Canadian banks might navigate their way through that. And ultimately, what they might be doing with what we think is excess capital. As always, in these fireside chats, we'd like to give the CEO the last word. Let the CEO sort of say, the key takeaways are or key messages they'd like to leave with shareholders today. But before the CEOs wrap up, there is an opportunity for audience Q&A. And we're going to be using the Slido app like we have used in previous years. On the website, you will see a link and instructions on how to use Slido. I have been professionally researching the Canadian banks for over 20 years and of course, every economic cycle is different and creates unique challenges. But the events of the past year have been personally and professionally, the most challenging that I have ever seen. Now I am bullish on Canadian Bank stocks and on the economic recovery. But I'm also experienced enough to know that I could be dead wrong. The questions that I intend to pose to the CEOs today have, in some part, been influenced by my discussions with my value clients, but they may also contain some of my own biases. It would therefore be extremely helpful if you, the audience participate today with your questions. I suppose it keeps me honest and agnostic, but the real intent really is to make sure that I haven't missed anything that may, in fact, be very important to the investment thesis for the Canadian banks. My intention is to make sure I ask the most popular questions as voted on by you, the audience. So with that, I think we can now officially launch our conference, and we'll start our fireside chat this morning with Dave McKay, the CEO of RBC. Good morning, Dave, and welcome.

Morning, Darko. Can you hear me?

Yes, I can hear you very well. Thank you. 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 Dave, with that, I think we'll kick it off with a discussion on the economic recovery. And really just curious to know, as a starter, how you sort of see it playing out? Are you bullish on the Canadian economic recovery relative to consensus? Do you harbor some concerns? Maybe just give us an overall view on how you think this is going to play out in 2021.

Well, thanks, Darko, and I certainly wish I was looking out over the audience and seeing everybody, it's another year of doing this digitally. As I think about the short term and the medium term over the coming year, certainly, we're challenged with the health care crisis here in the short-term one that we have to get control of. One that's going to likely require us to have more stringent lockdowns, and therefore, we'll have a very short-term kind of months into a quarter effect on the economy as we lose a few jobs, and we slow our recovery. I think how 2021 progresses, is really very much about how fast we can source vaccines and deliver them obviously, how fast we can actually get our most vulnerable part of the population, those 70 years and older, ones who are being hospitalized and where the mortality rate, as everyone knows, is something we have to manage very carefully and prevent the mortality we're in our society. So we believe roughly 4 million, 4.5 million Canadians, high-risk Canadians have to be vaccinated before we could really get back to opening up the economy. And we could achieve that in 100 days if we have the vaccine. So there's a little bit of, Darko, short-term uncertainty, but I certainly would say I'm on the more bullish side as far as the speed of recovery. We have significant pent-up demand in the economy. We have significant savings that are sitting on consumers' balance sheets, whether it's from not spending last year, which are a large part of the consumer base in Canada or those who lost their jobs and haven't been able to recover yet, the government programs have certainly bridged that. We have commercial enterprises and corporations that sat back and we'll start to use their lines to grow inventory and receivables. So I think if anything, there could be a little bit of pent-up inflation from excess demand in the economy. So I'm seeing -- we'll manage through this in the short term. It could delay things 2, 3 months, hopefully not more, depending on how we manage the health care outcomes in the short term. But net-net, for the latter part of 21 into '22, I'm expecting a really solid recovery. And we're seeing that with really strong client activity across so many dimensions now, even kind of pre-health management of this contagion. So I would say definitely feeling pretty good about things.

And you mentioned some inflation in there. Is it your anticipation that interest rates should rise as a result? And can you talk to maybe the impact that, that might have on the bank?

No. I think you've heard central banks certainly communicate that they're going to -- they're moving off to 2%. They're going to have a wider band around that. I think that still accommodate a lower rate for longer for obvious reasons to ensure a strong recovery. I'm not expecting rates to go up, but I do think you're going to see strong demand come out of this and return to travel at some point, there'll be strong demand. Those restaurants, food service, hospitality, we still haven't recovered around 600,000 jobs in Canada. We lost about 3 million, as you know, there's been about an 80% recovery. We'll lose a few more, as I said previously. Half of those jobs are in hospitality and accommodation, another 100,000 roughly in proximity related services like Gyms and Yoga Studios and then another 100,000 almost in construction. So those jobs will come back over time, depending on the health outcomes that we can manage. But demand in the rest of the economy where there's a lot of frustrated spending that's sitting on the sidelines, I think we'll come back quite quickly. And therefore, you could see a pressure buildup in demand for travel, demand for other services. So I don't expect rates to go up in the short term. I think you've seen that signal, but you will see a little bit of pressure. And certainly, markets, bond markets are starting to reflect that a little bit in some of the treasuries out there.

Now sticking with the economic recovery. Your bank has had quite a strong year in mortgages. I think Canadian mortgage growth was somewhere around 11%. I think the peer average is around 7%. And on the Q4 conference call, you mentioned that mortgage growth is expected to slow going forward. So what is your longer-term outlook on the Canadian housing market? And how do you think your growth in 2021 will compare to peers?

Yes. As you saw, we entered [Audio Gap] for us. We had momentum across every one of our businesses. And we were able to carry that momentum even in a reduced economy that's very strong volume performance across all customer segments and business lines. And we're feeling very good about the client activity that we're seeing. Specifically, as you talk about the mortgage market, as we exited the year, we certainly look forward, and we said, will this demand sustain itself? Well, I think we've been surprised to the upside that certainly, you've seen mortgage activity and resell activity, purchase activity continued to be very strong through the end of the year. So I would say, if anything, we're feeling pretty confident we'll beat that forecast of slower growth, and we see growth continuing quite strongly right now in the mortgage market because client activity is there. If you go back to the drivers over the medium term, in the mortgage market, we're certainly feeling good about where we are. You're seeing growth and demand driven by consumer changes and the type of housing they want, relocating, you're seeing more rural areas shift into high demand. You're seeing a little bit of softness in condo demand right now, but I expect that to come back because we've seen net immigrations over the last quarter. In Canada, we've obviously slowed down immigration because of pandemic. You'll see a surge of immigration, again, come back in strong demand for a number of categories, but certainly for the condo and housing market in Canada. So we've always talked about demand-supply in the mortgage market in Canada, and we feel very good about consumer household formation, immigration, strong demands, smartly managed supply, if, in fact, a shortage of supply, particularly in single-family home, that is still quite acute. And you've seen house prices remain very strong, too, are up double digits this year because of that shift in consumer behavior. So I'm feeling very good about the mortgage market. The outperformance that we've shown is because we've reengineered our entire process. We talked about moving up the funnel, trying to capture customers earlier on in their journey to find a home or to buy a new home, sell a home. We've managed our adjudication, our fulfillment, our retention processes are all a lot stronger. We've increased the sales force. So all of that work over the last 3 or 4 years has really resulted in a very strong mortgage origination retention business for us. And you're seeing the outperformance, very significant outperformance in the mortgage business. I feel very good about the cards business. It's obviously one that's been most acutely hurt by the lack of spending we just talked about in the economy. I think our cards balances are off almost $2 billion. That's our high-yield business for us. Again, with a resurgent economy in the back end of 2021 into 2022, you're going to see that card business come back strongly. And I think that is a good source of earnings. We're seeing momentum across our wealth franchise, both in the United States with double-digit growth, commercial and wealth and in Canada, very strong performance in markets. And client activity on the capital markets side is very strong. We had a very strong 2020 momentums there into 2021 as you start to see M&A activity pick up on both sides of the border and into Europe institutional. Obviously, on the trading side is very strong. So we feel that, that momentum is carrying through in many parts of still the riskier part of the health outcomes, and we expect that to accelerate through the year. So we feel very strong about the positive client outcomes and the client activity that we're seeing.

And you touched on a lot of things they're sounding -- I mean you touched on cap markets a little bit, but it sounded like you tilted a lot of your commentary there towards retail. And do you see this as a retail-led kind of recovery or commercial? What can you talk -- from the outside looking in, we often have difficulty sort of peering into seeing what the commercial borrower looks like. Are they in good shape? Are they confident? Are they willing to borrow and grow their businesses in 2021? So maybe you could talk a little bit about the commercial loan growth outlook for the industry maybe in RBC relative to that, too?

So maybe I'll just say something quickly about this -- for the last 10 cycles over the last, what, 30, 40 years, have all been retail-led, consumer-led recoveries. And again, I would say this is going to be a consumer and is a consumer-led recovery. You have not seen a resurgence of utilization of commercial lines. Utilization is still down quite significantly. You haven't seen an inventory build yet, but that conference will start to come back. The consumer is in a very good position to lead this recovery. What I worry about as we are preparing for a cycle, pre-pandemic was the amount of debt that the consumer was carrying in relative to their cash flow. They didn't have a lot of surplus savings heading into this pandemic. And because they've slowed down their spending because of the strong government programs, I mean, we lost $35 billion in wages, we replaced that with $90-plus billion in government programs. So there's the $60-extra billion of discretionary income into the economy just from the government programs plus the savings around lack of spending, all that is poised now to withstand the volatility in the short term but also position us for consumer-led recovery coming out of that. So I think it's really important, very different than going through a normal cycle with high leverage, lack of savings. So that's why I have some of the confidence of exiting this that I was concerned heading into the potential recession as we look forward to end of '21, '22 and what the normal economic cycle look like. So commercial enterprises are surprisingly resilient. Partly because the government programs, but largely because we have such a bull cycle at the mid-market level that they had conservative balance sheets. They've managed very well through this. They reduce their inventory, obviously. They've managed their cost structure, and they're poised to exit this. There are some sectors that are obviously struggling in the retail, hospitality, food, accommodation. We talked about proximity-based services. So all of that will take some time to recover. And we will see that impact certainly on the small business market. And we've talked a number of times how this is so hard on Main Street in Canada. They're not -- they don't have access to the digital world to recoup and move where their customers move. We have to help them with that. And therefore, the longer it takes for us as a society to get back to opening up Main Street and opening our businesses. It's going to be hard on the small business side of the economy, and that's where the government programs are going to have to be targeted to certain sectors like retail and helping them with their overall rent profile, transportation, obviously, is going to need help and continued support, and we're going to have to help through programs like CEBA to continue to help those small businesses bridge what's going to be a little bit longer period of uncertainty around managing health outcomes. So I think consumer-led, we have strong commercial corporates, good amount of equity on balance sheets. And therefore, with -- the window at the end of this tunnel and the strong liquidity on consumers' balance sheets. Again, I'm feeling pretty good about -- very good about where we are in the overall credit quality of the country and at ROI.

And so maybe we can bring all that together and think about balance sheet growth. I think maybe you can talk a little bit about -- it sounds like, clearly, consumer might be stronger than commercial, but also maybe speak to some of the other pressures that we've seen on the income statement. I mean net interest margins in the P&C Banking and wealth segment decreased 17 basis points and 76 basis points, respectively. So what is your outlook for NIM in 2021? And if you can bring in some thoughts on balance sheet growth as well. And I'm not sure if you're willing to talk about numbers around balance sheet growth, but anything you offer would certainly be welcome from the audience.

Some of our strengths are actually -- our biggest challenge is when you see such a rapid decline in rates. So the rapid decline in short-term rates has certainly an impact. And obviously, the decline in 10-year treasuries and long-term rates had an impact on our business in the United States, and our wealth franchise had an impact on one of our core assets in Canada, which is the strength of our core checking business and the yields continue to come down. So in the short term, year-over-year, we're still dealing with a lower rate environment than we were operating under in Q1 last year and into early Q2. So you will see a little bit of compression in Canada around that core checking business. So I think the #1 impact at the top of the house and at the Canadian banking level as certainly, we're operating a lower income environment. As that normalizes and as economy starts to come back, you should see that stable. And when rates start to go up, we obviously expect to recoup that strongly. So I'm really happy how we've absorbed that net interest income shock and how the volume -- strong volume growth that we've shown has helped us show very good performance and outperformance from that perspective. The second driver of the NIM impact is a mix shift. So if you look at Canadian banking mix shift, you're seeing that $2 billion decline in our credit card balances, which is our highest margin product because of the risk and the cost of running the program. And therefore, that has an impact on NIMs. And then you've seen the largest category of growth in our mortgage business, which has lower margins. And therefore, that mix shift would be the second order of impact on our NIMs, and that mix shift will start to continue, I would think, in the first half of the year as we see more mortgage growth, slow recovery in the credit card business, but then that credit card business should help our NIMs towards the back half and certainly into 2022. And the third impact at the top of the house, but certainly a little bit into the Canadian banking franchise is the surplus liquidity that we're carrying. Obviously, we can't place that into higher-margin credit card loans or mortgages or consumer loans or business loans. We're carrying that surplus liquidity and a very conservative profile. And that overall at the top of the house lowers our overall NIM. So as some of that alleviates, we put some of that money to work as consumers spend that money, obviously, you'll start to see NIMs recover a little bit from that. So those are the Darko, kind of 3 major parts that coming from a source of strength, high deposit balances, very strong credit card business that's impacted in the short-term and significant growth in our mortgage business. So I would say, our revenues have been solid. They've been almost flat to slightly growing despite significant margin compression, which will recover. So I feel very good about why it's happened and where it's going to go.

And so it sounds like the recovery really in the NIM, sounds like it's a back half phenomenon for 2021. Maybe you can touch a little bit about fees on the fee side, what you're seeing. And I think people want to know a little bit about the capital markets and your outlook for revenues there. You touched on it a little bit earlier, but last year was a really good year in capital markets, and everyone is sending me e-mails about what are the odds that RBC can repeat? So maybe you can talk a little bit to that as well.

Certainly, it's going to be a different year. Last year, we had enormous strength in our fixed income business and our debt origination businesses as we went through the first wave into the summer of this crisis, we saw so many of our clients showing up their balance sheet, issuing debt, primarily some equity issuance. And certainly, the hedging that went on and overall trading, primary and secondary within our trading businesses. You saw those results were so strong through Q2, Q3 and into Q4. You can't expect that type of debt origination to replace itself. But what is happening is you're seeing a resurgence of M&A activity, advisory activity, you're seeing good corporate lending opportunities for -- within those same client needs. And therefore, I think you're going to see a strong year at capital markets, but a different year, you'll see kind of better performance in the investment bank and the corporate lending book. Obviously, they won't have the same -- knock on wood, we don't think that in any shape or form, that we're in the same credit environment that we're well provided for. So it was quite impressive to see the capital markets, global capital markets operation, largely earned through those stage 1 and 2 provisions that we took last year. And therefore, as that comes off, that will be a little bit of a tailwind just in on the performance side. So a good client activity across the board, and you can't expect the trading operation to do quite as well, and you'll try to earn some of that back in the investment bank.

So that's a pretty good. Thank you for that. That's a great segue, I think, to sort of get to credit quality and touch on that. Now one of the things that we noted with RBC is in the fourth quarter, Royal did not specifically guide to any range or figures for PCLs in 2021. And some of your peers have. So maybe this is an opportunity. Could you provide maybe some additional details or color on your credit outlook for 2021 and beyond?

It was a little harder to see towards the end of the year. And certainly, we've been growing strongly. So we've been taking provisions for stage -- on performing loans for growth, which will -- the whole concept is to continue to do that when you grow your balance sheet, you provide for future loss. We downgraded our scenarios towards the end of the year, slightly, as you heard, take a little more negative pessimistic view, which caused us to talk things up from that perspective. But because of the amount of liquidity that's on consumers' balance sheets, we started, I guess, Q4, Q3 with the uncertain journey of the $50-plus billion of loan deferrals, how would they perform? I can tell you, as of last week, we're down to less than $1 billion of loan deferrals in the consumer book, mostly in the mortgage side with negligible losses. So I think the vast, vast majority of these loans have all returned to payment status, or have been restructured and it goes for the vast, vast majority have gone back to payment status. And I don't think -- we didn't know 6 months ago, how that was going to perform. That's because we've got 2.4 million of those jobs have recovered. So our clients are back to work. We've got strong support of the government programs. We've got liquidity, and we've -- that spending and that savings that have occurred has built the first buffer consumers have had in decades now. Consumers, as we've reported over and over again on the economic side, have been running very close to the line in the cash flow to debt ratio. And slowing the economy down because of pandemic, spending less, building up savings buffer is also good for the credit side of the business as there's more resilience built into your customer base. And we're seeing all of that manifest itself in our credit losses in our -- certainly in our deferrals and return to payments. So we don't see a need. We think we're very well provided for on our performing loan book. We do not see a need to increase other than for growth -- normal growth or Stage 1 and 2 provisions. Unless there's a significant change from what we currently see. And we'll see how we deal with the health outcomes over in the next 3 months. So we feel very good about our credit provisions. And going into the year, and we see a stronger economy in the back half of the year. So I think that's part of the reason why I'm optimistic.

And in your answer that you mentioned that your deferrals are down to just $1 billion. Is there -- and should there be an expectation that you mentioned that very few of the -- or most of them have returned to like some sort of payment status. Should we though expect that some will still fall by the wayside at some point? And go delinquent and fall into default? And what is your view on an increase in impaired loans? And if not, how does the release -- how do you see the Stage 2 being elevated? You mentioned you were very well reserved, how do you see that playing out over the year, if we don't get the impairments coming, is it going to be one great big giant release in one quarter? Or is this something that will sort of ease its way through? And maybe we'll have elevated Stage 2 allowances all the way through 2022?

I think it's probably going to be a progression, obviously, the same way you've seen us kind of manage it over the last quarter or 2, right? It's not going to be all of a sudden, necessarily, the world changes and we revise all our 5 scenarios to extremely positive overnight. You'll see us watch the health outcomes. You'll see us watch the job recovery. You'll see us watching delinquency in the portfolio and how the economy is performing, and we'll revise our scenarios that drive our Stage 1 and 2 performing loan provisions on a regular basis, certainly quarterly. So I would expect that would lead us to kind of moderately improve our outlook and therefore, the change in those models will drive a reduced need for provisions on performing loans, and then those can be released into the P&L. So I think that would be versus all of a sudden, we wake up and all the models changed and we have a significant release. So it's going to be obviously a progression over time as we watch the economy recover. As far as delinquency, you have to expect that we're not going to recover all of those 600,000 jobs or it will take a long time. Some of those will migrate into nonperforming. And therefore, we feel we're very well provided to move Stage 1 and 2 provisions into Stage 3 provisions at that point.

Okay. And moving on then to our other theme, which is capital. And very curious, we get lots of questions all the time on capital. Clearly, we have some restrictions, but let's run under the assumption that restrictions will eventually be removed. And so when we think about deploying excess capital over the next couple of years, I guess we can sum it all down into what is your view on -- and what are you focusing on more? Is it going to be ROE improvement? Or are you focusing on earnings per share growth? If you can give us some insight into that, that would be, I think, helpful for people to sort of see which way you're leaning with respect to what your preferences are in capital.

Yes, we've certainly kind of reaffirmed our medium-term targets, which really -- we want to be a premium ROE producer. And therefore, we feel we have the client franchise, the risk profile and strength and scale to be a premium ROE organization. I think investors have to look at this, capital is not burning a hole in our pocket that we will put it to use productively to drive our performance towards those medium-term targets. We want to be a premium EPS grower, but not at a low ROE. So therefore, we are very much focused on being disciplined around our client franchises. So we feel we've got really very significant organic growth opportunities in the United States. You've seen that with the 20-plus percent growth in deposit and lending side, we have a number of new strategies coming to market that we deferred because of the pandemic. We're opening new branches in new markets. So you'll continue to see us really push for organic growth in all our markets. Canada we're performing very significantly. Having said that, that's not going to consume all the capital that we can earn, plus the capital that we built up on our balance sheet. And therefore, we are very conscious of scaling our business, particularly in the United States in those focused customer segments that we've talked about. In the business segments that we want to grow, and we feel we can compete in the long term that drive high ROE, premium ROE, low volatility growth. And that's certainly in the Wealth Advisory Business. That's in the Private Banking Business, and that's in the Commercial Business in the United States. We feel that we have a competitive advantage in providing complex solutions to those customer groups. It's not an arms race on technology, scale helps, but it's not mission-critical scale that you're seeing in the consumer, mass consumer side, there is an arms race to build scale because margins are coming down. There's new competitors coming in, technology leaders, like the big 3 banks are pushing that business in a very different place. We're competing for a different customer with different needs, where it's a different game. And we pick that purposely to focus on private banking customers, high net worth, ultra-high net worth, high end of affluent, commercial, specialized commercial banking and wealth advisory. Those businesses, we feel very strongly about. And therefore, we would put capital to work that allowed us to scale those businesses, whether it's in new geographic markets, but we're very much focused, Darko, on those customer segments and continue to be active in trying to find solutions, but it has to work. I've seen far too many acquisitions not work in the marketplace. And therefore, -- has to be a cultural fit. There has to be synergies that drive that premium return over time. We're disciplined about that. And -- because we have strong growth opportunities without it, we're not going to make a mistake. And -- but we're very active in thinking about how we can scale those franchise.

And can you maybe just give us a bit of a reminder, when you think about scaling those franchises, maybe some of the parameters around building scale? I mean does it mean that accretion comes in 2, 3, 4, 5 years? Does it mean how much dilution are you willing to accept in perhaps chasing up some scale?

I think we have significant scale to grow organically, as you've seen. I'm not worried that we can't grow this business if I don't add an inorganic piece, which is why we made the City National acquisition, which is why we've invested we have, we can continue to do what we're doing for a long period of time, which I feel very good about. Scale would accelerate new markets for us and build a core base of brand and operations in markets like Washington or Nashville, New York, certainly, are core markets for us outside of, obviously, our natural strength in California. So I think those are markets that we really like, and I've talked about before. So I think from that perspective, as far as the dilutive impact, it depends what the upside is to the investor and to the organization. So if we see a very strong trajectory 3 years out, it's going to take us a little bit of work to consolidate, but the returns are going to be very strong. We're playing a long-term game here. We're not playing a short-term game. Therefore, I am very conscious of dilution in the medium term, and we certainly would look to accelerate the returns towards the shorter end of that curve. But it depends on the opportunity to really grow the business. But again, it all comes back into driving -- continuing to drive that premium ROE performance continuously throughout our medium-term objectives of 3 years. So we're trying to balance everything. Assets are, as you know, are priced here getting price here. As we go and you have to be surefooted under synergies. There's lots of strategic stories that hold at the top investor presentation that don't hold operationally. And I think what we've done very well with City National, the discipline and then the capability our teams have now is to drive very clear disciplined synergy strategies and synergy maps that really execute well. And I think that's the key. Strong operations, strong operational capability and integrating and being very clear where -- what you're going to do with the franchise on day 2, I think, leads to successful outcomes. And I think that's where we spend our time. There's lots of things that are called strategic that don't feel very strategic a year later, and we're focused on that.

Okay. Thank you for that answer. And I think we now we'll flip over to some of the questions that are being asked via our Slido app. The top voted question so far is -- it's an interesting one given what COVID has done and force people to really learn how to use the mobile apps and do a lot of things on the Internet. So what is your thought process on the possibility of closing some branches? Can you talk about your branch strategy? And any changes to it? And I think, clearly, there's a short-term aspect to this question and the longer-term one. So Dave, over to you.

We're still driven by customer preference and our branch channels are still very strong client acquisition channels. And we can't forget that and we were outperforming on the client acquisition side because we've done well with our branches. Having said that, we've paired our branches back we slowed that down, if not stopped that largely during 2020 because of the pandemic. And I would expect to see us pair 3%, 4% of that over the coming year in 30 to 50 branches and continue to take a hard look at how clients are using branches. Certainly, we can reduce the footprint of the branches, and we shortened our leases to give us more flexibility. So I think everything is positioned to watch how clients come back, how they use the branch. It does continue to be a valuable part of our overall multichannel or omnichannel strategy. So far it is. A lot of client activity still goes through their branch. But we'll see what sticks with consumers and what changes through all of this. Our strategy has never been to try to change our customer and to close and see how they react, is to really understand and watch how the customers are interacting with us. And then to retrofit the overall omnichannel experience. So I think from that perspective, you'll see us continue to close branches. And the pace of that will be dictated by the customer.

And a related question is the next question is, RBC is back in the market offering free iPads as part of customer acquisition strategy. Has competition for clients accelerated recently?

It's always been a competitive environment. For us, we've always felt that we wanted to start our relationship with a core checking account, if possible. And we've -- I think I introduced the iPad program 7 or 8 or 9 years ago. The fact that we're still doing it is a pretty strong signal that it works, and it's important to incent customers to try. We feel that we've got such a strong multichannel experience. We've got great service brand or #1 in J.D. Power and Service. And your challenge in the category of retail banking is to create trial. Because once you see trial, once a customer experiences kind of the #1 digital capability, the #1 branch service capability, then we feel very good about our ability to grow that client and retain that client for a lifetime. So the strategy is trial. And trial, we feel starts best with the core checking business. It can start with a mortgage. It starts second best with credit card. But creating trial is really important, and it's a sticky category. So you have to make the investment in the customer acquisition side to start a relationship. We're trying to change that through ventures, as we've talked about, and ventures have been very successful in small business side. And on the mortgage side and moving customers from other platforms onto ours, and we'll continue to invest in that capability to change the game. But still, the incentive to a customer to create, to try something different. And because of the lifetime value, because our ability to cross-sell, and we have the #1 cross-sell ratios of transaction account into an investment product, a transaction account into a credit product. Those returns allow us to offer something like an iPad because we've got a decade of experience now in cross-selling successfully into that relationship and earning a strong ROE and return.

Excellent. So we're at that stage now where Dave we'd like to turn it over to you for some final thoughts. And what are the key messages you'd like shareholders to take away from today?

Yes. As you heard, I'm feeling very good about our position. We've got a very strong balance sheet with our CET1 ratio, strong liquidity. We've withstood this. Our credit profile is very strong. And it's played out, as you saw a very strong performance in our Stage 3. And obviously, we were very prudent in taking Stage 1 to performing loans. We've got enormous momentum in the business. And this is a momentum category. So strength and stability was combined with strong momentum and scale, technology scale, brand scale and data scale, I think, is the winning combination to take advantage of the recovery in the economy and the growth profile. When you have the momentum, someone has to take it away from you. And we delayed a number of things last year because customer incentives programs, new products, we pulled many things off the delivery schedule because customers weren't ready for it. We are very much focused on the epidemic and getting through. So with the momentum we already have, we have plans to introduce a number of incentives to accelerate growth coming out of this in 2021 into 2022. And therefore, I feel very good about building on the current momentum we have and continuing the outperformance that we've seen across our businesses, retail, U.S. commercial, and wealth management, capital markets, Canadian wealth management, asset management. We're seeing that strength across the franchise and the collaboration, the cross-sell among retail to wealth, commercial to capital markets, U.S. wealth and commercial, the capital markets in the U.S. is only being enhanced right now. We can be even better than we are now. So I think from that perspective, I feel very good about where we are, the decisions we've made and that we've got this enormous flexibility and optionality because of the amount of capital we have to do a number of things to position us to outperform going forward.

Dave, thank you so much for participating today. it's always challenging to do these things virtually. I do look forward to seeing you and doing this again in person. But thanks very much for your commentary today.

As do I. Good luck with the conference, Darko.

Great. Thank you.

Thanks.

And with that, we'll close this session. Thank you.