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

Good morning, everyone. Very happy to have Royal Bank contributing to our conversations. Today, I have Royal's CFO, Rod Bolger, here. Thank you very much for joining us once again at our conference.

Happy to be here. Thanks for having me, John.

So Rod, let's kick this off. Royal, in terms of your platform, is one of the most diversified over the peers, and I can make the argument in 2021 and even 2020, it's actually served you quite well. But some of the questions that we're getting is investors are looking to see where the growth is going to come from. And so the macro trends are emerging, how does this affect your outlook? And what is the outlook doing for both your strategies, and I guess more near term, your tactics?

Yes. Thanks, John. You're spot on, the diversified business model is a core part of our strategy. It served us very well during the pandemic as interest rates came down, we faced revenue headwinds in many of our businesses. Our Capital Markets business was able to offset that and have outsized growth, such that we can continue our momentum. And in terms of future growth, we're well positioned for future growth across the board. If you look at our core businesses, whether it be the Capital Markets business I mentioned, our Canadian Banking franchise, our Wealth Management franchises, both in the U.S. and in Canada, our City National Bank, all of those have strong market share and growing market share. Our asset generation is high. We're poised for growth. And then diversified business model means in tougher times, we can offset it if there's headwinds, and we have lower volatility in terms of earnings growth than our peers. And in good times, given our market share, we -- that diversified business model is going to help us maintain higher than market growth.

So Rod, one of the things that stuck out with me is the general level of optimism that the Canadian bank have for the outlook. It's -- I personally believe it's out of sync with where investors are looking. From your standpoint, what are you seeing in the macro environment that really is bolstering your level of optimism?

Well, the economic recovery is ongoing. We've basically been locked down here in Canada for almost 18 months. We've come out of that this summer. But we've shown through technology, through the diversified economy here in Canada that we can survive this and grow as a country. And as the largest bank, we're benefiting from that, and, again as I mentioned, taking market share. And so we've seen our clients be able to persevere through this, and now we're poised for growth. Look, the markets are strong. Our revenue growth should accelerate. We've hit a bottom with interest rates, and so our net interest income is going to start to pick up as we've had good asset generation, both in Canada and the U.S., and credit continues to be benign. So we have good economic recovery. Even with the Delta variant, the economic growth is going to continue. And maybe it puts a little bit of a damper, which means the economic recovery should last even longer. So we're in the early stages of that recovery.

So Rod, let's drill down. In terms of the domestic retail, we've seen exceptionally strong growth in the residential mortgage market, with Royal taking more than their natural share. But where do you expect to see growth coming from outside of residential mortgages? And when do we think we're going to see an inflection point?

I believe we've seen an inflection point. If you look at our last quarter, certain leading indicators such as credit cards and commercial lending were on the upswing on a quarter-over-quarter basis. So yes, mortgages has been a strength for us, and we've had double-digit growth for many quarters in a row. And just with the law of large numbers and the fact that there's supply demand catch up here, and there's fewer houses for sale, so there's lower inventory, and you also have the supply kind of coming back a little bit, in the pandemic the value of the home has never been greater. So people wanted bigger homes, they wanted nicer homes. But traditionally, pre pandemic, it was immigration that was driving a lot of the demand increases. We're not seeing that yet. That may not happen for some time. So the demand might come down a little bit, but it's not going to fall off a clip. And yet the supply hasn't really changed, in fact, it's come back a bit. So we're not seeing weakness in the housing market, it's just that, that growth should come back in the high single digits sometime over the next couple of quarters. But then you look at the other growth areas and credit cards, I mentioned, strong 3% quarter-over-quarter volume growth in terms of balances. The purchase volume has been up over 20% year-over-year, up in the high teens versus pre-pandemic level. So that's a good indicator of economic growth. And those balances will start to revolve, but it's going to take a little while for those balances to come back on a revolver basis, because there's just so much cash in people's accounts coming out of the pandemic. But then you look at the commercial side, and we're seeing good strength there. In fact, August was a very strong month for growth for us across the board, across almost every industry out there. And really in the sweet spot of that CAD 25 million to CAD 75 million range, we saw a strong month-over-month growth there. And when you think about it, a lot of our customers -- our commercial clients have been a little reticent: a, because there's been nothing to buy with the supply chain disruption; 2, uncertainty about the economy opening up. Now you've seen that confidence improve, we are seeing growing momentum in our commercial balances. So those core lending businesses are all looking good right now. And then we've had great strength in non-interest income. The transactions on the credit cards is good from an interchange perspective, and then also mutual fund revenue and other income has been going up. Foreign exchange should improve as people feel more comfortable traveling too.

So Rod, just on the supply chain issues, how much of an impediment currently is that on the commercial loan growth that we're seeing, which arguably has been stronger than I would have expected, but it's still impediment. Is it a major impediment, or is this just something that is causing headlines in the newspapers?

Well, so real impediment, depending on what your business is, right, and what you're trying to buy. And so you look at the automotive sector -- commercial automotive sector, and there you usually see utilization rates around 80%, and they've been in the 40%s because they can't buy inventory. Now that's going to change. And you see hundreds of billions of dollars of semiconductor plants being announced in Europe and the U.S. across the world. So that's been -- that supply is going to catch up. It might take a little while, but these are so important for us to be able to make cars as -- in the global economy. And so that utilization should pick up. And what I'm talking about is our overall book is increasing and gaining momentum without some of these supply chain issues being resolved. So as that improves, as shipping normalizes and you still have backup, of course, across the world, especially in the West Coast and the U.S., as that improves, we should see more momentum there. So we should be looking at good commercial growth over the next several quarters.

Now Rod, the discussion around net interest margins [Technical Difficulty] and I will fully admit that there are a lot of the factors that are out of the bank's control, talking about the macro environment a little bit in terms of mix. But one of the interesting factors that I've been very interested in is deposits, in terms of the growth that we've seen over -- actually in pre-pandemic, but especially since the pandemic. How sticky do you think the deposits are going to be going forward when we hit a normal environment if and when we do? And what impact do you think that will have on the evolution of margins moving forward?

Yes. Let's circle back to the financial crisis and City National Bank that was independent public company then. But again, it was a flight-to-quality bank in the United States. And you saw a few flight-to-quality banks in the U.S. grow deposits significantly during the financial crisis. But that deposit growth slowed after the financial crisis, but it continued. City National continued to grow deposits. We would expect that to happen at City National again this time as well as our Canadian Banking franchise. So we expect deposit growth to moderate and come down substantially, and hopefully, for a little while, and may not forever, but come down below the loan growth. But the deposit growth has been so strong at City National last quarter, excluding sweep balances from our U.S. wealth businesses was up to close to 30%. In Canadian Banking, we've been in the high teens. And even looking at the most recent levels, they are continuing to grow. They're not coming on yet. So I think deposit growth is sticky. Why? Because our clients want to bank with us. And so we are making ourselves more important to those clients and more valuable with the technology that we're building out, with the capability that we're building out, with the advice that we're giving to our clients such that we maintain and retain those balances and grow those balances as opposed to shunning those balance, we welcome that growth. And that's going to help our net interest income, our net interest margin going forward, as we're able to put those deposits into loan growth going forward. Right now, it's a combination of loan growth and securities and money with central banks. And so that puts a big hamper on the denominator, which knocks down NIM. But net interest income has bottomed out and we're growing across both franchises, and that's going to be a positive for us.

I'm glad you bought up City National, because Wealth Management, in general, has been -- had been pushed to the side, really in terms of a solid pillar. It was good to have largely ignored. But through the pandemic, we've actually seen the growth in earnings on -- for Royal on both sides of the border. What is the outlook moving forward, both in the U.S. as well as in Canada? What can we expect to see in terms of Royal's outlook for -- is this exuberance for the markets for retail investors going to continue, or should we expect to see that level off to a certain degree?

Yes. Thanks, John. I mean, if you look at our deposit growth in Canadian Banking, we basically turned approximately 25% of those into investment in funds and put it to work in the market for our clients. We don't have an objective for that. That enables us to do financial planning for our clients and where it makes sense, we'll put the money into a balanced fund and equity fund and fixed income fund, depending on the needs of our clients and what their objectives are. And we [indiscernible] at 50% or 40% or anything like that. So those businesses benefit from these deposit flows and they benefit from our recruiting, from our technology. So if you look at the U.S., at our U.S. wealth management platform, we're growing financial advisers and assets under administration faster than even the bigger U.S. peers out there. And in Canada, we've had a track record for doing that for a number of years for our Dominion Securities franchise that continues to grow, continues to take share, continues to outperform, and our Global Asset Management franchise, where, again, we are taking share. Our net sales through the first 9 months of the year were a record. And we expect that momentum to continue. Yes, we benefit from stronger markets, but we also benefit from that advice and then the outperformance that we're able to give to our clients.

And then with City National, obviously, the growth has been exemplary. It's been a huge win for the Bank. Do you anticipate to plant more flags geography for the brand? Or are we looking at just ongoing organic growth in the cities that you currently have?

Yes. I mean, City National, we have a multi-pronged approach for growth, which we've been underway with. So yes, we've been growing geographically. Since the acquisition, we've been growing on the East Coast significantly. We've been following that entertainment vertical into Atlanta, Nashville, New York. Broadway is reopening, I believe, today, and we have a number of clients there. And certainly, within California, we've been doubling down our geography there. We're under penetrating in a lot of our markets from a market share standpoint. But that's because we're nimble and then we provide a differentiated product and services. So we have been growing from a geographic standpoint. We've been adding bankers where others haven't been adding bankers, but we've been also strategically growing in the mortgage space with wealthier clients. And so these are Canadian light-quality mortgages with low LTVs, high FICO scores, very low risk, but good returns. And that's a good way for us to then introduce City National to those clients, and we're seeing that as a way to attract new clients to the franchise. And then we have our mid-market strategy, which is kind of that space between City National and Capital Markets. And we launched that initiative less than a year ago, and it is outpacing our expectations and objectives. And so often, when you have a business case, CFO is just skeptical of what those results might look like. And this one, I'll tell you, they are doing a great job of surprising me on the upside. And that's because clients out there want to bank with City National and the capability that we can also bring in with our Capital Markets franchise. It's a win-win for our clients. And then, by the way, those wealthier clients, we can serve them both through our City National wealth products, our City National Banking, and we can also introduce our U.S. wealth franchise as well.

So Rod, on the residential mortgages in the U.S., can you remind me how Royal fund those? Is it -- are you moving more towards the Canadian self-funding for the mortgages? Or is it still going out into the market and securitizing those products?

Yes. These are all jumbo, high net worth, so these are like -- a lot of these are not going to be something that you can give to securitize the Fannie and Freddie. So they are staying on balance sheet. Right now, we are -- I mentioned the 30 -- near 30% deposit growth. So within our risk appetite, we would love to bring more clients in this -- within this silo mortgages. So we have surplus funding in the U.S., that's not an issue right now for City National.

Rod, when you talk about risk profile, well, credit is significantly less of a concern today than it was even 6 months ago, let alone a year ago. But I do have to ask the credit evolution that we're seeing right now were at historically low levels from my standpoint, outside of government support being removed, I don't see a major uptick moving forward. But what is your outlook for the credit environment? And when do you think that Royal's credit experience will be hitting more of a more normalized level, whatever that may be?

Yes. I mean, if you look at the core underlying trends for credit, right, employment is positive. Inflation can be bad and having lived in the '70s, it would be really bad for the economy. But some wage inflation, especially for many Canadians, Americans is a positive. So a lot of these are positive from a credit perspective, job growth, commercial growth. And then you also have extra cash in our clients' accounts, and that's both on the retail and the commercial side. So all of that is a positive even when the government support comes off. Those are very positive from a credit trend standpoint. You look at our basis points of Stage 3 losses or impaired losses, they're single digits. And traditionally, it's in the 25 basis points to 30 basis point range. Now we'll start to migrate up towards that 25 basis points. So how long it's going to take to get there? Is it a year? Is it 2 years? I'm not exactly sure. My crystal ball won't tell me that. But it's going to take some time for those losses to return, because of all the extra cash and the strong economic growth. And by the way, if those losses do come back faster than we anticipate, we built CAD 2.5 billion of loan loss reserves during the pandemic, and we've released only CAD 1 billion of that. So we still have an extra CAD 1.5 billion of reserves if those losses do accelerate, so we can utilize those reserves against those. But I don't think that is going to necessarily happen anytime soon.

Rod, expanding on that point, so the Stage 1 and 2 allowances, arguably, are way higher than what I believe they should be today, but of course, again a game of visibility, like you said crystal ball. So in terms of releasing those Stage 1 and 2 allowances that you still have, is it more waiting to see how the Delta variant and the fourth, maybe fifth wave comes through? Are we -- is this going to be more a wait and see approach? Or can we continue to see that those reserves being released and helping to bolster the bottom line?

Yes. I would expect some of those reserve releases to continue, whether how fast as it's going to happen, it's dependent on the economy. It's dependent on the Delta variant. It's dependent on the rest of the world getting vaccinated, so another variant doesn't come back and hurt the economy again. Our reserves are prudent within GAAP and we're going to continue to monitor those, but we're not in a rush to release those. Plus I mentioned all that loan growth, we're growing our loan book. So we're not going to be able to release all of that because you have to maintain reserves for that loan growth that we're seeing in accordance with GAAP as well.

So Rod, we're coming through -- or at least coming out of an environment that was lower revenue growth and yet expectations are that revenue should see this as long as things fall into place like we expect. Now Royal has done a very good job in terms of controlling costs. And I guess it had to actually go towards you for that. But in terms of what should we expect for expense growth moving forward for Royal? And can you remind me of what your guidance or what your targets are over medium term?

Yes. Thanks. It's a team effort. I'll tell you. We embarked on a zero-based budgeting initiative a couple of years ago. And that really helped us identify work that was unnecessary and that we could take out. It also identified where we didn't have to grow spending, and that was a key thing, because we're growing market share. We're growing distribution. We're growing our footprint. And so if you can leverage the scale that we have, and we benefit from that scale. Don't get me wrong. That scale benefits us. We can add more accounts, more customers without adding as much cost as many other banks. But if you look over the last 6 or 7 quarters, if you strip out things like variable comp on higher Wealth Management, Capital Markets earnings, stock-based comp and foreign exchange, our expense growth has been relatively flattish. Now it's not going to always be that way. Part of that is we invested for growth pre pandemic, and we significantly ramped up our technology spend. And so we're able to harvest that technology spend and digitization to be more efficient and to be more relevant to our clients and grow that client base, which, again, you're growing, you're able to grow expenses at a slower rate. And that is certainly a benefit. And it's also the discipline that I mentioned. And so I would expect there to be a little bit more uptick, and we're not going to be able to keep those discretionary costs flat for long. You're going to see travel pick up a bit, right? It's not going to pick up to 100%, but it's going to pick up. You're going to see business development costs. You're going to see other costs start to grow a little bit as well as some inflation. You see some inflation out there for certain roles, which -- but we're managing that. And I think we're going to continue to manage that relatively well. And so where we -- I think we gave on the last call guidance of -- kind of low single-digit on discretionary costs road map. Expenses may be higher if our wealth business continues to grow at that double digit, we're going to pay out an importance with our compensation plans, but that's a win-win if we do that.

Rod, and a little bit further on technology, because I think that everyone fully understands that the benefits in terms of not only cost savings through digitization, but also the ability to get additional clients, bring in revenue growth. But the outlook for technology spend, I don't want you to put a number on it, because I know you're not going to. But is the outlook for technology spend over the next couple of years, is the inflation going to be a little lower than what we've seen in the past in terms of -- have we passed a hurdle in terms of revamping the systems, getting Royal up to where it wants to be and the ongoing technology investment is going to be for innovation, not necessarily for making sure the structure is in place?

Yes. I'll cover 2 things. I want to cover Ventures as part of this, because that's a technology innovation spend for us. But I mentioned, when Dave McKay came in as CEO, he really doubled down on technology and innovation and growing market share and that works. And as a result, during the pandemic we're able to slow that down and still win in the marketplace. Now we can start to ramp that up a little bit again. But more importantly, or just as importantly, I should say, is our investments in Ventures, and this was undertaken about 3 years ago. And this has been very successful, because what it does is open the funnel of when we engage with our clients, and we're able to grow our client base through non-traditional or more fintech-like acquisition channels. And Ownr, O-w-n-r, comes to mind. And we've added 40,000 new accounts, 2-thirds new to the bank. So that's going to accelerate our commercial growth. And again, this brings in, in the totality of the relationship, the credit as well as the deposit side, the payment side, the advice side, and it brings capabilities that banks traditionally don't bring to clients. So we have a number of initiatives on the Venture side, built around ecosystems of where our banking products are relevant and how to increase that funnel with those clients, whether it's on [ home ], with OJO, Dr. Bill on the medical perfection, we have a number of these channels. And now we're able to accelerate that investment in the Ventures, because now we're seeing revenue streams both on the Venture side where they're getting fees, and also we're getting fees there, but also on the banking side, where we're bringing in actual banking accounts, deposit accounts and lending accounts and other accounts, and then Wealth Management can come with that as well. And individual owners are great sources of retail growth as well. So that investment is now becoming a flywheel, if you will, for us, for our growth.

So, Rod, with RBC Ventures, now correct me if I'm wrong, but this is more of an internal germination of ideas and technology. But what is -- what's the Bank's approach versus using Ventures to develop your own technology versus going out and doing M&A for fintech in terms of there's something that pops up outside of something you may have built in house?

We're doing both actually. We've done fintech acquisitions. We did Exactuals in City National, which has been a great fit into our entertainment vertical there and has been able to, again, deepen our market share there in a market that we're already winning. But then you look at our Ventures, and yes, we're bringing in people who don't think look or act like me and are a lot younger than me and think differently and are very innovative. And they are kind of kept off to the side so that we can infect our thinking. And yes, we have those incubators, but we're also doing it with third parties. And so we're taking investment stakes in those third parties. And those and we're linking into our Ventures, because we know that there's already been fintech technology out there, and we're able to put in VC funding into some of those. And if it makes sense, we'll do a bigger fintech. But the math sometimes is difficult that for a company to become profitable in 10 years to pay multibillion dollar is tougher for RBC to do something like that. And we found that we had great success doing it through the Ventures initiative as well as other incubators we have around North America for technology.

And then, Rod, sticking with fintech, a theme that's developing in Canada very, very slowly is open banking. I wanted to find out what's Royal's take on open banking? And what will your response be if and when it actually comes to fruition within Canada?

Yes. Open banking, you want to make sure there's security and privacy and cyber risks are taken care of. But we see this as an opportunity for us to grow market share. You look at our RBC Vantage products, and this is something where we bring the totality of the Bank to our customers to enhance their rewards, to enhance the value proposition. And you compare that with our competitors who were requiring minimum balances, we believe that open banking would be a benefit for us. We have very low attrition as it is, because once a client comes in, they love our products and services and our offerings and our advice. And so, open banking would be a positive for us.

Fantastic. And then one final on technology spend. How much are you actually able to share cross-border in terms of your platforms? I know that Royal has a significant scale in Canada. Your U.S. operations only add to that. Is it truly additive? Or is there actually some disparate technology spend that needs to happen in each of the geographies separately?

It's a little of both. We had a conversation with the leadership team in the U.S. about that -- about a number of things, but that topic came up. And so it's not like you can plug and play a mobile banking app in Canada and then take it to the U.S. But you can take elements of it, you can take design techniques and formats as well as ideas and bring it there and then do it more effectively there and not do it in a vacuum and build it from scratch. You can do it such that we link the 2, and the integration between our U.S. and Canadian technology teams has never been greater, and our involvement on both sides of the border has never been greater. But it's not just a plug and play. It's not that simple. The regulations, the systems, the networks are also very different. So it's a little bit of both.

Okay. And then finishing up our discussion on expenses. You mentioned travel potentially increasing, but not hitting the same level. What other factors that return to office are going to impact expense growth moving forward? And also, what is the evolution of a branch or the branch footprint going to look like over the next several years because of lessons learned through the pandemic?

Well, certainly, safety and well-being of our employees and customers comes first on the return to work, and we're taking a slow and measured approach to that, and continue to do so. We have employees back in office, such as myself today. But -- and then we've had a number of employees who are serving clients who have been in the office for the last 18 months in the branches. And they continue to go in every day. So we'll continue to manage that. We have to manage our real estate cost down, but it's not going to be where you take 50% of your real estate costs out day 1, I mean, these are long-term leases. That's why you haven't seen commercial real estate prices deteriorate. And you've actually seen huge demand when buildings are gone up for sale, because there still is a benefit to being working together and things of that nature. So we're going to have to bring some of those costs down. But at the same time we see it's an important part of our culture for us to get together in a safe way, and we'll continue to explore that as we work our way through this pandemic.

So Rod, one of the surprising things for me has been the strength in the Capital Markets coming out of the pandemic. Now not -- one should have expected an increase, but the level of activity we've seen in the market is being absolutely extraordinary. What is Royal seeing in terms of the pipeline moving forward? And as well, what is your push in terms of the league tables in terms of your market share? Because if we look back 10 years ago in the U.S., you've moved up the league tables at a spectacular pace. How -- what's the drive moving forward in terms of market share in the U.S. because, of course, you also still hold the dominant share in Canada?

Yes. We're bigger in the U.S. than we are in Canada, that has helped us. And we continue to invest in that platform and grow that platform organically. We invest in the technology. We've invested in talent. We've just added teams of technology, aerospace and then a couple of other sectors, and healthcare, and we continue to build those capabilities out. And that's serving us well right now. The M&A pipeline is strong. The LevFin pipeline is strong. And that's -- again, you talked about our diversification, even within Capital Markets, great diversification. Trading was gangbusters for 5 or so quarters. I mean, it's absolutely fantastic. And that had to come back to earth, right? I mean, things don't stay up forever on a volume standpoint, because it's client-driven activity. So as that came back, all of a sudden, our advisory business has improved. And by the way, all during this time we have 2 other core businesses there. Our lending business, where utilization rates are at all-time low. So that business has upward potential. And then we also have a strong central funding group, which is a repo business. And again, given the liquidity out there, those margins have come down, and that's okay. We're going to -- we can ride that out, because of the diversification out there. And DCM and ECM ebb and flow a little bit depending on the market. But we've had, what, 7 quarters in a row of over CAD 1 billion of pre-tax -- pre-provision earnings. And then as FICC and equities came back to earth, still above 2019 levels, which is great, pre pandemic, but investment banking had 2 record quarters in a row. So that's a strong business. We continue to invest in that and grow that business. And having that geographic as well as industry diversification and capability diversification will benefit us going forward.

So Rod, Royal recently increased your disclosures around interest rate sensitivity. So I guess we have you and your team to thank for that, because that's great. But not -- I don't want to go into the numbers, but I'd like to discuss the philosophy that Royal has in terms of managing the net interest margin. How does your treasury group go about trying to manage the interest rate sensitivity? And what do you and do you not try to hedge on a go-forward basis?

Well, you look at the core value of the franchise, right, and asset generation, an outsized asset generation, through our distribution and our people and our advice, and then also the deposit gathering. And so if you're bringing deposits, core relationship deposits, there are almost zero costs, you can sit on those for a little while. You don't need to invest -- we don't need to invest those into 5 year assets right now when interest rates are at all-time lows, that would be a mistake. And so hedging could be -- actually, it could be a big mistake and it would be a big mistake in certain instances. And so you want to hedge naturally through your balance sheet and then take the risk off, but also be fuel for growth and have that asset sensitivity, and take on more deposits, even though we're not getting the value of those that we would if interest rates were at 1%, 2%, 3%. We can weight that out, because of our core franchise is strong enough that we could take a little bit of a hit in NIM, which is a calculation, because we're not really taking a hit to net interest income, and again, it's about keeping those relationships. So we will hedge where it makes sense, but not at the expense of future growth, and not to take away the core value, especially the core deposits, you don't want to lock those in longer term when the interest rate yield curve looks like it does today.

And, Rod, moving to capital, I mean, the Bank's regulatory capital levels are exceptionally strong. I argue that there's a lot of excess liquidity -- sorry, excess capital in the system. Granted your hands are kind of tied to a certain degree given the restrictions that the regulator has put in place, I -- 2 things I'd like to discuss. One, the outlook for organic growth, moving forward, if we actually do see lending volumes increase and mix shifting, how much do we think risk-weighted asset inflation is going to peel back in terms of internally-generated capital the Bank is being able to generate? And secondarily, if your only other opportunity outside of organic growth is making acquisitions, how high a priority is that for Royal right now given what you see as an opportunity for organic growth as well as all the other external factors like price for potential assets?

Price for what? What's that part?

Potential assets, potential targets.

Okay. So yes, I believe we're going to grow risk-weighted assets disproportionately to our peers, because of that market share growth I mentioned in each of our core businesses. We're going to -- we expect and plan to continue to grow market share, which yields risk-weighted assets, which does feed into that internal capital generation, but not fully. It doesn't take it away. Right now, our dividend payout ratio was in the 30%s. Our target is 40% to 50%. So if and when the rules get relaxed, then we would be able to take that dividend up. We would be able to incorporate modest share buybacks. And we always are ready for client-driven organic growth within our risk appetite. So we're not going down the yield -- the risk curve. We're not taking all kinds of crazy risky assets. We're going to grow with our client base and then increase that client base to grow even more. So as you said, there would be capital for acquisitions. As Dave McKay has said, we would be willing to do an acquisition if it made sense. However, the lot of the targets out there, potential targets out there, are trading at huge premiums. And also, it needs to be a good cultural fit and a strategic fit. And then we can't just transfer value from our shareholders to the acquired company shareholders. It has to be a reasonable price and then provide an avenue for organic growth. And that's exactly what City National was. It was expensive at the time. In current times, it's not. And it was a great avenue for organic growth for us, and it's continued its strategy and enhance its strategy since the acquisition over 5 years ago.

Fantastic. And, Rod, we're getting close to the end. We went through like my agenda. And I know you talked about all the areas where you think growth is going to come from. But is there anything in your portfolio or your list of projects that you're really excited about that we haven't touched upon?

Well, hopefully, you heard a little bit of excitement on RBC Ventures, on our organic growth opportunities across our core Canadian Banking franchise, our Wealth Management, U.S. and Canadian franchises, Capital Markets, our insurance business is growing, we have great diversification, and we continue to invest in talent and continue to grow market share. So I think we've covered a lot of the premise for investing in RBC. Thank you for having me.

Thank you, Rod. No, thanks for your insights. We really appreciate it.