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

Welcome Dave. Good to see you.

Got that a bit closer. Good morning.

Hope you had a good summer.

Year goes by quickly.

That's right. We're back here. I wanted to start off by getting you to give me a pep talk about Canada -- Canadian banking results. Your Canadian banking results meet expectations?

Yes.

We saw that as, I think, a theme across the board. So it's something that's a bigger picture theme. I think -- going around to Toronto, I think, if you speak to people across the country, there's a certain level of malaise out there. Within the market itself, there definitely seems to be as well. If you look at how Canadian bank stocks have underperformed, U.S. bank stocks, definitely, this view, more negative view of Canada, then it seems we see in the results themselves. So the question really is, did this surprise you? Did your Canadian banking results in Q3 surprise you? What is really the bull case here for Canada that investors seem to be missing?

Yes, that's great. It's great to be here. I'm, obviously, positive on Canada. We invested $13 billion in HSBC because we believe that the Canadian trajectory is going to be strong. We're going to generate a premium ROE here, and we're going to generate good growth. And I think that is absolutely the thesis. I would say, I'm really happy with how Canada is performing overall. The consumer is resilient. And I think when you talk about why -- how do foreign investors look at Canada, we need more foreign investors into Canadian stocks. I think, when you look at a lot of you and run dividends, funds or Canadian equity funds, you probably tap out on Canadian stocks at a certain point, and therefore, bringing foreign capital into our investor market, particularly the banks as part of my job and part of everyone's job. I think that will help. And what do they fear, they fear a leverage consumer. This fear has come in and out, whether it's a hedge fund, trying to pry on that or others, they fear the leverage consumer, they fear the mortgage market and what could happen there. And what you see -- pleasantly see is that the Canadians are handling their mortgage debt exceptionally well. And rates are coming down, it's getting easier. When we look at the roll on, roll offs, they're going to get a little bit easier for consumers going forward, still difficult. The consumers will still see roughly a 20% increase, if rates don't move much more on the medium term end. But if rates continue to move at the short end, it will give consumers options to refinance their mortgages at better rates, and they can handle that. We stress test the B20 is a great policy that causes us to stress up to 200% -- 200 basis points more. So when you think about what do investors kind of see negatively about Canada, they look at leverage generally, but they don't look at the structure of the market, the amount of equity in homes, the amount of deposits that continue to sit on Canadian's balance sheets that they've saved. Americans have spent that money. As we've talked about, Canadians have saved that money because they're trying to create a buffer to the uncertainty around some of the debt service costs. Yes, we've seen inflation pick up modestly -- sorry, unemployment pick up modestly. We have to watch that. We probably have a more acute challenge with youth unemployment around 9%. We have to work on that, but still just over 6% is not where -- is not a place that's unmanageable. And therefore, we're watching that carefully, and we're being cautious about unemployment rates coming down, creating more demand for housing, supply of housing will be stimulated to the economy, forget what a big part of housing is to the Canadian economy. We're not putting up a lot of multifamily res right now for rent or for buy because we can't get into presell mode because of rates. When rates come off another 100 points, you'll start to see presells go, you'll start to see construction activity pick up, you'll start to see more activity all stimulus to the Canadian economy. So I think we're in a period of -- it's a little foggy. I could get a little bit worse from where we are. But our -- as our -- we said in the call last week, we think the peak is lower, and we think it's been delayed because of the strength of the consumer. Consumer is managing this really, really well so far. I think from a rate cycle, the worst is behind us. And we'll see what they do this morning. I expect they'll decrease again on this trajectory of making it a little bit easier to manage our finances. Every 25 basis points is roughly $7 billion of cash flow in the Canadian economy. So it releases that debt service into consumption, into savings, and that is really meaningful to the economy given the amount of leverage that we have. So I think the consumer is a bright spot. You've seen commercial lending to be a real positive spot that we're continuing to see investment in capital and CapEx, building out capabilities. So we've seen -- particularly in our balance sheet, very strong growth there. So I would say that while the majority of the Canadian banks reported strong credit results around that last week and were the ones who had more trouble. It seems that emanated out of the U.S. versus Canada, where we've seen more of our CRE losses have been in the United States. Took our first CRE loss last quarter in Canada, but that's been pretty clean. So I think from that perspective, we're managing through this high interest rate cycle. Economy still has a chance to soft land here. We got to get rates down. We're seeing investment. We need to attract more foreign investment in this country. And we need a tax structure that does that. We'll see how the Harris government manages their tax structure in the U.S. that could make us look a little more competitive at the end of the day. But still, net-net, we need a tax structure that encourages risk-taking in this country. And that's my biggest fear is that we're discouraging risk-taking and we need a tax structure that encourages risk-taking by everybody, not just entrepreneurs and start-up companies and tech firms, but everybody needs to take risk and the tax structure has to do that. So net-net, I think from generally the results that we're seeing decent balance sheet growth that can get better. You're seeing good margins that, I think, can get better. You're seeing manageable PCL that can get maybe a little worse, but then better, pretty good at the end of the day. And we've got lots of room to grow in Canada. We have 23% market share after HSBC. We got all these new employees and all these new capabilities, we are raring to go. And we're starting to refill all those pipelines with HSBC that kind of emptied out during the prolonged approval period where it was hard to attract the customers. You can imagine when you're going to convert banks. The employees did an amazing job retaining our existing customers, but we didn't have a pipeline of new customers, as you can imagine. So you've got 2,500 people not able to sell. And we've got them all turned on right now, like 2,500 people raring to go on, they're great, great employees. So we are excited. So maybe we can pivot to...

Yes. I want to get into that. I mean, just going back to what you're saying. So I feel better about the downside risk in Canada. But in terms of seeing growth, especially credit growth looking ahead, even if the Bank of Canada can engineer a soft landing, is there this bull case that sees expanding demand for credit in Canada?

We'll just start with residential mortgage. There's a huge pent-up demand. There's a lack of supply that's the challenge, and we need to get supply going. It's being delayed by lack of presell activity. So it's got to start, but it will start. We know there's demand there. They need rates to come down into that 3% to 3.5% range to make it cost effective to buy a unit, and it will, right? We're on it. We're well on our way to doing that. So you're going to see better growth in the mortgage portfolio from that. We hope, at some point, we see better margins in the mortgage portfolio as well, which could be really accretive to everybody, including ourselves. But you're going to see stronger demand coming out of residential. You're seeing a real switch on the credit card side from transactor balance growth to now more revolver balance growth. So Canadians are backing into their credit cards more and more. It's a sign of a little bit of stress for sure. We're going to watch the unsecured credit side, and that's a large part of the caution that we had on the call last week. Let's just watch how unsecured credit performs over the next 6 months. That's where you could see a little softening until rates come down, people's cash flow improves, and that's where there is a little bit of struggle. But that, again, you could see that transactor balance has come back from better goods activity in the economy. We've seen a real drop-off in goods -- moving goods in the economy, purchase of goods in the economy. We really rotated to a services economy right now. And that rebalancing, I think, is positive for growth. You're seeing a lot more activity at the corporate end. So company is getting ready to put capital to work, getting ready to take on debt. Rates have come down to a point where they're starting to talk more. There's a lot of dialogue going on. You could see that from capital markets or comments around pipelines or activity level. When they close is a little bit uncertain, but we're certainly seeing the M&A dialogue and the advisory, the capital investment, debt capital markets activity picking up, which are all good signs. And I think the signals in the U.S. economy is that we're going to soft land this thing. We're mid- to later end of the cycle, but we could still see 2 to 5 years of growth before we hit the end of the cycle in the U.S. So I think the rates will stimulate and help alleviate pent-up demand and create growth across residential, commercial and corporate. And therefore, we generally see -- well, it's a little uncertain in the next 6 to 9 months, we generally see a good run coming on us.

And you talked about sort of -- you touched on the wholesale business. And that's where I wanted to ask you, given your position, your perspective. I mean, it feels like there's a lot of negativity, particularly on the wholesale side of the business in Canada, maybe particularly on the equity side, lack of IPOs, companies -- more companies are going private that they seem to be going public. And so the question that I get a lot is, is this -- is there something structural going on here? Is it related again to your comments about risk taking? Is there something more fundamental here? Or are you seeing signs that this is just cyclical and it's coming back, and we shouldn't get too worried about it?

There's a lot of capital flow from foreign markets into the U.S. market right now, and you can see that. And that just changes the activity levels there. There's an enormous amount of capital pointing out one marketplace and one group of companies and activities. And it's incredibly significant. I had the number at the top of my head. I've forgotten. I think it's up significantly. I shouldn't quote the number until I get it. But you look at capital flow in the United States funnel through the Blackstones of the world and the Apollos of the world and others, it's so significant. And therefore, that capital is being put to work and taking a lot of companies private for sure, and you're seeing that. But we have a role to play, obviously. There's leverage that goes into many of those activities, and therefore, they're levered plays, and that gives us a chance to put our balance sheet to work and -- but also put our advisory team to work. At the same time, you'll see more assets change hands, and strategies change and you look at different sectoral trends. Again, that puts our team to work in an advisory space, in the financing space and in a fundraising space, whether it's debt capital markets. To your point, Canada there is a little quieter, right? And we don't have the same scale and corporate base as we've had before. There was a great article yesterday in the Globe around, we struggle to scale our best ideas. This is a challenge. It's partly a tax challenge. It's partly a risk-taking challenge, partly where the capital is coming from, where the quantum of risk capital is. It's probably where the market is and where your customers are that these great ideas are being bought and taken to the United States. You've got some of the biggest tech firms in the world use Canada for R&D, and we've got a lot of really smart people, but the idea is the IP is getting commercialized in the United States from Canada. And that's the NVIDIAs of the world, and that's the Microsofts of the world and others who all have great research centers here. So we're producing great ideas. We have an amazing talent. We're just not commercializing them to your point. So yes, so activity is a little thinner for sure on the equity side here. The lending side is strong. We've got a lot of companies looking at investing in CapEx on that. But yes, the equity side of the business is smaller, and I think it's a structural issue.

I wanted to stick with Canada talk about the mortgage market. I think you've been very open outspoken, even you mentioned on the Q3 call talking about the intense competition in the residential mortgage market in Canada, maybe even -- I think you might have even used the term historic. So that's severely impacting profitability in this product. So I wanted to understand how you're responding to that? And just to get your analysis of what's driving it, what does it mean for the industry? And then maybe an overarching question, given your position in the market, why not just take share and come out the winner? On the other hand, why not approach it differently than it seems the way you're approaching. It is very much focused on profitability, why not flip it around?

Because our ROEs are everything. Let's say in generating a premium ROE and creating shareholder value through that and not pursuing ROE and shareholder value destruction opportunities. That's the discipline that's led us to the top of the market and keeps us there, and that's so important. My greatest frustration, and obviously, it's a market frustration. They talk about Canada as being oligopoly.is a ruthless oligopoly. At the end, ruthlessly competitive. The United States, when you look at -- when betas change in the U.S. and the funding costs went up, the banking system did a very good job, just like the grocery industry would do or other industries would do of saying, my input costs have gone up, my deposit costs and beta have gone up. Therefore, my lending rates have to go up to reflect that. So U.S. was able to pass on through their banking industry largely the cost -- increased cost of deposits. And in Canada, we've absorbed them. We've competed them away, and we've absorbed them into our margins through competition, that's, I think, destroying shareholder value in many cases. So the answer is, it's frustrating to see that, that you've taken a historic business that's produced good margin, fair margin at a decent ROE into kind of, in many cases, subhurdle ROE rates. And so our discipline is to say, don't put capital and precious funding to work at a sub-hurdle rate, unless it's with a multiproduct customer or a customer you need to defend. So we've been more careful in saying, we won't chase hot money where our customer is just shopping their mortgage at a below hurdle rate. We'll be a little more careful about that. But where we sense there's a multiproduct longer-term relationship with a customer, we'll certainly go after that. hard. We've not lost share. We've just not gained share. So we're running in the mortgage business thoughtfully in middle of the pack right now. We're still by far #1 in the mortgage business, but we've got to make sure we're generating ROEs that meet our target range. And we're looking at taking out costs. We're looking at using technology. We're trying to kind of reengineer the business towards maybe a longer-term, lower margin business. We have to prepare for that. And we have the opportunity to do that given our scale. So we're very focused on that is using our scale to continue to try to make better hurdle, better ROEs at these rates. But they are at historic lows. I think part of the problem, every bank has a different transfer pricing mechanism. We've thought a lot about our transfer pricing mechanism, we are confident that we're pricing for hurdle ROEs and we're making good financial decisions on behalf of our shareholders and giving a market competitive rates. So there's different ways of going about this in the industry. And we review our approach and we're comfortable. We're making the right marginal decision. So it's frustrating to see a large supposedly hypercompetitive market priced better than what people call, an oligopoly, which is ruthlessly competitive right now and maybe more competitive than the U.S. So that's where we are, and you've got to adjust your strategy to it. But for us, that 16-plus percent ROE target is our focus with premium growth, that is our investment thesis. That is what we're doing. And we can use our scale and our technology to continue to deliver that in all environments. And that's what I've seen a material change in what is our largest asset in our balance sheet. And it's happened relatively quickly in the past kind of 4 to 5 years -- 3 or 4 years maybe.

I want to get -- hopefully get to a deeper ROE question a little bit later on. But just in terms of following up on what you're talking about in terms of market share versus ROE, is keeping your market share stable sort of the line in the sand for you? Or would you be willing to -- if you have to choose between an ROE and just keeping your market share from actually dipping. How would you do both?

And that's what the scale and technology allows us to do. So you look at -- we're gaining market share and most of the business that we [indiscernible] are like significant market share growth in deposits, which is absolutely critical to the bank and funding your growth in the future. And that is where we will not give an inch, and we continue to fund our balance sheet. Where they only match funded balance sheet in Canada, everyone else is funding a big part of their Canadian balance sheet with wholesale funding. We are match funded and we are going to go into positive funding. And so we are battling hard on deposits, commercial and consumer, and won't give ground there at all because we think that's a long-term strategic play on both sides of the balance sheet. So we're gaining share there, and that's a big focus. We're -- I would say we have done really well in cards. We can do better. I think we're more in the middle of the pack on cards in the last couple of quarters, but we'll get that going and turn that around. Our commercial lending business has gained share. So the only business that's really kind of in that middle of the pack, I would say, is the mortgage business right now. We're gaining share in our capital markets business globally and in North America on the advisory side. And on the lending side, we're focused on improving our market's business, and we've got a big ambition there and we're seeing improvement there. So I would say we are gaining share, and we're gaining share, doing it the right way, generating a high ROE. And that's the signature of our franchise that our scale, our brand scale, our data scale, our balance sheet, scale, our operating scale, all drive the ability to take share at a premium ROE. That's the magic in the franchise. And we invest significantly to do that. And that's what we're delivering, and we think we can continue to do that.

So maybe another way to look at it. I was going to ask this in relation to capital, but maybe it fits better here in terms of broadly, you're gaining share. At some point, this RBC outgrow Canada. Like is there a point here where that advantage -- that scale advantage becomes a disadvantage where you're not really able to grow because of your size.

Not in my lifetime. I won't be here for a lifetime.

You look young.

Too young. Too young. We have an amazing business. It's fun to be part of. Or 23% market share, 21% plus 2% for HSBC, we just have all these new capabilities at HSBC was multicurrency accounts, trade finance, global connectivity. The whole team from HSBC is running our trade finance side and commercial. That whole team came over and they just kind of took over the business. They're phenomenal. When you're at 23% market share, there's no case there that you're anywhere close to your ceiling, right? There's so much runway for us to continue to take share. If we're at 35%, I would say, yes, okay, it's going to be a little tough to get to 40%. And maybe there's some people that don't want us to get to 40%, but when you're at 23%, you're nowhere close to the long-term ceiling that you have in any market where we see concentration. So from 23% to 35% is a 50% growth in the business [indiscernible]. We got a lot of runway and a lot of new services to offer clients and ability to take share. So I'm very excited about the growth. So we've been saying you're going to run out of room. No, we're not going to run out of room in Canada. This is an amazing marketplace with a lot of new immigrants coming in, they're going to create growth. There is -- we get to 50 million Canadians, this is more opportunity. So I'm very excited about growth in the retail side, the commercial side and in capital markets. We need more companies to grow into national champions. I think that's our problem. You're seeing a bit of a hauling out of Canada, it's a little thinner. But our franchise is as much our U.S. capital markets business. It's more than 50% of our profit in capital markets. We have a very strong franchise in Europe as well. And therefore, we're looking to the U.S. to differentiate ourselves on the capital market side. We are outperforming. We're gaining share in Canada, but it's a smaller marketplace. And therefore, our expectations of what Canada can contribute to the bottom line are modest. But our expectation is for the U.S. capital markets franchise, which were, kind of, in our fourth decade of really trying to expand. We're very excited about what we can do there. And we've got some new capabilities as you probably want to talk about coming online on the cash management side. We're doing well.

I definitely do want to talk about U.S. capital markets, I want to talk about your wealth strategy. But first, maybe in terms of leadership changes, you recently announced new group heads. You split up personal and commercial banking, wealth and insurance. So the question is, why did you make these changes? What's the real message for investors here that they should take away from these changes?

Maybe 3 things. I mean a lot of thought went into this. Timing was important post HSBC, obviously. And with the acquisition of HSBC, with the opportunities we see are going from 23% market share to much higher. It signals that we've got 2 very large businesses in our commercial banking and our consumer banking businesses that needed leadership in its own, right. It allows me to spend more time with the commercial team as well and the consumer team. It brings 2 exceptionally strong leaders on to the group executive, which was a really important part of our overall management strategy. So signals the importance of Canada and the importance of these 2 businesses to our overall growth stories. So again, kind of walking the talk. When I talk about the opportunity in Canada, we're structuring my team around greater GE presence around Canada having 2 leaders, and they're very complex businesses with different needs. And just it was the time to kind of split those businesses and create that type of focus on those businesses, bringing Jennifer on as well and having Neil rotate from, done a fantastic job in P&CB, retail bank into wealth, there's a digital message there. Digital and AI is a big part of the future. It's a big part of the future, obviously, in a consumer bank, in the commercial bank, but it's just as a big part of the future in the wealth franchise as well. And Neil brings that familiarity and having implemented AI and digital capabilities seamlessly in the consumer bank and commercial bank, who brings that capability to the wealth franchise that is not in the same development curve, but we'll face obviously, disruption and opportunity on the digital side as well. And the third thing it signals is the importance of commercial and North-South Nexus. So a big part of Sean's mandate will be to work with Greg and the capital markets group in a North-South cash management, transaction banking nexus and then ultimately, a global banking nexus. So those 3 messages are incredibly important. We structured the team around those capabilities, and they're all part of the really important growth focus and [ delever ]. So that was the genesis behind why do you change a team that's working really, really well. It's to get ready for the next phase of growth that we just talked about and get the right team in place.

I wanted to talk about capital deployment. I think on the call, you were very clear in terms of accelerated buyback, long discussion in terms of no interest in doing a big U.S. deal. But I don't know if you have anything to add to there, but I want to push back just in terms of -- I guess, the question to you is, are you being too negative on the U.S. And this is a broad question. Are we being too negative on the U.S.? Especially U.S. is on the cusp of another wave of consolidation. Obviously, the biggest banking market in the world, the most developed banking market in the world. You already have very important businesses in that market. Why not be a part of that? Why not get bigger in the U.S. in an inorganic way, even if it's maybe out of fashion now, why is it the right decision to not want to go bigger in terms of...

We're already bigger.

Significant capital deployment, yes.

First and foremost, I think -- because I want my management team to spend their time on the amazing organic opportunities we have in the U.S. We have so many great opportunities, whether it's growing capital markets. It's the synergies across the businesses between capital markets, wealth and the mid-corporate commercial bank. The growth initiatives that we have on the cash management side, simplifying our U.S. structure and taking out cost structure and having it perform at a higher level, improving the operations at CNB. I mean all of that is a body of work that's incredibly accretive to shareholders. So, first and foremost, we've got a lot of great things that we need to do and want to do in the U.S. Two, getting bigger for the sake of bigger is not the objective. It's making greater returns for the shareholder and creating a profitable. And therefore, the first question I always ask myself on an acquisition is, why are they selling? And what problems am I inheriting? And can I run this business better than the current management team can? Therefore, what's your playbook and shareholders and stakeholder strategy? And the questions aren't obvious in many, there's a big reason why the management team is selling and you have to solve for the problems that they can't solve themselves. And thus those aren't trivial. So when you're sure-footed like, yes, it's HSBC, when you're doing an in-market roll-up and you're able to take out 65% of the cost, and we're already at kind of 32%, and we're well on our way to 65%, those make a lot of sense. And therefore, they have to have characteristics where you're sure footed around cost that, that in itself can get you to hurdle. But what I don't want to pick up and why a lot of banks are going to be sold in the U.S. or 2, one, they can't raise deposits. It's really tough. And therefore, if you can't raise deposit, you can't grow your balance sheet at the end of the day. And therefore, do not pick up someone else's deposit challenge, if you can't solve it yourself. Now we're trying to build capabilities that would allow us to solve that, but I don't have them yet. But that's going to be a big reason why banks pre-pandemic were being sold and why banks might get sold going forward. Two, they don't have operating scale in mass consumer and they're losing to the Bank of Americas and JPMorgans and Wells that are gaining bigger and bigger. And therefore, if you want to take that on, you better have scale because if you buy a bank selling because they don't have scale and you can't solve for that, then you just took on their problem, and therefore, you can't do that. So you're going to have to think about where you have scale, where you don't have scale. And that is really, really important. So I think when you think about what you're buying and what you're trying to solve. And the third thing you don't want to pick up is banks will be sold because of the regulatory hurdle of going from a midsized regional to a large regional to get to heightened standards is very complex and very expensive. And therefore, some banks may decide that I don't think I can do this, maybe I should sell. And therefore, you better be sure that you can remediate that bank as well. So all of those are key issues. And therefore, when you add that together and say, "I need to drive a 16-plus percent ROE that is largely going to be dilutive? How can I offset that? Is this accretive to the shareholder in TSR? It can be if you can solve for that, but you better be you sure about yourself because you can make a mistake in adding 3 of those dimensions, and it can really hurt you. So my message wasn't on negative. I love the U.S. market. It's hard to get all 3 of those things to line up on the banks that are being sold. And therefore, you have to -- we are opportunistic with City National. It was -- the Goldsmith family had a huge influence on that bank since it was founded. And therefore, there was an exit need, and therefore, we had an opportunistic chance there. And we'll make this bank great again as they've gone through a bit of a lull. Started well, we're in a lull now. We'll make this great again. So you have to look for maybe those types of opportunities. So it's just about with all experience we have being very sure of yourself that you can misstep on those and destroy a lot of shareholder value. And therefore, you got to get it all right. And that's complex. And therefore, it narrows the set of opportunities, and you just have to be really careful. So I'm expressing caution to say a lot of things have to line up is the words I use, all those things have to line up. In the absence of that, we've got fantastic organic opportunities in the U.S. to create meaningful shareholder accretion and growth.

We've touched on Canada, the U.S. I want to talk about the wealth strategy in Europe, 2 years since you bought Brewin Dolphin, relatively small deal, but I'm interested in how that's going. But more broadly, what I'm really interested in is just your ongoing plans for the wealth business in the U.K. Do you still see Royal Bank as a consolidator in that market? And I don't think we've heard from you about it in a little bit. So just if you could update on that.

That's a great question. We haven't talked much about it and we probably should. Our European franchise, whether it's our capital markets franchise and now our strong and emerging wealth franchise in the U.S. is a differentiator in our investment thesis. No other Canadian bank has that. And therefore, we think this is a growth differentiator for RBC. We have been able through 1 successful transaction with Brewin Dolphin to create relative scale in a highly fragmented market. I think we're third or fourth based on AUA. In the U.K. It's an attractive market. There's a lot of old wealth but also new wealth creation. There's immigration wealth that comes in. So it's a very attractive marketplace. We've been able to retain the vast, vast majority of all our IAs or financial advisers. So we've had great retention there, and others didn't think we could do that. We've been able to expand our product set to private banking products. We're trying to cross-sell. We've done a great job taking out our functional costs. There's more we can do. So we're largely -- one thing that's moved against us that we kind of had in our business case was, we thought markets would be higher. At the end of the day, I think we closed on this just before Russia attack Ukraine. We saw markets come off. So our base level of markets is below where we thought we'd be. Having said that, our flows are good and our retention is good. Our cross-sell is emerging and our cost takeout is good. So we're largely on or just a bit ahead of our numbers. And therefore, we're encouraged by the business case works, right? And we've got to get markets right because markets still have a big impact on your revenues. But in the absence of a market call, the business case works, and therefore, this is a highly fragmented industry where the roll-ups make sense. I can roll up and retain. I can roll up and cross-sell. I can roll up and take out cost. And therefore, while I had a lot of questions about those in the U.S. market, in the U.K. market, I think, we've proven we can do that, where I don't have to take a large bet, I can take a relatively small bet and continue to build that out. No other banks are taking runs at that as well. Therefore, I think we surprised everybody and kind of stole this in the middle of the night, everyone is much more aware of us and much more aware of the opportunity there. Having said that, this is going to be a good franchise, a growth franchise, higher ROE franchise for us and continues to add to diversification of our balance sheet and the diversification of our earnings power and is accretive. So I like it, and we'll continue to invest in it. So we sold Investor Services last year, capital-intensive, low ROEs, operational complexity, ruthlessly competitive global industry, scale required. We exit our capital out of that. We put it into capital into our wealth distribution franchise that could generate a better ROE and accretion for you. So we're happy with that swap and the execution of that swap and further growth coming.

And maybe just quickly with the short time that we have, just in terms of, again, tying it back to this key theme of ROE for a period, you were tracking below your 16%-plus, we target Q3 inflection point back there? How sustainable is that? And I think maybe we'll leave that as the last question here. How sustainable is that right now?

We're going to deliver. I mean it's so important to our investment thesis. Don't forget it 16% ROE at a 13% CET1 ratio. And we were delivering 18% ROE at 8% CET1. We're delivering 16% at 13%. And therefore, this is the efficiencies we've gained through our technology operations, hasn't come from margins as margins have compressed. So this is how scale can continue to deliver that premium ROE. It's the discipline around the customer franchises you choose and where you choose to compete in the world. We talk on our Board offsite last week that we've got the right customer franchises in the right markets to deliver a premium ROE in a 16-plus percent ROE. We've got the ability to use new tools like generative AI to continue to create efficiency for you. Efficiency in more sales and more customers per employee and to take out cost, operational cost and other costs in our business. So we look at the application of generative AI, and we're incredibly excited about the ability to produce a better productivity ratio, efficiency ratio and to create better ROEs. Capital discipline is going to be crucial to the point we talked about and not diluting the shareholder going forward unless it's a fantastic strategic opportunity that you can't miss on, but pursuing opportunities like HSBC, which was incredibly accretive to ROE and to profitability. So we're making all the right moves on cost, on growth, customer choice, market competition, using technology, using our scale. This is a scale business to create a premium ROE. Therefore, we've done that at 13% ROE, and we're very focused on it and there's lots of improvement we can do. And if you get margin improvement that really helps as well. But we're running the bank, not expecting it because we have no control over it. We're running the bank to produce a premium ROE and great growth using our scale in a low-margin environment and hoping for any upside that we can get from that. So I think that's how we run the bank. And I think I'm really proud of the team. We've done a really good job, and we'll continue to work hard.

With that, I want to thank you so much for being here. Always a great conversation. Thank you.

Thank you.