Royal Bank of Canada (RY) 2013 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the RBC 2013 first quarter results conference call. I would now like to turn the meeting over to Ms. Amy Cairncross, Head of Investor Relations. Please, go ahead, Ms. Cairncross.

Good morning, and thank you for joining us today. I'm also joined by Karen McCarthy of Investor Relations. Presenting to you this morning are Gord Nixon, our President and Chief Executive Officer; Morten Friis our Chief Risk Officer; and Janice Fukakusa, Chief Administrative Officer and CFO.

Following their comments, we will open the call for questions from analysts. The call is one hour long and will end at 10.00 a.m. To give everyone a chance to participate, please keep it to one question and then re-queue. We will be posting management's remarks on our website shortly after the call.

Joining us for your question today are George Lewis, Group Head, Wealth Management and Insurance; Doug McGregor, Chairman and Co-CEO Capital Markets and Co-Head of Investor and Treasury Services; Dave McKay, Group Head, Personal and Commercial Banking; Mark Standish, President and Co-CEO Capital Markets and Co-Head of Investor and Treasury Services; and Zabeen Hirji, Chief Human Resources Officer.

As noted on slide 2, our comments may contain forward-looking statements which involve applying assumptions and have inherent risks and uncertainties. Actual results could differ materially from these statements. I will now turn the call over to Gord Nixon.

Thank you, Amy, and good morning, everyone. We appreciate you joining us today and hope that some of you can attend our annual shareholders meeting which follows this call from Calgary. It will, of course, be broadcast.

As you can see from our results on slide 3, RBC is off to a strong start in 2013. We earned over CAD2 billion this quarter, up 12% from last year and 8% from last quarter, and our earnings per share were CAD1.36, up 11% from last year. These results were driven by record earnings in Personal and Commercial Banking and Wealth Management as well as a strong quarter in Capital Markets. I'm also pleased to report that we announced a CAD0.03, or 5% increase to our dividend, bringing the quarterly dividend to CAD0.63. This is the fourth increase in two years representing a 26% increase since the first quarter of 2011.

This quarter we delivered a strong return on equity of 19.6%, even with the higher capital requirements of Basel III which is now effective for all Canadian banks. Are all in Basel III common equity tier one ratio of 9.3% is well above both our internal and regulatory targets, which Janice will expand on in her remarks. Overall, our first quarter results clearly demonstrate the strength of our diversified business model and our ability to manage costs while we extend our leadership position in Canada and selectively grow outside the domestic market.

Let me now turn to the performance of our businesses. While Personal and Commercial Banking had a record quarter with earnings of CAD1.1 billion driven by continued momentum in Canadian banking due to solid volume growth, relatively stable margins, and strong cross discipline, there is no question that the Canadian banking industry is facing slightly slower growth as a result of slower mortgage demand. But, notwithstanding these forces, we believe we can continue to achieve or exceed our objective of a 25% growth premium to the market for a number of reasons. First, the size and scale of our distribution network, including our strong mobile sales-force, allows us to reach more clients at their convenience and we continue to develop innovative solutions to extend our sales power. For example, our new credit card partnership with Target Canada will provide a great opportunity to broaden our client reach through their network of over 120 stores, which is scheduled to begin operating in the spring. Second, the breadth and quality of our product offerings. We have a strong commercial franchise, excellent financial planning and investment banking capabilities, and an extensive cards portfolio.

With the acquisition of Ally Canada, we now have a leadership position in Canadian auto finance, an attractive industry and one that we know well. Following the close on February 1, we combined Ally Canada's team with RBC's to form RBC Automotive Finance and have made some changes to the business. All of which we factored into our projections at the time of announcement. Third, RBC has a proven ability to cross sell more effectively than our Canadian peers. And, we see opportunities to provide additional banking products to our existing customer base as well as new ones, including customers we have gained through our Shoppers Drug Mart partnership.

Finally, as seen in our results, we continue to control costs and drive efficiencies. And, we have a number of initiatives underway to continue managing the trajectory of expanding range revenue growth. One of these initiative is our retail credit transformation project, which you heard about in the past, which is close to completion. This significant project has allowed us to automate our end-to-end, back-office capabilities, so that we can process mortgage applications more efficiently. This has already resulted in significant cost savings, has freed up our sales staff time, and has improved the customer experience. We intend to roll this system out to a number of other consumer credit products over the coming years.

Turning to the Caribbean where we face ongoing challenges from the economic environment, we are aggressively managing the business to -- for stronger performance in 2013 and are refining our operating model to improve efficiencies and enhance our competitiveness. Moving to Wealth Management, we delivered record results this quarter. Our leadership position in both Canadian Wealth Management and Global Asset Management continued to deliver strong results and provide a solid foundation of growth. For example, we continue to extend our number one position in the high net worth statement in Canada. And, our strength in Asset Management was again evident by the fact that we won the Top Lipper award for the seventh consecutive year and we were also named Fund Company of the Year by MorningStar.

Within Asset Management, we are also pleased with the momentum we are seeing in BlueBay, which has increased its assets under its management right 37% in 2012 to over CAD50 billion, an all-time high. In our US World Management business, we are seeing some good progress as fee-based assets reached record levels and transaction volumes finally started to increase. We remain focused on increasing advisory productivity and efficiency to capitalize on improving market conditions. Internationally, we are building on our global leadership and trust solutions to grow our high and ultra high net worth client base as well as positioning RBC Wealth Management for long-term growth in key markets.

Moving to insurance, this business continues to make a solid contribution and we believe our focused focus strategy serves to differentiate our performance. First, we have broad and diversified product offerings to meet the insurance needs of our customers. In Life and Health segment, we are focused on less capital intensive products such as term life and disability. Second, our distribution strategy is premised on driving efficiency by increasing sales to our lower-cost proprietary channels and innovating it to make it easier for customers to do business with us. As one example, we recently expanded our alliance with Shoppers Drug Mart to offer exclusive co-branded travel insurance on the Shoppers website.

Turning to Investor and Treasury Services. It has been six months since we've had full ownership of RBC Investor Services and we have made solid progress towards integrating the business. As I mentioned last quarter, we are focused on strengthening the business model to adapt to the challenging operating environment, including aggressively managing costs and streamlining operations to drive efficiencies. Finally, moving to Capital Markets, we had a strong quarter of earnings with significant growth in Corporate and Investment Banking and strong trading reflecting favorable market conditions this quarter. These results demonstrate the successful execution of our strategy, including a shift to more traditional Corporate and Investment Banking activities along with repositioning our trading businesses to focus on origination. A key to this strategy has been to strategically extend our balance sheet to deepen client relationships. Since 2010, our loan book has increased by an average of 25% each year and we've seen a commensurate increase in lending revenue from approximately CAD800 million in 2010 to over CAD1.3 billion last year. I would also point out that pre-crisis we took our loan book down considerably so that even today our loans outstanding are quite low on a relative basis.

An expected outcome of this growth in our loan book is a moderate increase in provisions. However, I think it is important to emphasize that we are not changing our risk practices. We are satisfied with the attractive returns we are able to generate from this business and we expect our normalized provisions to be within our target range which Morten will discuss in his remarks.

Turning to our results, our momentum is particularly strong in the United States. The majority of our loan book growth is originated from the US and we are gaining market share and actively involved in the number of high-profile mandates. For example, RBC financed KKR's acquisition of Alliant Insurance Services, the largest specialty focused insurance brokerage firm in the United States. We also advised and financed Gulf Oil's acquisition of Houghton International which involved close teamwork between our US and European offices as well as strong collaboration with Wealth Management. And, more recently, we acted as financial advisor in support of the buyout of Dell, one of the largest leveraged buyouts on record.

In Canada, we are maintaining our leading market share and continue to manage major transactions for our long-term clients. For example, Encana recently entered into a joint venture with PetroChina and RBC was the sole advisor on the transaction. Finally, in Europe, we have a focused strategy of complementing in areas where we have proven capability through the build-out of our coverage model in recent years and we have developed strong client relationships. While activity levels in this region meaningfully week, we continue to be a partner of choice for clients. For example, RBC recently led an offering for the UK's Debt Management offices -- office, our sixth transaction with this client, for a total of nearly GBP32 billion. As a testament to our success, we were ranked by Dealogic as the 10th largest global investment bank by net revenue by 2012, up two spots from 2011 and making it the first time we made the top 10 list for a calendar year.

To conclude, our results this quarter were very strong and demonstrate the earnings power of RBC across all of our businesses driven by our leading market positions, the diversification of our business mix, our strong capital position, and prudent focus on managing risk and costs. Notwithstanding the industry headwinds, we are confident about our financial performance and competitive position and our ability to deliver against our objectives in 2013. With that, I'll now turn it over to Morten.

Thank you, Gord. Starting with credit on slide 7, provision for credit losses on impaired loans were CAD349 million this quarter, down CAD13 million over last quarter, or 2 basis points to 35 basis points. This decrease was largely driven by lower provisions in Canadian Banking, partially offset by higher provision in Capital Markets. Within our Canadian Banking portfolio, provisions were CAD213 million, down CAD56 million over last quarter, or 8 basis points to 26 basis points. This decrease reflects lower provisions in our business lending and residential mortgage portfolios. Provisions in residential mortgages of one basis point are consistent with our historical performance.

Overall provisions of 26 basis points on our Canadian banking portfolio are at a historical low, reflecting very strong credit performance across a number of products, including cards. In the Caribbean, provisions on impaired loans were 150 basis points or CAD27 million, the same level as last quarter. While credit quality has shown some signs of stabilization, better performance of this portfolio continues to be dependent on more sustained improvements in the economic environment in the region. With respect to Capital Markets, provisions were CAD109 million or 82 basis points, up CAD46 million compared to the prior quarter related to a couple of accounts including one corporate account in the UK. While we expect low loss provisions within our wholesale portfolio to show some degree of variability from quarter to quarter, this quarter's provisions fall at the higher end of our expected range. We manage the corporate loan book on the basis that a normal run rate for -- of provisions for this book is in the range of 50 basis points.

Overall, we remain comfortable with the quality of the wholesale loan book. Impairment levels are low and the number of watch list accounts and accounts with our special loan group remains near historic lows. Approximately 70% of the [all] life portfolio is investment grade and is well diversified. It is also governed by a structured and disciplined underwriting process with strict limits on risk concentrations. Turning to market risk, average market risk value was CAD43 million and average stressed value at risk was CAD78 million with both measures remaining stable compared to last quarter. During the first quarter we had no days with net trading losses. With that, I'll turn the presentation over to Janice.

Thanks, Morten, and good morning. Turning to slide 11, we had a strong first quarter with earnings of over CAD2 billion, up 12% from last year and up 8% from last quarter. As Gord said, we had record earnings in Personal and Commercial Banking and Wealth Management and a strong quarter in Capital Markets. Our results continue to demonstrate our ability to drive topline growth while prudently managing expenses. I would note that expenses other than variable and stock-based compensation were up approximately 6% from last year and our full ownership of RBC Investor Services contributed to more than half of this increase. Overall, it was a clean quarter with no items of note.

First, let me briefly comment on our capital as this is our first year under Basel III. As noted on slide 12, our all in Basel III common equity tier one ratio at the end of the quarter was 9.3%. The key difference compared to last quarter's estimated pro forma ratio of 8.4% is the lower level of risk-weighted assets due to the delayed regulatory implementation of the Credit Valuation Adjustment or CVA. Excluding CVA, our ratio was up approximately 30 basis points, driven primarily by strong internal capital generation and slightly offset by the final quarter of IFRS phase-in. I would also note that the capital impact of our acquisition of Ally Canada, which closed February 1, will be reflected in the second quarter and is estimated at 40 to 50 basis points.

Turning to the performance of our business segments on slide 13, Personal and Commercial Banking earned a record CAD1.1 billion, up CAD108 million or 11% from last year driven by solid volume growth of 7% across all Canadian Banking businesses with particular strength in personal and business deposit and residential mortgages. Sequentially, earnings were up C AD86 million or 8%, reflecting lower PCL, seasonally lower marketing and professional costs, as well as solid volume growth in Canadian Banking. Looking at our Canadian Banking business, margins were down only one basis point from the prior quarter. However, we expect margins will remain under pressure in 2013 given the low interest rate environment, slowing consumer lending, and the competitive pressures. We achieved positive operating leverage of 2.6% and continue to make progress on our efficiency ratio which improved 120 basis points from the prior year to 43.7 %. We believe we can continue to generate positive operating leverage and drive our efficiency ratio lower. Although we do anticipate quarterly fluctuations due to the seasonality of expenses and the timing of investments.

Turning to Wealth Management on slide 14, we earned a record C AD233 million this quarter, up CAD45 million, or 24%%, from last year and up CAD26 million or 13% sequentially. Favorable capital markets conditions and market share gains drove higher average fee-based client assets, increased transaction volume, and semiannual performance fees. Moving to Insurance on slide 15, net income of CAD164 million was down CAD26 million, or 14%, compared to last year. As last year included net investment gains and a new UK annuity reinsurance contract. Compared to the prior quarter, earnings were down CAD30 million, or 15%, mainly due to higher reinsurance and disability claims costs.

Turning to Investor and Treasury Services on slide 16, earnings of CAD80 million were down CAD3 million from last year as our additional 50% ownership of RBC Investor Services and higher result in this business were offset by lower funding and liquidity revenues. Earnings were up CAD8 million, or 11%, from last quarter primarily reflecting increased foreign exchange revenue and higher custodial fees. Turning to Capital Markets on slide 17, our earnings of CAD464 million were up CAD93 million, or 25%, from last year. We had strong client growth in our US lending and loan syndication businesses and higher M&A activity. Compared to last quarter, net income was up CAD54 million, or 13%, driven by higher fixed income trading reflecting increased client activity and favorable market conditions as well as higher advisory and loan syndication activity. Our results this quarter were negatively impacted by a higher tax rate reflecting a greater proportion of US-based earnings and higher provisions, which Morten discussed.

To wrap it up, we are very pleased with our performance this quarter. As Gord noted, despite ongoing industry headwinds, we believe we are well-positioned. At this point, I'll turn the call over to the operator to begin questions-and-answers. Please limit yourself to one question and then re-queue so that everyone has an opportunity to participate. Operator?

Thank you.

(Operator Instructions)

Steve Theriault, BofA Merrill Lynch.

Thanks, very much. Can you hear me?

We can hear you, yes, Steve.

I wanted to ask a question on capital, a two-parter for Gord and Morten. Gord, with your Basel III tier one common to 9.3%, I wanted to ask about the buyback. So, I think the sense post Ally was that there would be some delay in getting the program underway. But, given where you are today, any even with the Ally deal coming in Q2, is that still the case or should we expect some activity in the near term?

And then, related, to Morten, there's 60 bps of tailwind from the deferral of the CVA, RWAs, would you agree with the notion that when this is implemented in 12 months time the claw back could be meaningful lower than the 60 bps given things like more central clearing or model approvals? Or should we work with the 60 bps?

Yes, firstly, I'll take a shot of both of them and then Morten can jump in. Because we may have slightly different views. On the buyback program, our expectation, given our high capital levels, is that we would expect to be in a position as we move toward the end of this quarter to look at -- take a serious look at share buybacks.

With respect to the 58 basis points, I think it is, it is hard to say, but one of the hopes, certainly from an executive perspective, I think all the banks are very much aligned on this, and we have made the case, is that a deferral of a year is -- it just moves the issue further down. It is -- there still is a big question-mark as to whether CVA capital is going -- it's not going to be Incorporated in the US methodology.

And, there is a question-mark with respect to Europe. And so, our -- certainly our hope is that it will be more permanent in nature or at least it will be grandfathered in term of the existing business. But, obviously, that is a regulatory decision that should be asked of [OSFY]. I don't know, Morten, whether you want to add to that.

No, I think that's a good answer.

Great. Thanks, very much, guys.

John Aiken, Barclays.

Good morning. In terms of the contribution to Capital Markets in the regions, we are seeing a shift with earnings declining within Canada but growing significantly in US and Europe. Can you give us a little bit color around the dynamics that are driving those changes?

I'll just repeat the question, because there was noise on the line, but Doug and Stan, I'll turn it over to you. But, really I think the question revolved around the dynamics between Canada versus outside of Canada growth in Capital Markets? Is that fair, John?

Yes, that is great.

Great, John, it's Doug. I'll start and I think Stan may want to add. If you look at the -- some of the slides in the presentation, you can see that there has been considerable loan book growth. And, it really is almost all in the US.

And, the reason we are doing that, first of all because you can, because there's so much opportunity in terms of corporate clients, but also we have a larger number of investment bankers there and just a more -- a bigger platform. In terms of the growth going forward, I think it will moderate as we go through the year, because you get to a point where you've got enough loans on for the size of your platform. But, we are still seeing growth through the quarter and a number of new names.

So, as long as we see credit holding up, we see the provisions in the loans holding up, and, as importantly, margins holding up we will keep doing it. But, the real key is to do additional business with these customers and we're seeing a very nice ratio of additional revenue where we are a lender. So --.

And, Doug, I would just add to that if you compare that with the dynamic in Canada, Canada is basically flat.

Yes, well, it's in the slide. The Canadian investment banking and lending books are both flat. Things are a little more quiet on the commodity sectors. And so, we've all seen what has been going on in the mining sector, and we are not as big a lender there as we are in the energy sector, but things are not particularly robust there right now, as well. So, it's a little quiet in Canada.

Yes, John, it is Stan. I would just add with the focus that we've talked about now for a couple of years on origination, that has spread across all of the businesses that we have in the US. So, we've got tremendous breadth now in terms of the products that we are bringing to our largest clients.

Whereas you go back a number of years and we were looking at a small number of products per client. Having got to that critical mass of products with individual clients, we've really started to see our positioning with those clients improve. And, that has benefited not just the origination side of the business in equity or debt, or the advisory side, but it's also benefited our activity on the sales and trading side.

Great, thank you.

Gabriel Dechaine, Credit Suisse.

Good morning, a couple quick ones here. January was cited as a very strong trading quarter by some of your European peers. Was that partially why your trading numbers were so strong this quarter? Then, on the deposits in Canada, for Dave McKay, is it appropriate to look at the five-year bond yield as the notional investment rate for those?

And, can you tell me what proportion of your core deposits are still sporting some of the higher investment yields from several years ago? And then, Gord, if you want to throw something in there on the US bank holding company regulatory proposals and having to put capital down into the US. How you plan to address that, I'd out appreciate it? Thanks.

Gabriel, I will kick this off with a response to the trading question. January was certainly an extremely strong month globally for originations, in particular very strong in the US. Just some general comments, we had an exceptionally strong quarter in the sales and trading side. There is some cyclicality to it, the first quarter does tend to be our strongest quarter.

But, there are really two factors at work here, there's the strength in origination, which was extremely strong and quite frankly looks like it's going to continue, and we had very good secondary markets. The strength of activity in the secondary markets is looking to ease little bit. But, we had decent volatility, primarily in the [extinct accounts, extinct] in the US, which really helped with the overall trading numbers.

You can see in the report to shareholders on page 28, the VaR usage declined over the quarter. And, also there were no -- as Morten mentioned, there were no trading day losses. That obviously helps the overall performance and really shows the sort of quarter that we enjoyed.

So, was it evenly split throughout the quarter? Or was January a disproportional contributor?

I wouldn't say disproportionally, a disproportional contributor. January was definitely the strongest of the three months. I think most people would say it was an extremely strong origination month. And, I think I've seen some reports that say that in some regions it was a record issuance on the DCM side.

Thanks.

Hi, Gabriel, it's Dave. You should look at our deposit book as funding our loan book over various maturities. So, when you see the reinvestment rate into the mortgage business obviously would be coming off as mortgages that were put on five years ago at higher rates than they are today. So, the NIM compression we're seeing is largely due to that effect that you're referring to.

Okay.

Gabriel, it's Morten. Just on your question on the foreign bank supervision issues in the US, this proposal is still in the review period. So, we don't know what it's going to look like yet. Based on our -- we're studying it, and we are providing input to the extent that we can.

We believe that the impact here will be manageable. Clearly, it is an increase in the overall regulatory burden. And, the aspects of this that look like another example of ring fencing and one that national jurisdiction is not helpful. But, at this stage, we do not see a significant impact on the overall operations we have there.

Thank you.

Michael Goldberg, Desjardins Securities.

Thank you, good morning. Couple of regional related questions in Canada. How much erosion of the visa products, visa deposits did you expect in Ally? And, what is actually happening? And, why didn't you not sell the deposit franchise if you didn't want it? And, turning to your mobile sales force, are sales people bonused for the mortgage rates they bring in? And, is this a potential regulatory issue?

Just referring to Ally, certainly our actions on the Ally deposit business were part of our strategy when we acquired Ally. When you look at the all in cost of the deposits Ally were raising, they were very, very high because you have to add the marketing initiatives that were used to bring those in, in addition to the high cost of operating the deposit infrastructure. So, certainly that was a big part of our decision when we acquired Ally to do that.

So, as far as runoffs, we've factored significant runoff because of the coupon they were paying. And, it really is not an important part of our overall business decision to acquire Ally. We really decided to acquire Ally for the asset origination side of the business. So, we can fund, Michael, the Ally business much more efficiently, their existing model, and don't really rely on those to deposits.

Now, as far as your mortgage question, the commission structure is effected by the average mortgage rate negotiated between their sales rep and the client. So, that has certainly been part of the structure and an important part of our business model. As far as the regulatory impact, I don't know -- we are not aware of any regulatory impact of that commission structure. It has been in place for a long time.

Okay, I guess I just come back to the other question of Ally, why didn't you try to sell the deposit franchise?

Well, given the high cost nature and the complexity of extracting this, our view in scanning the marketplace, was the cost of extracting this business and selling it outweighed the cost savings of unwinding it. So, it is much simpler for us too unwind this business and then to sell it, as you can imagine. Very small depositor base, high-cost operation, I don't think anyone else could have done much more with this.

Okay, thank you.

Robert Sedran, CIBC World Markets.

Hi, good morning. I just wanted to follow-up on the issue of those CVA component of Basel III. And, I've got a question for Mark Standish. Mark, does this have any effect in how you're pricing derivatives in the marketplace?

And, especially, I guess, the longer dated stuff. And, perhaps you can differentiate between the Canadian market, where everyone has got this holiday for a year and the US market where you're really not competing on a similar footing?

Okay, thanks, Robert. Obviously, a delay of implementation for one year really doesn't affect how we are pricing any thing other than extremely short-term derivatives. So, we are assuming CVA capital into our pricing We are at a disadvantage, and have been for some time, relative to some of our global competitors.

Part of that disadvantage is offset by our credit quality making us a desirable counterpart. But, certainly, the pricing of derivatives, if you properly price them including CVA, has, in the short-term, put us at a small disadvantage. But, this has been something that we have been living with for some time now.

Do you feel like in the domestic market everyone is behaving under the same -- with the same approach as you are?

I really can't comment on the -- what other Canadian banks are doing. The disparity of pricing has narrowed in the last year. So, a year ago I think there was a very different view. I think the view is converging now. There is still the odd outlier when we compete for transactions. But, for the most part, I think there is a convergence of the view around CVA.

The silver lining, obviously, is that at some point there will be a day of reckoning because there has to be convergence. These are the rules, will be in place, and everybody will have to live by them. In which case we will have been pricing more effectively over the past year or two. Or the rules won't be, in which case we will have missed an opportunity in the short-term, perhaps, and have been at a competitive disadvantage but should have lots of capacity going forward.

Thank you.

Peter Routledge, National Bank Financial.

Yes, just a follow-up from the earlier question on Capital Markets. We see on slide 25 the revenue mix by geography. I know you don't like to disclose this, but can you give us some sense of contribution on a pretax basis from each geography?

So, that is slide 25 you are looking at?

Yes.

Right, so you can see the -- you can see significant growth in the US. So, we earn more money in the US this quarter than we did in Canada. And, that is after paying a reasonably significant amount of taxes in the US. The tax rate is quite a lot higher. So, we would expect at that run rate that we would, for the first time, make more money in the US this year after tax than we would in Canada.

And, that's the feeling. You've built your loan book up, I understand, but there is ancillary revenue benefits from that and better relationships right? You're --.

You're right. Well, you can see in the slide, on this slide 24, that you can get a hand -- a feel for the increase in the lending revenue because we've gone from CAD241 million to CAD365 million. So, the balance of that increase, year-over-year, is in either sales and trading or investment banking fee revenue. And, we've had quite significant growth in the fee revenue part of our business.

Right. So, you're a US platform first, then?

Pardon me?

You are a US platform first and foremost now in your business?

Well, we are a platform that thinks it's very important to be first in Canada in everything we do. And, we're working very hard to stay in that place. But, we are seeing more growth opportunities in our US platform.

I would describe it as a very powerful North American platform.

Fair enough.

If you do look at slide 25 you can see that European revenues, actually, and Asia that CAD54 million in Asia, is actually origination and fee revenue in Australia. We're starting to make some headway in some of these other offices as well. And, that will be a focus of ours going forward.

Okay, thanks for taking my question.

Mario Mendonca, Canaccord Genuity.

Good morning, when I think through the NIM dynamic on a total bank basis, but specifically as it relates to the available for sale securities portfolio, could you run us -- run by us what the duration of that portfolio is? How that yield has changed over time? And if rates were to stay where they are, how that would play out? What would happen to the -- what kind of an impact that would have on the margin, total bank margin, if rates were just to stay where they are and when that impact would subside?

Hi, Mario, it's Janice, I will answer parts of that question. I don't think that at the margin it's -- the NIM on available for sale portfolio is a significant driver of the overall NIM. But, if you look at the duration, it is anywhere from two to three years and from time to time we change up the portfolio. I think if you are looking at the impact of how we are positioning our structural balance sheet, we are positioned, as you would imagine, for rising interest rates in the one to three year range.

When you look at what will unfold over the course of time, and look at our NIM, I think that that square, you may see some movement depending on what our view is on interest rates. So, I think that, to the extent that some of that view is executed through our available for sale portfolio because that is how we do our positioning. That is where you would see the impact.

But, insofar as available for sale securities portfolio, that specifically, is the suggestion it's not a particularly important item just simply because of the size of available for sale securities portfolio relative to the entire book? Or because the duration itself causes it not to manifest itself in any significant impact?

More about the size of it compared to our book and how we are using it in terms of positioning.

Okay, thanks very much.

John Reucassel, BMO Capital Markets.

Thank you, question just for Mark. And, Mark, in the past I've asked about the amount of fixed income trading that is tied to origination activity and I think you've said around one-third of it. Is that number higher now given all the active originations, or could you give us an update where that is?

I think certainly for this quarter, it is definitely higher than that, because of the strength in the amount of origination. We saw a lot of activity on the high yield side. And, there tends to be a lot of secondary flows when you see a good high yield calendar.

So, we have enjoyed that. Markets were very active which allowed us to really support client activity very efficiently and move product through the balance sheet very quickly. So, yes, I would say for the quarter, it is on the higher end of that range, but over time probably going back to that ratio.

Okay, and then, just a question for George Lewis. George, I would be very interested if you could give us a number on what you think the net inflows in there to your mutual fund business for January and so far in February? It looks like a pretty good RSP season but I would be interested to see what your thoughts are on that?

Thanks very much for the question, John. We report our sales monthly, so you see November was a record November, December a record December, and January a record over December. This continues strong in terms of February, and we will be releasing that in a couple of days. Testament to our relationship with Canadian Banking. It is a big driver of our sales at this point in the year and also our other distribution partners, as well. So, we would expect a very strong RSP season for our business.

Sorry, just not to put -- it's going to be a record RSP season? Could you see numbers like CAD4 billion or CAD5 billion, or is that too optimistic?

We cannot really comment. You will have two of the months within a couple of days.

Okay, I tried, thank you.

We don't want to release a month and a half early.

Well, you'll know on the 1st. You'll know by Friday, the end of tomorrow, for March.

Just to build on Gord's comment, don't forget March 1 is part of RSP season this year. So, you'll have to wait for March too.

I know. Okay, thank you.

Stefan Nedialkov, Citigroup.

Hi, good morning, Stefan from Citi. I had one question on the domestic Canadian market. And, more specifically, on the corporate lending side of things. Obviously, as the residential side starts to slow down, the bank is naturally starting to think of ways to move into new sectors. And, a few of the banks have been making noises about increasing market share and presence in corporate lending specifically.

Can you just give us some color on where margins are at the moment? And, where you would expect them to go probably by the end of this year? Are we going to see maybe a mini pricing war for market share?

Just for clarity, you are really referring to the Canadian banking business, the commercial side?

That is right.

Hi, it's Dave McKay here. Certainly we are seeing robust growth in the commercial lending side in the industry. It is nice to see balanced growth in the marketplace, it's well balanced between commercial real estate, agriculture, manufacturing, leasing, retail. So, we are seeing very strong activity across the country. As far as the competitive environment on NIMs, I would say the competition in the commercial space is more intent on the deposit side.

And, the deposit margins are more under pressure, and that has had an impact, I think, on all bank NIMs over the past quarter and over the past year. So, we're seeing fairly disciplined pricing. We are seeing intense competitive environment on structure, obviously. But, I would say if you're looking at NIM compression specifically, the deposit side has borne more of a brunt of that than -- and pricing pressure than the commercial lending side.

Okay, great. Thank you.

(Operator Instructions)

John Aiken, Barclays Capital.

Good morning, I'm surprised I actually got through a second time. Morten, in terms of the provisions on the wholesale, I know that this is lumpy and I know that this quarter was international/UK and last quarter was the US. But, I was intrigued by your commentary saying the watch list was essentially at historic lows.

In terms of the provisions that came through on the international wholesale side, can you give us a sense as to have much that actually related to the single credit? And, how we can get confidence that we might actually start to see provisions easing going forward?

Okay, I'll try to answer that in a couple of ways. If you look at the provisions for this quarter, I think we had a total of nine accounts that had provisions or recoveries with five accounts of that that were provisions. Two of them were at the larger end, and they happened to have the one larger one in the UK. And as you said, this is, by definition, a portfolio where the experience ends up being somewhat lumpy.

The forward-looking metrics are a little difficult to have huge reliance on. But, I would note that if you look at overall impaired formations, they are actually down this quarter. And, as I indicated in my comments, the inventory of accounts that we have in either on watch list or with our special loans work-out group for the corporate book, again are fairly small in number and they are at recent historic lows.

So, all of that would suggest that you are likely to see quarters that -- or if you look back over the last couple of years you will see that we have had the last two quarters have been at the larger end. We have had for most of the last couple of years either relatively nominal provisions or recoveries. And, that is with a pipeline of watch list accounts at level of impairment that have been at similar or higher levels to what we've got now.

So, with limitations of what you can use that to tell about the future, the indications are that the performance should be more consistent with how we basically plan for the loan book economics, or how we look at the recent history. And, we hope that this quarter is a bit of an anomaly. But, given the lumpy nature of the loan book, you really have to take one quarter at a time.

Thanks, Morten. And, please correct me if I'm incorrect but I believe last quarter the US credit related to a hold that I don't think you could syndicate out. Was there a similar dynamic in play here with the UK credit?

No, all problem loans have a story that amount to if it hadn't been for the fact it was bad it would've been good, so I would rather not get into the specifics here. But, you are right, there was an element of this where the hold number was somewhat larger than we had planned for due to difficulty in distributing the amount. And, I would note that when you then look at the pipeline of watch list and special loan situations, that is fortunately an unusual occurrence. But, when it happens, it often has the odds of going bad on you a little bigger.

If I could just add to that as well, because if there is -- that would really revert back to a situation a number of years ago. One of the good things about IFRS is that under the new accounting rules, all syndications are fully mark-to-market. So, it not only forces, I think, a much more aggressive behavioral change, but it also ensures that things are mark-to-market on an ongoing basis. And, that's the way, in my view at least, it should be.

Great, thanks, guys.

Brad Smith, Stonecap Securities.

Thanks, very much. I was just wondering if I could get some detail on your domestic mortgage originations? If you could just give me a sense for how they developed in the quarter relative to the insured and uninsured books? And then, any general comments you could make about the relative margins between those two books?

So, as we look at the overall mortgage growth, we still had a very good quarter. We are seeing growth moderate across mortgages closer to the 5% range as you've seen year-over-year. We still haven't seen the full impact yet, I think, of the B20 regulations as they will start to drag the pipeline. So, you may see some further moderation of Canadian growth rates going forward.

As far as margins between the insured and uninsured, we don't differentiate our pricing structure to our customers based on insured and uninsured. So, the margins we originate in those two businesses would be the same. So there is not a variability there. Customers are certainly choosing five-year terms and four-year terms. They are locking in and that is good stability of the industry going forward in any type of rising rate environment.

So, I think we would originate a lower proportion of insured mortgages, because we don't deal the broker channel. And, when -- if you look at the balance sheet of our peers, they have a higher base of insured, part of that is originating through the broker channel which tends to originate first-time home buyers and a much higher proportion of insured versus uninsured mortgages. So, that is really what is going on, Brad, in our mortgage book.

Terrific, just in terms of in force, could you just break down the insured versus uninsured at the end of the quarter?

We are roughly at a 40% insured.

Okay, terrific. Thanks, so much.

Gabriel Dechaine, Credit Suisse.

Hi, just a question on the Wealth business there for George. I know you backed down a bit on your 2015 target of cap the CAD2 billion of earnings. You had a good quarter in Wealth, don't get me wrong, but I just want to know if you can quantify where you think that target is -- what it would look like today if you had to do that presentation again?

Thank you very much for the question, Gabriel. And, you are right, we did have a very strong quarter and I think we will take it quarter-by-quarter going forward. But, I would say that we do still have aggressive growth ambitions for the platform. In terms of our expectations for 2015, that has been deferred given the ongoing low interest-rate environment.

But, we do have strong momentum in our largest businesses including Global Asset Management, Canadian Wealth Management, as well, where we gained share. Our US business has improved significantly this quarter. And, that is just coming back to Doug and Stan's comments as we grow the large Capital Markets business in the US, not only has our US Wealth business increased its fee-based revenues this quarter, but also its transaction revenues, including new issues.

And, we're doing a better job of placing the new issues from Capital Markets in that jurisdiction. And, we continue to build out in emerging markets, as well as British Isles. So, we have a number of growth drivers. I'm hesitant to give you a timeframe for those growth ambitions of the CAD2 billion mark, but we will be getting there.

And, the biggest sensitivity is interest-rate.

Yes.

Okay, then for Dave, a couple here. Cards growth, the industry overall is flat lining or down, yet you guys, I don't know how many quarters, it has been ticking up pretty consistently. What is driving that? Are you participating in any of the balance transfer promotions?

And then, I don't know, Morten or Dave, on the risk rates for mortgages, how do you determine that any way? Because I look at yours versus some of the others and it is on the low-end. And, I know it's not always easy to compare, but I know that you've got a higher proportion of uninsured mortgages. So, I would expect that to be actually higher. Is there something that you can point to there?

I will tackle the first question on cards because we really haven't thought of risk weighted assets as being different than our competitors. Obviously, we would assume they were a standard ratio. So, I think (multiple speakers). But, back to cards to start, our cards portfolio is very, very strong.

And, when you look at the part of the business that we are investing in, we have one of the top cards in the marketplace, if not the top card, in Avion. And, we have been investing heavily in Avion for a number of years and it's just a fantastic product that has been leading the growth in our Business. We've got the Shoppers Drug Mart card that we've recently acquired and invested in expanding. The West Jet Credit Card business is doing very well.

So, as far as our product lineup, it is very, very strong and it's going to get stronger with the Target partnership in the next couple of months. All of -- we certainly do participate, albeit in a much reduced way, in the balance transfer standard way of doing business in acquiring balances. Historically, it has proven to be a profitable business and a good ROE business. But, we are much more selective in it than we have been in the past.

And, as consumer habits change around repayment and carrying balances beyond the intro period or the discount period, that mechanism to grow your business profitably, I would say, has reduced significantly over the past two years and will continue to reduce. So, yes we use it, it's a lower impact than it has been, certainly, and I would see less use of it probably going forward.

Gabriel, it's Morten. Just on the risk weighted asset, I suggest we take that off-line and we drove on the details of that. Because we don't have a good answer off the top on the specific you asked.

Okay, I appreciate that. I will give you my number off-line. Thanks.

Thank you, there are no further questions registered on the telephone lines at this time. I would now like to turn the meeting back over too Mr. Nixon.

Okay, well thank you very much, everyone, for joining us. We look forward to speaking with you again on our conference call next quarter. And, hopefully you will all diligently sign on and listen to our annual report -- our annual meeting. And, thanks again.

Thank you, the conference call has now ended. Please disconnect your lines at this time. Thank you for your participation.