Royal Bank of Canada (RY) 2013 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the RBC 2013 third-quarter results conference call. Please be advised that this call is being recorded. I would now like to turn the meeting over to Ms. Karen McCarthy, Director of Investor Relations. Please go ahead.

Good morning, and thank you for joining us. Presenting to you this morning are Gord Nixon, President and CEO, Morten Friis, Chief Risk Officer, and Janice Fukakusa, Chief Administrative Officer and CFO. Following their comments, we will open the call for questions from analysts. This call will be approximately one hour long, and will end just before 8.30 a.m. To give everyone a chance to participate, please keep it to one question and then requeue. We'll be posting Management's remarks on our website shortly after the call.

Joining us for your questions are George Lewis, Group Head - Wealth Management & Insurance, Doug McGregor, Chairman and Co-CEO Capital Markets and Co-Head of Investor and Treasury Services, Dave McKay, Group Head - Personal & 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, Karen and good morning, everyone. I'm pleased to announce today that RBC earned CAD2.3 billion or CAD1.52 earnings per share in the quarter, which were record results. And after excluding specified items, our earnings were up 12% from a year ago and 13% from last quarter. Our results were underpinned by strong fundamentals and record earnings in personal and commercial banking and Wealth Management. We also saw continued strength across most of our other businesses, particularly in investor and treasury services.

Year-to-date RBC has earned CAD6.3 billion, delivering a strong return on equity of 20%, and earnings per share growth of over 12%. And our all-in common equity Tier 1 ratio remained strong at 9.2%, which gives us the flexibility to deploy capital as we strive to optimize balance between investing in our business for long-term growth, and returning capital to our shareholders. I'm also pleased to report that we announced a CAD0.04, or 6% increase to our dividend, bringing the quarterly dividend to CAD0.67 a share. Our increase of CAD0.04 a share, which is slightly higher than the most recent increases, reflects the confidence we have in our ability to continue to generate solid earnings growth and successfully execute on our disciplined growth strategy by leveraging our strength, scale and strong capital position. We are on track to meet or exceed our 2013 financial objectives, and this is our fifth dividend increase in nine quarters, representing a 34% increase.

Let me now turn to our business segments. Personal and commercial banking had a record quarter, with earnings of CAD1.2 billion. In Canadian banking, given our size, scale, superior breadth of products, and our ability to provide advice to clients when and where they need it most, we continue to generate solid volume growth across all of our businesses, and take a disproportionate share of industry growth, while profitably gaining market share. For example, we increased our personal deposit market share by over 60 basis points since May of last year, and saw market share gains in all other personal and business product categories during the same period, further expanding our leading positions. We also continue to extend our sales power by developing innovative solutions and new partnerships that will enhance the client experience, and provide greater value, flexibility, and convenience. Just last month, we introduced the first cloud-based mobile payment solution in Canada, which will allow our clients to more safely and securely pay for purchases, using their mobile devices.

We remain focused on continuing to grow our volumes at a 25% premium to the market, however we will not do so at the expense of profitability. We continue to see good market opportunities and are excited about the potential growth particularly from our cards business. We also remain committed to controlling costs and driving efficiencies to the low 40s, our objectives, and have a number of initiatives underway to continue to manage this trajectory of expenses in the context of the revenue growth environment we're in. In Caribbean banking, while the economic conditions remain weak, we continue to see stabilization in credit quality and improved performance.

Turning to Wealth Management, we continue to have great momentum across all of our businesses, which resulted in record earnings this quarter. We were able to grow our average fee-based client assets by capitalizing on the improvement of global markets and generated strong transaction volumes. We have grown our assets under care by nearly 12% over the past year. In Global Asset Management, we continue to be the leader in long-term fund sales in Canada, having captured 20% of the market over the last 12 months, and delivered the highest pretax margins in the industry. For Wealth Management, we continue to extend our number-one position in Canada, with leading fee-based assets, advisor productivity, and profitability. For example, our revenue per advisor exceeds the Canadian industry average by 45%, according to investor economics. In the US, we continue to shift from a transaction-based to a fee-based model, and have grown our average fee-based client assets by 10% from a year ago. We're also pleased to report that for the second year we have partnered with Capgemini to produce the World Wealth Report, an industry-leading benchmark that brings trends and insights to high and ultra-high net worth individuals, and strengthens our brand and reputation worldwide.

Moving to insurance, we work closely to support our clients through the weather-related events that occurred this quarter. While the claims did have an impact, which Janet will speak to, they were not material to our business, given the claims mitigation process. This business continues to make consistent contributions to our diversified earnings stream. In Investor and Treasury Services, we saw improved business performance in Investor Services as a result of higher revenue and continued benefits from our ongoing focus on cost management activities. Since our acquisition just over a year ago, we have made significant progress in integrating our investor services businesses into RBC. We have been successfully positioning the business to adapt to the operating environment, and we continue to improve our efficiency and streamline our operations. The initial phase of our integration is almost complete, and our management group is delivering on their objectives, and we are extremely excited about the opportunities in this business. We are leveraging the RBC brand reputation of financial strength to win new clients and business. As a testament to our long-standing ongoing commitment to providing clients with market-leading innovative solutions, we were recently ranked number-one overall in this year's Global Investor FX ISF survey.

Moving to Capital Markets, our earnings this quarter were flat over last quarter, and down 10% from a year ago. The announcement by the US Federal Reserve in June that the current US quantitative easing program would be coming to an end, as you remember, sparked significant market volatility, and widening of credit spreads. Consequently, our fixed income trading business, mainly our US muni trading and agency mortgage business, was particularly weak this quarter, and it was the most impacted by this announcement. As a reminder, when we are realigned our segments last fall, a portion of our trading business was also transferred to Investor and Treasury Services. Market conditions today appear moderately better than they were in the latter part of the quarter, and we believe our fixed income trading revenue will improve in the near-term.

Having said that, we are readjusting our business to reflect some of the structural changes in fixed income. As you're probably aware, in Europe, we have realigned our business, including exiting from European government bond trading business, to strengthen our operations and to position ourselves for better earnings and growth over the long-term. In light of these market changes, we remain focused on our origination-led and client-based lending and fee-based activities in our target sectors and geographies, as we seek to further diversify our revenue stream, and we did see continued solid vote in the corporate sector this quarter, particularly in the US. Investment banking revenue was lower this quarter, compared to the strong levels we saw last quarter, but fee-based revenue can fluctuate, depending on deal timing.

With the investments we have made and continue to make in our people, products, and sectors, we have a healthy deal pipeline, especially in North America. Our pipeline includes our role in the financing of the [$24 billion Dell] private transaction. We are acting as an advisor to Shoppers Drug Mart and are participating in the financing for the sale to Loblaw's, a CAD13.8 billion transaction, which is expected to close in early 2014, and we are advising and providing financing to Hutchins Bay for their CAD2.9 billion acquisition of Saks, just to name a few. While there are some fluctuations in our Capital Markets' results from quarter to quarter, we have earned over CAD1.2 billion to date, which represents a 6% increase compared to the same period last year, and we remain optimistic that we will deliver on our 2013 objectives.

To conclude, our record results this quarter demonstrate the earnings power of RBC, driven by our leadership position, diversified business mix, and strong capital position. Our revenue and business mix outlined on slide 4 is consistent with our strategy and objectives, and our diversification provides a good balance from both an earnings and risk perspective. We believe RBC remains extremely well-positioned, giving us the flexibility to continue to execute our long-term strategy as we deliver against our objectives. With that, I'll turn it over to Morten.

Thank you, Gord. Turning to credit, starting on slide 7, overall provisions for credit losses on impaired loans were CAD267 million, or 26 basis points this quarter, down CAD21 million, or 3 basis points from last quarter. Since the beginning of 2013, credit quality has generally improved, reflecting stabilizing asset quality.

Let's look at our credit performance in more detail. In Canadian banking, provisions were CAD213 million, down CAD21 million over last quarter, or 4 basis points. The decrease was driven by the recovery of a single commercial account, loan loss rates, and a reduction in impaired business loans. Underlying credit trends in the business loan portfolio remain stable, quarter over quarter. Our provisions this year have been trending at historically low levels, and were 25 basis points this quarter, reflecting very strong credit performance across a number of products, including our cards and business portfolios. Provisions for our residential mortgage portfolio were consistent with our historical performance at 1 basis point.

Turning to the Caribbean, provisions were CAD13 million, down from the prior quarter, as credit quality continues to improve. This quarter, we incurred a CAD10 million provision in Wealth Management, related to a single account. Over the past three years, the Wealth Management credit book has grown by 22% compounded growth rate to over CAD15 billion, towards part of this segment's growth strategy. While we do anticipate incurring some provisions from time to time as this portfolio continues to grow, we remain comfortable with its overall credit quality. With respect to Capital Markets, provisions were CAD28 million or 20 basis points, down CAD12 million or 11 basis points over the last quarter. We remain comfortable with the overall quality of the wholesale loan book.

Turning to market risk, average market risk VAR was CAD45 million, and average market risk stress VAR was CAD105 million, up CAD28 million compared to last quarter. The increase in stress VAR reflects higher measured risk in mortgage-backed securities, partly due to a change in methodology, which more accurately reflexes the price behavior of mortgage-backed securities during the financial crisis of 2008 to 2009, as this is the historical period used for stress VAR. During the quarter, we had four days with net trading losses totaling CAD10 million, none of which exceeded VAR. The largest loss of CAD5 million was mainly driven by the tightening of our credit spreads. With that, I'll turn the presentation over to Janice.

Thanks, Morten, and good morning. As Gord mentioned, we reported record third-quarter net income of CAD2.3 billion, which was up CAD64 million or 3% over last year, and up CAD368 million, or 19% compared to the prior quarter. Overall, we had a clean quarter, with only a single specified item, due to a favorable income tax adjustment of CAD90 million, related to our 2012 tax filing, which impacted our current period results. Excluding this item and items specified in previous periods, as outlined on slide 17, net income was CAD2.2 billion, up CAD236 million or 12% from last year, and up CAD247 million or 13% from last quarter. Briefly touching on capital, in addition to the dividend increase we announced this morning, we have continued to return capital to the shareholders through our normal course issuer bid, repurchasing another 4.7 million common shares, at a cost of CAD280 million during the quarter. As you know, OSFI recently announced the phase in of the credit valuation adjustments, and we estimate the impact to our CET1 ratio in 2014 to be approximately 30 basis points.

Turning to our business segments, starting on slide 11, personal and commercial banking earned a record CAD1.2 billion, up CAD78 million or 7% from last year, mainly driven by solid volume growth of 8% across all Canadian banking businesses, and improved credit quality in both our Caribbean and Canadian portfolios. The inclusion of our acquisition of Ally Canada also contributed to the increase. Earnings were up CAD170 million or 17%, excluding the prior year's mortgage prepayment interest adjustment of CAD92 million after tax. Compared to the prior quarter, net income was up CAD123 million or 12%, largely due to seasonality including additional days in the current quarter, and volume growth across most of our businesses in Canada.

Turning to our Canadian banking business, net interest margin in Canadian banking was up 9 basis points from last quarter, mainly due to the fair value purchase price accounting adjustments of 3 basis points related to Ally Canada and the reversal of the impact of accounting volatility, which we highlighted last quarter. Factoring out these impacts, margins remained relatively steady at 2.72%, despite the impact of a prolonged low interest rate environment and competitive pressures. Our efficiency ratio was 44.5% on a reported basis this quarter. After adjusting for the impact of Ally, our efficiency ratio was 44.2%, an improvement of 60 basis points from the prior year, as we continue to benefit from our cost management initiatives.

Our operating leverage was 1.5% after adjusting for the impact of the Ally Canada acquisition, and last year's favorable mortgage prepayment interest adjustments. Looking ahead, while our expense growth of this quarter, excluding the Ally Canada acquisition, was higher than previous quarters, this was largely due to increased costs in support of business growth, as well as a higher pension expense, reflecting a lower discount rate. While continuing to invest in our businesses to improve productivity and efficiency, we will limit the rate of growth of expenses through our strong cost management program. Despite the slow growth in interest rate environment, we expect to continue to drive our efficiency ratio lower, and generate positive operating leverage.

Turning to Wealth Management on slide 12, net income was a record CAD236 million, up CAD80 million or 51% from last year, mainly due to higher average fee-based client assets, resulting from net sales and capital appreciation. Improved transaction volumes also contributed to the growth. Excluding the prior year's unfavorable impact of CAD21 million after tax, related to certain regulatory and legal matters, earnings were up CAD59 million, or 33%. Sequentially, net income was up CAD11 million, or 5%. As mentioned, PCL of CAD10 million was incurred, reflecting a provision on a single account.

Moving to insurance on slide 13, net income of CAD160 million was down CAD19 million, or 11% from last year. As the prior year benefited from a favorable adjustment of CAD24 million after tax, related to changes we made in our proprietary distribution channel. Higher earnings from the new UK annuity contract this quarter were mostly offset by higher claims costs, including net claims of CAD10 million after tax, related to severe weather conditions experienced in Alberta and Ontario. Compared to the prior quarter, net income was down CAD6 million or 4%.

Turning to Investor and Treasury Services on slide 14, earnings were CAD104 million this quarter, up CAD53 million compared to a year ago, primarily due to improved business performance in Investor Services, including higher revenue and continued benefits from our ongoing focus on cost management activities. Incremental earnings from our additional 50% ownership of Investor Services also contributed to the increase. Excluding last year's loss of CAD11 million after tax related to the acquisition of RBC Dexia, net income was up CAD42 million. Compared to last quarter, earnings were up CAD37 million or 55%, largely driven by stronger securities lending, which benefited from the stronger than anticipated European dividend season, and continuing benefits from our ongoing focus on cost management activities. Excluding our restructuring charge of CAD31 million after tax in the prior quarter, related to the integration of RBC Dexia, net income increased CAD6 million or 6%. Lower spending and liquidity revenues provided a partial offset across both periods.

Turning to Capital Markets on slide 15, net income of CAD388 million was down CAD41 million, or 10% from last year. As Gord discussed, our results were impacted by lower fixed income trading revenues, and lower investment banking activities this quarter. Compared to last year -- last quarter, net income was flat. As Gord mentioned, on a year-to-date basis, Capital Markets have turned over CAD1.2 billion, which is up almost 6% compared to the same period last year. Overall, we are pleased with our solid performance this quarter and our strong capital position, and we believe we are well-positioned to continue delivering earnings growth, even in a slower growth environment.

With respect to our taxes, in addition to the specified items noted this quarter, we had our annual release of provisions due to another statute [BART] year similar to the release in Q3 of last year, so there is no impact year-over-year. Our effective tax rate going forward is in the range of 21% to 23%, and for Capital Markets, has been reduced by approximately 5 percentage points to around a 35% run rate. 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 requeue, so that everyone has an opportunity to participate. Operator?

(Operator Instructions)

Robert Sedran, CIBC.

Janice, you mentioned on the net interest margin, and I guess on slide 19, it shows it, but excluding some of the noise in the quarter, the margin was up basically a basis point. Can you give us a sense for what earnings would have been in the segment without those items? Or is it more just a classification issue rather than an actual revenue issue?

It is a revenue issue, because our NIMs impact our spreads, but if you look at the actual sizing of the Ally purchase accounting adjustments, I think it's sized in our disclosure, and I think it's about --the actual difference is about CAD18 million of adjustment. And remember that purchase accounting adjustments will continue as the loans pull back to par, so a portion of that is a quarter catch-up, and then a portion is going to be still there, as an explanation for the NIMs. The reversal of the prior account -- quarter accounting volatility, I think last quarter, we sized it at about 2 basis points, so the reversal of that would not imply that the net quarter over quarter change is about 4 basis points.

So a little larger than CAD18 million then on that item? Sorry. 4 basis points swing when would be about like CAD22 million or CAD23 million?

They're about the same, yes. Because they CAD18 million -- Yes.

I guess what you're saying is the fair value purchase accounting from Ally, that's -- it's an explaining item, but it's not really an adjusting item, because it's going to continue?

A portion of it will continue. Remember, we did a catch-up adjustment for one quarter. So if we had booked it into Q2, the adjustment would be less this quarter, but yes, the straight purchase accounting adjustment.

Maybe I'll make a comment about the Ally. Robert, the operating results you see out of Ally, up CAD28 million, is close to the run rate that we talked about when we made the acquisition of CAD30 million. So despite the one-time gains on the revenue side, and the NIM impact, they were offset by some costs and expenses and integration, pretty equally. So when you get down to CAD30 million, the revenue was offset by costs, and you're seeing a pretty close to true operating run rate there.

Dave, you're saying as the integration expenses run off, you're still comfortable with the CAD30 million odd that you're originally suggested?

That's exactly my point. Yes.

Okay. Thank you.

John Reucassel, BMO Capital Markets.

While I have the floor, Dave, I just want to ask, or Janice, there is some volatility in this NIM, but what is the outlook there? And you talked about reducing the efficiency ratio here. I guess, given that it's a tougher revenue environment, does that mean that come out of costs, or Dave could you update us on how that's going to work?

Certainly. As we look at our efficiency ratio at 44.2%, we're battling a couple of headwinds to move it down, but we're still committed to the low 40%s. We did envision the impact of the low rate environment, one, on revenues of our business, obviously when we started this journey, and two, the increased costs in our pension from the lower discount rate. So they both put a drag on where we thought we'd be. Having said that, we're still pursuing a number of programs with the implementation of our retail credit transformation program later this year, looking at optimizing our network. We're still on a journey where we're confident we're going to get there, albeit it's a bit slower pace than we had thought, largely attributable to the low rate environment. So we're on the right path, and we see our way forward.

So just the pension expense, do you expect that continuing to drag next year? And just on the net interest margins, looks like you're comfortable with them being stable. Looking through all --

I guess the guidance that I have given over the last many quarters is slightly down, 1 or 2 basis points quarter-over-quarter on the NIM side. I think the biggest pressure we've seen on NIM is the lower rate environment, particularly in our core checking business and our core deposit business. That's starting to alleviate year-over-year. Now, the pressure that's building obviously is on the pricing side, particularly in commercial markets. We'll have pressure, so it's tough to predict exactly where NIMs are going to go obviously, but I would still expect slight reductions, as we've talked about in the past, despite the increase we've had this quarter, holding it to slightly down is probably where we'll be.

The reversal will come, though, in the pension expense, if interest rates go up, because the discount rate will go up, so there will be a positive adjustment if we ever get higher interest rates.

Okay. But you are still forecasting pension adjustments going forward? Is that what you see if rates stay where they are?

If long rates stay where they are, then there won't be a major impact year-over-year. It will be slightly higher expense. What we're seeing, though, is as you know, long rates are moving up slightly, so that will have an effect on pension. But with respect to the pension expense, John, we actually size it at the end of the fiscal year for the year, so that's the critical period to look at in terms of rates.

Thank you.

Stefan Nedialkov, Citigroup.

I just had a question on the effectiveness of hedges, especially in the trading book. Given that rates on the long rose a fair amount, both in May and June, I was just wondering if you can give some color on how satisfied you are with the effectiveness of your hedging program within the trading book? And has that met your expectations? Has it underperformed or outperformed, versus where you thought it would be? And would you change anything going forward? Thanks.

Thanks, Stefan. It's Mark Standish. Obviously, for the quarter, we experienced very different results by region. Our business in Canada on the trading side actually had quite a strong quarter. If I back out an OIS adjustment related to derivatives, they still had quite a decent gain relative to Q2, and were slightly lower than Q3 last year. London had quite a decent pick up in performance as well. So that really brings the question to what occurred in the US.

What we had in the US was a very significant asset repricing. To add to Gord's comments, it actually started in late May when the Fed hinted at a reduction of the purchase program, and then on June 19, Chairman Bernanke put that into a timeframe as early as the end of 2013. So that really accelerated what had started at the end of May in terms of a sell-off in basically all long-dated non-federally government guaranteed fix income products, so that would be long-dated corporate paper, municipal paper, and non-agency mortgage-backed securities. Quite frankly, the only good hedge in that environment is just to not have inventory. If you look at the municipal market, long-dated high-grade municipals declined twice as much as long-dated US government securities. The outflows in the municipal market were quite extreme. We had a three to five day sell-off period that quite frankly is the worst that we've seen in 30 years. So if you were hedging with treasuries, obviously it would've been completely ineffectual.

We were very aggressive in how we managed our inventory, and I'm very happy with that. Unfortunately, what happened for us was we had a disproportionately large municipal business relative to the rest of our business. We have a number 5 ranking in the US municipal space. It's a very strong business for us. And a couple of days prior to Chairman Bernanke's announcement in June, we had participated in a number of large underwritings. So from that point in time, we were very active in managing our inventory, given the sell-off and the redemptions in mutual funds, we were very active in supporting our clients. Hedging didn't really factor into that, because the best hedge is to just manage your inventory down. So very difficult period in the US for the trading books. We've had that asset repricing now. Supporting clients is an important part of building origination business, so all things considered, we're quite happy with how we came through this period.

Okay. Great.

(Operator Instructions)

Michael Goldberg, Desjardins Securities.

How did you limit the impact of storms in Alberta and Ontario? And why are you comfortable with your Ontario auto reserves, given the high level of claims brought in the market?

Thanks, Michael. It's George Lewis here. Thanks for the questions. I think in terms of the weather events related to both Alberta and Toronto, just to give you a perspective on that, our total claims actually are close to CAD50 million through both of those events. But the reinsurance arrangements that we have in place that limit our exposure to a single event, and a cumulative event, we were able to mitigate the impact of that on our results down to a little over CAD10 million after tax. So good arrangements in place by the business team there. That's allowed us to serve our clients through a challenging period, while limiting the volatility on our results. In terms of the Ontario auto insurance market, we regularly look at our reserves in that business, so they're very satisfied with the level, we strengthen them through the peace here. And so we don't anticipate any significant one-time adjustment for that.

Thank you.

Gabriel Dechaine, Credit Suisse.

Two-pronged for Dave. Can you walk me through what was driving that net 4 basis point improvement in the NIM in your business? And then on the credit cards, I'm just wondering, as things have turned out a little bit different than maybe we would have expected, what's the -- what's your strategy from here on out over the next year or so for this market share gain opportunity? Are you thinking more often offense or maybe a bit more defense than you had before? What kind of expenses do you expect to incur to market to new customers and defend existing ones?

Thanks, Gabriel. I'll start with your second question. Certainly, we see a market opportunity that's been widely discussed in the newspaper publicly. Anytime a customer is reevaluating their products and services, it presents a unique opportunity, and given the scale of which that will happen over the next 6 to 12 months, obviously, we sit here and look at the opportunity. And with the number 1 product in the travel segment in Avion, we are very confident that we'll be able to present strong value propositions to Canadians who are looking to reevaluate that decision.

So we sit here with a very, very strong product, but has some strategic advantages to it. One, because we won our premium card segment as a cost operation, as far as delivering the points versus -- the competitors we go against have to run theirs as a for-profit, we're able to deliver consistent superior value through that card. So we have a structural advantage in how we run that product. So we sit here with a very, very strong product, structural advantages and we have every intention of presenting those benefits to consumers over the coming year. So I'm not going to disclose exactly how much we're going to spend. Obviously, we spend money looking to generate strong ROI for shareholders and that will be one of the guiding decisions in how much we spend, and as we test various approaches we'll choose the ones that deliver the best ROI for the shareholder and deliver the value to the customer.

As far as the NIM increase, some of it is a reversal -- as you know, in Q2, when our NIMs went down, there was some one-time accounting adjustments. So if you back out all the noise, our NIMs are up slightly, as we talked about. And some of that is mix, strong card growth, that we saw over the quarter. We've been very disciplined about the volumes that were generating. As you know, we don't participate in the broker mortgage business, nor do we, as many banks do, buy wholesale mortgages from third-party originators at very low margins and spreads. So our growth has been through proprietary channels that generate very strong margins for us, and has been consistent margins. So I think so those are some of the generic drivers of where we are.

There was no big pre-payment thing? I'm just kind of a bit surprised with moving rates, people may be refinancing because they see mortgage rates starting to move up? Just wondering if that's not a factor in the quarter, or if we've yet to see that?

Certainly there's some volatility in the commitment pipeline, as you talk about, as we make forward rate commitments for up to 120 days, as a market practice. We hedged a number of those commitments protecting margins, so we hedge forward at a known cost, and we price accordingly. So we put experience in managing in a volatile interest-rate environment where swaps are moving around, and you're seeing just the teams work in managing that volatility.

Thank you very much, Dave.

John Aiken, Barclays.

In regards to the restructuring that took place in Capital Markets within Europe, can we expect any meaningful charge in future quarters? And will this actually have any meaningful impact on the bottom line for this segment? Either positively or negatively?

Thanks, John. Firstly in terms of inventory and charge, we historically ran about CAD5 billion of inventory to support our EGB business. We had exited all of that inventory prior to the announcement, so there is no impact there. This basically was a move that we took after a fairly extensive evaluation of our business in Europe, where we've been focused on identifying products where we really can be best in class, in terms of what we offer to our clients. So this decision was really a product-driven decision, it wasn't regional or driven by sovereign exposures.

Going forward, we remain still very committed to origination in Europe, primarily in the SSA space and also in the corporate space, and then obviously on the other side, on investing clients. It's a business that historically the market has felt that you have to be involved in to do other things. We don't think that's the case. And we have seen, by exiting this business, a continuation of business on the origination side, and we continue to win mandates both corporate and SSA, since the announcement of the exit.

Great. Thank you.

John Reucassel, BMO Capital Markets.

Mark, can you explain, I know you talked -- the muni market was down in the US, but the Asia was down also. Is there anything unusual in Asia that was going on, other than what we've seen elsewhere, or is that just a reflection of the markets?

No. I think that's just a reflection of the market, John. I think if you look at -- certainly some of the earnings that came out of the US and European players, they typically saw a pick-up in equity trading volumes in Asia. We don't have that business. We didn't see that pick-up. And on the fixed income side, we really view Asia very much as a strong local trading and distribution hub. And really, an extension of our origination efforts in North America and Europe. So the impact was quite muted for us out there. It really was dealing with issues in the US.

So still building out the Asian platform?

Yes. We have, as I said, a strong distribution hub in Hong Kong, and we've been focused on our business in Sydney. Maybe Doug, you want to comment on that?

I think what we're trying to do is, as Dan said, we're in Hong Kong, we're using that trading platform to distribute securities we originate elsewhere. And we are considering now whether or not we want to strengthen some of our trading activities in Australia.

Okay. And then I guess last question for Gord. Gord, the increase a little bit of a different buyback activity outlook, but is your acquisition appetite changed, or the outlook for acquisitions, could you just update us on your outlook there, and what you would be looking for?

Thanks, John. It really has not changed. As you've heard me say many times, I think that we try to strike a good balance between capital repatriation through buybacks and dividend increases, and investing directly in our businesses and acquisitions. And as you know, we've been doing all three. I would love to continue to put more capital into our existing businesses, but there is a limitation.

With respect to acquisitions, we continue to focus on the areas that we've talked about in the past. Our Global Wealth Management business continues to be very active. And some of our other businesses are looking at alternative investment opportunities that give us an outlet for capital, but we're continuing to be extremely disciplined to ensure that the return from dollars that we invest are appropriate. And that's a real challenge when you have a 20% ROE business. You can do the math as easily as we do, but it's a challenge to make investments that are as attractive as putting the capital back in your existing business. Having said that, we would obviously take lower investment threshold than 20%, but we're still being extremely disciplined to make sure that if we do deploy capital through acquisition, that it's very consistent with both our strategies and our return thresholds and objectives. So we're still very active, but cautious at the same time.

Thank you.

That is all the time we have for today. I will now turn the call back over to Mr. Nixon for closing remarks.

Again, I'd like to thank everyone for their participation. We are ending a little early. I know you've got a conference call with CIBC in 10 minutes, but we appreciate you attending our call, and we look forward to our discussions next quarter, so thank you very much.

Thank you. The conference call has now ended. Please disconnect your lines at this time. We thank you for your participation.