Last session before lunch, I'm happy to have Darryl White here, the CEO of Bank of Montreal, on stage with me. And Darryl, we've been kicking it off these sessions, pretty much starting with macro, thinking about the rate environment. And so wanted to maybe to kick it off with you in the same sort of vein, thinking about interest rates. Expectations are that they're gonna fall, maybe fall aggressively, much more than what we had thought about maybe just six months ago. So, A, your view on the rate path, B, the impact for your NIM and NII, if you can.
All right. More aggressively than we thought six months ago, I think you said? More aggressively than we thought six weeks ago, right, I guess-
Sure, yeah.
is fair. But look, on that, I will say that, you know, one, December 13th FOMC meeting, resulting in the exuberance that we saw, i.e., not only are there gonna be no more increases, which was effectively said in that meeting, but rates are gonna come, and they're gonna be many, and they're gonna be soon. You know, that's a lot, right? Like, that's a lot of a pivot at the same time. I think that the, the curbing of that enthusiasm that we've seen a little bit since, is appropriate, and I'll tell you what my own view is, and, you know, we can put a range around it.
But, you know, when we look at the puts and takes, you know, the good news that the soft landing narrative does appear to be a base case, that's great. But, you know, we're not there yet on controlling the ultimate outcome on inflation. And if I had to put a pin in on it, our house call, I think, is and will end up being, we'll start to see those cuts begin in the middle of the year, not in March or whatever it is that people were jumping onto when the market rallied in December. And so let's assume that it's midyear. I think it'll be a little bit earlier, Darko, in Canada than the U.S., and I can talk about why, if you find that interesting.
But we've sort of assumed that we'll see a cut in Canada, the Bank of Canada, maybe around June. We might see the Fed go for the first time in July. In each case, to pick a round number, we'll probably see a 100 basis point reduction through the balance of the calendar year. And then, you know, if that forecast ends up being right or close to right... You know, the second part of your question, I think, was: What are the implications for our outlook on NII? The short answer is, like, not much relative to our outlook expectation for 2024. And the reason for that is because if that's right, you've got the transmission effect from those rate cuts.
If there's 100 basis points from Canada, and the rate, first rate cut is in June, we're probably only gonna see 75 basis points in that fiscal. And in the US, if we have 100 that starts in July, we're only gonna see 50 in the fiscal, and the transmission is all gonna be mostly in the fourth quarter anyway. So there could be some, but relative to our previous base case, not that meaningful. I will, though, while we're on the question, tell you that I think that an important angle to this question is: What's going on as a result of this rate view in the real economy?
Because it's one thing for markets to position as a result of differential rate views, but I will tell you that in the real economy, I think that I'm still very cautious. I was quite cautious, as you might recall, in the late summer and the fall. And when I go through this period of time, I look at the spending patterns of the consumer through the holiday season. You know, what you, what you realize is the fact that a central banker tells you that, "I'm probably done raising rates, and I might cut next year," that's one thing for a certain constituent of the capital markets.
But it's quite another for somebody who's deciding whether they're going to put their foot on the gas and spend money and borrow money, because if you just told me that it's likely going to be cheaper in June or July, then I'm gonna wait. And so I think that that's an important point to make because I do wonder sometimes whether people get ahead of themselves and realize that that full transmission mechanism does take a while. I think we're experiencing that right now. Like, I think another way to put it, I think some folks' revenue expectations might be a little bit ahead of things for now, and then I think it picks up probably as we go through the year. In our case, we've anticipated that. We've been working through that.
That's why we've put in place some of the self-help programs that we've got running, and I'm highly confident in those as well. But when I pull it all together, that's kind of my view on rates. Very little impact on us for the year on our NIM outlook. And in particular, you know, if I'm right about that, I think what you see happen is, you'll recall, we don't really manage NIM to take positions aggressively. We don't try to hit home runs, and we don't get hit badly either. You know, the proof in that is last year, if I look at the four quarters of 2023, with all of the volatility that there was in the market, the total dispersion on BMO's non-trading, ex-trading NIM was eleven basis points.
Went up a bit, went down a bit, went up a bit, went down a bit, 11 basis points in total on the all-bank NIM. If I look forward to this year, I think you probably see a little bit of compression in the beginning of the year because deposit costs are still high. We haven't seen the fact that there's a forecast or a rate cut doesn't mean that there's gonna be deposit costs easing until a bit later. And then we're probably managing to relatively stable for the full year. So we probably round trip, you know, give or take 5 basis points by the end of the year to where we are today.
Picking up on that then, you know, this sounds to me like NIM stable, really being impacted in late 2024, maybe into 2025. We have a bigger concern on NIM if the rate environment continues to sort of decline. But I'm picking up on the sense that, look, loan growth isn't gonna be great the beginning part of the year, and specifically, I'm suspecting it's gonna be consumer side, which isn't really BMO's jam, I think. When I think of BMO, I think of more of a commercial side. So do you see a lot of strength still on the commercial side?
Yeah, look, like, we care about both the consumer and the commercial side. You're right, we are a little bit overweight on the commercial side, but I just think that, you know, at the end of the day, if I told you that in a transaction that you were considering undertaking, whether it was to upgrade your home, or do a renovation, or to buy a company, if you're a commercial or a corporate client, and you don't need to do it today, and the likelihood is, like, high likelihood is, if you do it in six or nine months from now, it's gonna be 100 basis points cheaper, what are you gonna do?
Right.
You're gonna wait, and I think that's just the natural evolution of what we're gonna see in both consumer and corporate behavior. It doesn't mean nothing's gonna happen. I mean, it's fine, things are going on in the meantime, but to assume high, high growth rates in loan books off of an adjusted rate forecast of something that's gonna happen six months from now, I think is premature, and I think you're gonna see it, but it's gonna come later as the year goes on. And it's good news for—like, it's particularly good news, if that's right, for 2025. Like, life could get very interesting in 2025 if we're starting to see that, that, that sun come out.
So I guess then, so running full circle then to the sort of expectations that we have for Bank of Montreal in 2024 is—I get the sort of note of caution on NII, but at the same time, we're expecting some pretty significant expense reductions-
Yes
... on, on, you know, at Bank of the West, almost 20% higher than your original estimate. And, and so I guess that sort of backfills, but I guess one of the things that comes up out of this is, so we're gonna have tougher NII growth, maybe some expense, or not maybe, but certainly sounds like very certain expense reduction. So what about revenue opportunities and revenue synergies? Is that also going to be delayed now, because of the rate environment, or do you see revenue synergies more on the fee side? Or maybe you can just flesh that out for us a little bit.
Yeah, sure. I'll get to your revenue question. I just wanna touch on what you mentioned on the cost side.
Yeah, we've got a fair bit going on to, as we call it, self-help. It's related, right? Like we saw, we did make a call on this environment last summer, and we began our work on the cost, so we got two things going on at the same time. You referred to it, Darko. We upped our, to remind people, we upped our synergy target on the Bank of the West cost side from $670 million to $800 million. That's a 20% increase. That is pretty much locked and loaded. Like we said, we're gonna have that done by the end of the first quarter. That's three weeks from now. So in three weeks from now, I'm at the point where the full run rate of the $800 million is actually coming through.
I think it's like 98 or 99% of it is actually running through as of the beginning of February. Good. We also announced back in August, a program that'll deliver us about CAD 400 million. Sorry, I'm switching currencies here, but we always did the Bank of the West in the U.S. And there, you know, that takes the year to sort of start flowing all the way through our PNL, and by the end of the year, we think it is as well. So those two things combined, as we move through the year, become pretty powerful mitigants and buffers against what you're probably hearing is a more cautious revenue outlook from me. And then back to the other side of your question, on the revenue side, you know, look, I'm actually very encouraged there.
You know, might there be some delays? I don't know. We've said there might be some delays, but we did say that we have $450 million-$550 million of synergies from the Bank of the West franchise in three to five years. And so right now, when we look at the activity, the overall market is a little bit tougher, but over the course of three to five years, I'm not gonna give you a call on what the market looks like in three to five years. I don't know. But what I do know is in the meantime, everything we thought was gonna happen is happening. Like, the branch productivity is going up, the sales to service ratios in the branches is going right up.
I think Ernie talked about this a little bit yesterday. We're seeing thousands of transactions from the commercial franchise into the capital markets franchise today already. These are occurring as we speak. The conversion that occurred on Labor Day weekend was, by all accounts, absolutely world-class. I'll give a shout-out to our team here as well. You look everywhere you can for customer friction through these conversions, and there always is. It's not an easy thing to go through, and ours was at the low, low, low end of the scale relative to any benchmark that we can find. The brand has been unified all the way from San Diego to Halifax, and we're also rebranding everything in the Midwest, by the way, that was formerly BMO Harris. It'll be the same BMO everywhere.
And those customer outcomes, I haven't even talked about wealth yet, because in wealth, if you look at the penetration of our wealth product into our commercial book in the U.S., which, as you know, is a big, sizable book, they're at somewhere around 30%. The Bank of the West, it's low, low, low, so we've got an opportunity to port that technology and those sales techniques there as well. I'm very encouraged. So, you know, when you hear us say, "Well, it might be a little bit delayed," well, if something's delayed a quarter or two in three to five years, fine. Maybe there'll be something I'll wake up to in a year from now, and I'll say I'm bringing it back forward a quarter or two.
The thesis absolutely holds, and if anything, I'm getting more encouraged by it as we go forward.
And when I think about the revenue opportunities there, just give me a hand on, like, the top one or two opportunities. And is it more the commercial side or is it the consumer side or what—how do you sort of rank order this, or how do you think of it? When you look at the revenue opportunity?
So it is, it is both. Like, so let's just start on the commercial side. If you look at the overlap in the businesses, we've got, in many cases, very similar businesses, but we don't have the customer overlap. You take food and ag, for example, where we have a very strong Midwestern-based food and ag business. They have a very strong Western-based food and ag business, and a very high, like, one or two market share, for example, in the wine industry. We didn't have that. So totally complementary, but the same overall sector, so you can drive synergies and better customer conversations, and then you can help with the technologies and the sales practices that we have, and the brand unification just kind of lift up the ambition effectively for the whole franchise.
There's I could scale that comment to hundreds of examples across the commercial franchise. And then in the retail franchise, you know, that, the franchise at the Bank of the West in retail was a good franchise. It was about 40%. Remember, the business was about 40% retail, 60% commercial, and that it was good, it was sticky, long-term customer, but the incentive on the sales side and the sales-to-service ratio in the branches, the amount of work that was being done in branch that had to do with servicing and fraud detection, that doesn't need to be done in branch. We've pulled that into the way we do our system.
We've given them analytics that we use for lead engines and proper customer conversations, and we're already seeing the productivity in that branch at that branch network now go up 2-3 times relative to what it was. And then you layer on the digital and then the customer acquisition that's happening digitally. So you put it all together, and the revenue opportunities are... like, they're going to be real on both sides of the business, and I know that because we're already seeing it. It's already coming through.
Maybe just to quickly circle back on expenses, though. So we've had the program in Canada, you mentioned CAD 400 million of expenses. Does that get harder now going forward? Is... Are we in a new paradigm? Is it tougher to keep costs under control in Canada?
Yeah, labor costs are tough, right? Like, I think that's where we have to, we have to acknowledge when you have, you know... What's the average across your comp universe? 55-60% of the total cost structure of the banks is in people, right? And so, you know, when you have that as your base, and you've got an environment where voluntary turnover has come down, like, way down, from the peak was in, I think, Q2 of 2022. So there's a more manageable labor market from the perspective of how tight it is and being able to keep and retain good people. We're in a much better place than we were then. But it's not like we're giving back the wage increases. You know, those are there, and they're there to stay. And so when I think about...
Yeah, I think what you're asking is sort of a structural cost question as we go forward in the next, say, three to five years. The answer there is going to be increased digitization. And the better, the better one can do on reducing manual work and increasing the automation of that work, the more you're gonna see structural cost takeout, and that's a big part of our play over the next few years.
Structural cost takeout, but without the use of further restructuring charges. I guess that's where a lot of people are kind of trying-
Yeah. Yeah, so yeah, you're probably, and a bunch of us had these over the course of the last, whatever, few months, right? You know, look, I remember saying to you years ago, when we did a restructuring charge, "I hope to not have to do this again." But that was at a time when we had been serial users of the technique, and it was five years. And the technique that we used, at least, I can't really speak for others this time, was very different because we, the cost was born in the businesses, right? We didn't do this, you know, we'll take it at corporate, and you get a free pass, and you get to reload your cost base, and then, you know, good for you, you had operating leverage. It's all shell game if that's what you're doing.
But if you're saying to a business, "Look, if you wanna go through, resetting the cost base on the employee side of your business, and you wanna actually take the charge in your business, including the implication that that has for your incentive and your compensation, then we can have that conversation." We're not having any of those conversations right now, I should declare, because I feel like we actually have it right for the foreseeable future.
But if we decide that we... You know, environments shift, and there's a reset needed, we could do that. But when we do it, I will say, Darko, we, we do it with a view that you kinda, you kinda get it done, you bear the cost of the business, people understand the implications of it, and you don't have an expectation that you're gonna come back and do this regularly. That would be my view.
Okay, so I think to just shift the discussion to capital for a moment, it was a pretty big concern in 2023. We built capital up once Q1 sort of passes by, and we sort of see where your capital ratio lands. With the expense synergies coming through, I kind of see a situation where your bank can generate more capital per quarter than in the past. And so it naturally leads us to think about a couple of things with you. One is your commitment to removing the discount from the DRIP and issuing shares from Treasury. You know, I've modeled Q4, but tell me, is that... You know, could it be earlier? How do you- how- what's your thinking on capital?
So, I'll unpack it for you, though. So we're 12.5% on our CET1 at the end of Q4, so our current published number is 12.5. We've declared that there's some stuff going on in Q1 with respect to the FDIC assessment and other regulatory change. Lots of people have these in Q1. I think Tayfun has explained that that's probably worth somewhere in the neighborhood of 25 basis points to the negative. We've also, on the other hand, got some risk transfer transactions that we did an RV transaction that you might have seen in December, that probably give me back mid-teens, you know, call it 15 for argument's sake, to the positive.
So if nothing else changes from a jump-off point, 12.5 is 12.4, and I build from there as I go through Q1, Q2, you know, how are we gonna think about this question on the DRIP? And it's an important question. We get it from shareholders all the time. I don't like it. I would wanna have it off as soon as you could. You have to be sensitive to the overall environment and to the regulatory overlay. And there, you know, to me, it's actually pretty simple. If I saw an outlook that said we were going to operate at 12.5% comfortably or higher for the foreseeable quarters, not for next week or next month, but for quarters, because you certainly don't want to undo a decision like this.
We had comfort that we were going to stay there without needing the DRIP to keep it there, we'll take it off. And so is that gonna be earlier than Q4? There's a pretty good chance of that from what we see in our forecast, but we can't make that decision today. We'll be a lot smarter. Q1's baked, so we can have the conversation for the first time in Q2, and when we look at Q2, we'll say, "Where, where are we today? What's our expectation on the regulatory side? What's our expectation on our forecast and capital?" And if it feels like I've satisfied that condition that I just told you about, we'll take it off.
Okay.
If we haven't, we'll wait another quarter.
Okay, fair enough. And I'm just trying to contemplate in your answer there, what kind of condition would there be in the marketplace that you would need the DRIP to keep your capital ratio 12.5? Is this just a PCL? We'll get to credit quality in a moment.
That's, that's a good question. I think it's pretty likely that the forecast is sustainably above 12.5, but-
Right
... you know, as we know, we never know. You could have, you could have various outcomes on the macro exogenous events, if there's a sense that the regulator is going to move again. I don't have that sense today, but, you know, all of those things will bake into our calculus at the time, but there isn't anything particular that I have in mind that's dissuading me at this point.
Okay. Okay. And so maybe just switching over to credit quality then. I mean, one of the things that we, you know, we've noticed across the board is banks barely moved the goalposts on the increase in provisions for credit losses, and guidance for 2024. And in fact, when I look at your guidance for 2024, it still looks like it might end up being lower than longer-term averages. And so the question is, you know, twofold: A, maybe help me understand why it's not rising faster, why it's normalizing so slow, and is there something specific in there for BMO, that, that I'm just, you know, maybe not spending enough time on? Because I think of commercial real estate losses potentially coming. I see, consumer losses coming in again, and I understand your business mix.
But maybe just walk us through your guidance for 2024 and, and essentially the low level that we're seeing, what gives you confidence in that?
Yeah. So, I doubt there are many things you're not spending enough time on, by the way. But I would say, you know, you referred to maybe we didn't move the goalpost very much. Depends when you start. Like, if you look at what we said at the end of Q4 of 2022, we said we were guiding to high teens, low 20s. A year later, we're guiding to low 30s, so that's, you know, there's 10 basis points move is pretty material. You're probably thinking about, you know, what we said in Q4 relative to what we said in Q3 wasn't too much of a move. I'm pretty comfortable with what our CRO has said.
You know, remind people, he said, "We think that we're traveling towards a little bit more negative, as we go forward, probably in the low 30s on our impaired PCLs." And, you know, when I look at that, I think you referenced that's better than averages. We've always been better than averages. Like, our mix and the way we've done our underwriting has been better than our peers for the better part of 30 or 40 years, so I would expect that to be the case. I think a more important one of the most important things is what was not said, which is that we don't see a forecast where we're going up into the 40s or 50s, you know? So to be clear, that's not what we're experiencing, and it's not what's in our forecast.
You know, I bet you what we'll see is we'll, you know, we'll consent-- It'll go with my theme in the economy, my theme on the rate cuts, my theme on the growth in the economy. We'll continue to see some increases in the impaired PCLs. If I'm a betting man, I'd say at some point this year, we'll actually see the peak, and we'll start to see them come down a little bit, maybe towards the end of the year as rates come down, and you kinda get the pig through the python. But we're, like, we're very comfortable with that forecast. If you look at, look at-- I know residential mortgages is not a big business for us relative to what it is for others, but it's still an important business for us.
So if you just look at the performance there, you know, you've got a business that, you know, lots of people are asking us about renewals. 70% of the book renews in 2026 or beyond, 68% of the book is fixed, and the FICO scores in the book today are better than they were in 2019, and the renewal pattern on the portion that is renewing now is going well. And the neg am is coming down. It came down Q3 to Q4. It's going to come down at an even faster rate in Q1 than it did in Q2. So the consumer behavior is, in part, the answer to your question in terms of how they're reacting to the environment and the rate, and the rate challenges that they have. And, and it's similar in commercial and, and corporate.
We went into this environment with pretty good credit positioning. I don't necessarily mean just us as a bank. We did as a bank, but our customer base. Like, capital structures were arguably underlevered. There's a lot of cash, and so there's a fair bit of cushion to work through this. So, look, we could end up being wrong. If we're wrong, though, it'll be because there was a more idiosyncratic event in a large credit here or there that causes a spike. I don't think we'll be wrong because of a systemic miss that we had, because we didn't think about a particular stress case in a particular sector, because we're doing that all the time and re-underwriting, in fact, the portfolio.
And maybe on that point, I mean, I think, you know, the one thing that, you know, with, with now the Bank of the West, on the balance sheet and sort of churning through, is, do you see a significant difference north to south? I mean, do you see in, in, especially in commercial, I'm very interested in your view on this, is do you see a difference in credit quality or, or capacity to, to weather what might be a bit weaker,
Yeah, this is gonna frustrate you because there's one hand and the other hand. On the one hand, the average credit quality in terms of the average credit rating in our U.S. book is slightly lower than the Canadian book, meaning it's slightly higher credit risk, but not much. And the underwriting standards and the businesses run, as you know, on a cross-border basis. So on the one hand, there's that, but on the other hand, I'm actually a bigger bull on the U.S. economy in the next year or two than I am on the Canadian economy. So I think the prospects for those customers on the demand side of their equation is on balance. These are big, big average statements that I'm making, but over the course of a big book, they do matter.
I think that, you know, that will be a mitigant in terms of the U.S. I think the productivity that you're seeing in the U.S. economy, I think the likelihood that the U.S. economy does even better than a soft landing and comes through with, you know, 1.5% GDP growth or something like that in 2024 is very good. I actually do think it's very good, despite all of the noise around what's going on in the U.S. Whereas in Canada, you know, we've got a lot of work to do to get through the impact on the consumer of, you know, "Yes, I'm gonna pay my mortgage.
Yes, I'm gonna feed my kids, but boy, I've got to pull back on a lot of discretionary spending," and we don't have that given the structure of the mortgage market in the U.S., and I think there'll be a pretty big difference.
Okay, great. I'm gonna turn some of the questions from the audience. "What is the longer-term plan for the AIR MILES program? Could we see any changes or new partnerships announced in 2024?
Yeah, of course. I'm glad you asked, whoever it was that asked. What I'm gonna do is just put a plant in. We're gonna start talking about this more actively, you know, probably in about a quarter from now. Just a reminder to folks, we bought the AIR MILES program out of bankruptcy, and we closed it on June 1, 2023. So we're working through it right now. We're super encouraged. That program has, ready for it, 10 million active Canadian users. You probably think of it as a sleepy program. It might be in your wallet or in your spouse's wallet, and you haven't used it in a long time. There's 10 million active users. We are adding new technology. We're reviving the brand.
We are putting new partnerships in place, so that's an important part of the question. We've announced some of them. We've got more to come. I'm very excited about it. We haven't talked about it a lot because we've been focusing in these conversations on other things, like Bank of the West. But we're gonna start putting more light on that program as we go through the next couple of quarters, and the signs are very, very good. To have a proprietary program that we can run, integrate, own, and bring to our customers is really, really exciting, particularly given the price we paid, given the circumstance itself as they came through the restructuring.
Well, I guess that's the question, right? I mean, you bought it out of there. I mean, it didn't perform well, so what's gonna be the big... And this sounds expensive, right? It just sounds like if you want to make this a cornerstone of your credit card strategy, it sounds like you have to shoulder this all on your own and build out the AIR MILES reward program. So it, am I seeing that wrong? Am I- what am I missing? Like-
Yeah, I think-
... it sounds like it's gonna be an expensive endeavor if you really wanna move the dial.
Yeah, I think what you're potentially missing is, first of all, we bought it for pennies on the dollar because we were the founding partner of the program, and we had a renewal coming up.
Right.
Any other potential buyer who would approach the creditors would have to call us and say: Do you intend to renew? And so it really knocked everybody off the field. Like, there's nobody else who could buy it other than us. So we went in, and we were able to negotiate a very good transaction, you know, relative to what it would've cost us a year or two before. It was, you know, tiny, tiny fraction. And the investment dollars that we have to put into it are very consistent with the investment dollars that we put into our consumer programs in the first place. So there's a lot of overlap, and the technology is already there. The technology is pretty good.
We had to do some things to tune it up and make sure that there were the right compliance and cyber defenses and all the rest of it, but it's actually not that expensive to lift the program up in the context of a big bank's expense base. The benefit of lifting it up and the integration that it has with the rest of your consumer program is gonna far outweigh the spend. Like, I'm very encouraged about this, to the point where I'm. I've been encouraging our teams to start getting ready to talk about this more because we've been keeping it a little bit in the back closet, and we're gonna talk about it more as we go through 2024.
Okay, great. Thank you. Is there any... Another question from the audience, sorry: "Is there any impact on your capital when you extend mortgages to 30-year-plus amortization, or just a near-term cash flow impact from lower cash flows?
Is there any impact on capital? Is that the question?
Yeah, I guess the question would be, if you're in a situation where you have to extend amortization to keep the person sort of lower the payment, is there an RWA impact and, or, or isn't there? And is it just a near-term cash flow sort of situation, where you would've been expecting a mortgage payment of CAD 3,000, and it's now CAD 2,000-CAD 2,500? So-
It's near-term cash flow. Any capital impacts are absolutely de minimis.
Very de minimis?
Yeah.
Okay, very good. Maybe just one more, because I saw another question on here, but this is interesting. Is the, is the bigger risk higher for longer rates or lower rates causing inflation to reignite?
Well, they're both risks. You know, it's hard to say what the bigger one is because I think the likelihood of the second is pretty low. Because I think that the walk down, you know, if you're a central banker, that's a mistake that you just can't make, right? Like, the walk down on rates too quickly to cause inflation to spike. And this is why I'm of the view that it's probably gonna take a little bit longer to get to the rate cut, and the rate cuts are probably gonna come a little slower than other people might think. I think the bigger risk is higher for longer, because if you look at the, you know, I've been talking in this conversation about the impact on the consumer.
The lag effect of that impact on the consumer was long, right? It's starting to be realer today. Did I say realer? If that's a word. More real today than it was three months ago or six months ago when we were in the heat of the rate increases. So if there's a higher for longer environment, if we were to stay at this level or higher for the next two or three years, frankly, we'd then be having a different conversation about the renewals on the mortgage book and all sorts of asset classes. I think that's the bigger risk.
Okay, great. So we're approaching the end of our time together. Darryl, this is usually the time when I turn it over and say, "What are your key messages for shareholders and investors?
Yeah, I, I think it's for me, Darko, it's this year in particular, it's really straightforward. Our story is clean, it's simple, it's consistent, it hasn't changed. I think the environment is not that. I think the environment is gonna be tricky for a little bit while longer. We're gonna have higher deposit costs, we're gonna have subdued loan demand, we're gonna have regulatory cost challenges, we meaning the whole industry, and the capital question that you asked. But from, from our perspective, we're just staring straight ahead with a very simple execution strategy. We're not distracted by choices that we have to make. We're not pivoting. We're staying very clear on executing the things that I've been talking to you and others about for the last year.
If we execute really well through all of that, regardless of the environment, we will disproportionately create operating leverage relative to our peers this year and set ourselves up in the best place for 25 and beyond. It's just simplicity. I think complexity is the enemy in an environment like this, and we're just focusing on the opposite of that.
Okay, great. That's a great wrap-up for our last session before lunch, so thank you once again, Darryl. It's great. Cheers.
Thank you.