Did it go? Okay, great. Thank you. Good afternoon, everybody. My name is Darko Mihelic. For those of you who haven't met me, I'm the Research Analyst in Toronto covering the Canadian banks. It's a pleasure to have the CFO Rajagopal Viswanathan here from Scotiabank to speak with me this afternoon. Raj, you know, we recently went through earnings season, this is gonna sound a little bit like a bit of a repeat from what we talked about recently during earnings. Bear with us while we go through this and hopefully we try and sneak in a few longer-term questions in there as well. Again, thanks for joining us today.
No, it's my pleasure, Darko. It's always a pleasure talking to you. We can do it monthly.
Okay. That sounds good. I'll take you up on that. When we saw earnings last week, you know, one of the things that always stood out to me and to many people is the corporate segment had a tough quarter. A lot of the rate marks are in there. I thought maybe we can revisit and it's very topical today. We heard all day today a lot of talk about NIMs compressing, NIMs expanding, deposit betas and so on. I thought maybe we could start off the discussion with net interest margin. Talk about how that runs through your corporate segment.
Sure.
What the expectations are for the next little while on that, and maybe fine-tune some of the discussion we had in the earnings call.
No, thank you. Happy to do that. Good afternoon, everybody. I think the corporate segment, like you mentioned, had an what I would call an outsized number, which is about CAD 334 million of loss this most recent quarter, which is Q1 of 2023. The way transfer pricing works in our bank is the cost of funds remains in the corporate center and gets transfer priced to the business. There are a few reasons we have done this for a long time. Some of it is to maintain the stability of the margin and stability of the pricing that we need to do in the business lines.
More importantly, this quarter is impacted simply because of the level of term funding costs that has grown, you know, in line with rate curves that we've all seen, the forward rates and so on, exponential growth. Simply put, I think our liabilities reprice faster than our assets reprice. When the assets reprice in the business segments, the other segment gets paid, the losses will come down. Not gonna happen next quarter, to be very clear about the near term that you asked me. I think the next quarter will have challenges which were impacting Q1. Like we called out three elements externally. Our term funding cost, which tracks the forward rates because, you know, we do borrow from the wholesale funding market. The second thing which we have is we do have an active hedging program, like many people know.
Part of the hedging program benefits which were higher last year are lower this year because these swaps fall off as the benefits from previous years come off. That's a headwind when you think about it year-over-year. Finally, there's a tailwind because we do invest in investment securities as part of our liquidity portfolio, which are returning higher because it also tracks the rate curve and the changes that have happened in the rate curve. We're getting paid more than what we got paid last year, but it's not entirely offsetting it. The CAD 334 million also reflects in previous years. Go back to 2019, for example, you know, when we also had rate increases, not at the same velocity that we have seen more frequently.
We had a bigger loss in the other segment, except it was muted because we had investment gains to offset it. If you look at just the net interest income line in the other segment, the whole year was a loss of almost CAD 1 billion. It was CAD 984 million for the whole year. Call it CAD 250 a quarter. Now it's higher because of the velocity and volume of rate increase that have come through the losses that I've seen. Frankly, we don't have the investment gains to offset it in this quarter. That's kind of how the various parts have played out. It's no secret to a lot of people who follow the bank that we are positioned to benefit from declining rates rather from increasing rates.
Some of it is our balance sheet structure, the way we fund the business mix that we have on the asset side, which tends to be more secured loans. You know, a lot of mortgages, a lot of auto loans as well, which we call secured in Canada for sure. We have very little unsecured loans. The repricing of the loans definitely lags because these tend to be five-year loans and so on, and the repricing happens over a period of time. We did disclose a lot of it in our analyst deck when we talked about the repricing schedule, particularly of our mortgage book, to help readers understand that this is how it's going to reprice. Like, 9% will reprice in 2023, another 9% in 2024, and then there's a huge 50% repricing happening in 2025.
It's about a bit of timing lag for us. The time lag shows up in the other segment. The net interest margin of the bank to address that, you know, it did compress 7 basis points quarter-over-quarter, primarily driven by these factors. The business line margins have generally remained stable, both in the Canadian bank and the international banking margin compression really related to how inflation impacts net interest margin, which is very unique to places like Chile, which you don't see in Canada or the United States.
Mm-hmm.
A bit of a summary there. Whatever shows up relates to the whole bank and most of it relates to the term funding costs.
When I think of that, and I followed Scotia for some, quite some time, and you mentioned the interest rate, the lack or the less benefit. That's something that you don't hear a lot of from other Canadian banks. Also as well, I think you guys may be reassessing sort of your deposit franchise. As I think of it, can you talk about some of the things that are going to change going forward and some of the thought processes around how you manage your interest rate risk and your margin at Scotiabank?
Sure. I think like I mentioned, you know, the fact that we will not benefit when you have inverted yield curves, which we haven't seen in 40 years, the velocity of rate increase what is showing up. That'll be the tailwind in 2024. The tailwind will come perhaps even in latter part of 2023, depending on how the rate curve, you know, evolves. If rate increases stop, we're gonna start benefiting because the asset repricing will continue while the, you know, the liability side or the funding side has stopped. We should start seeing tailwinds. Learning from this, we talked a little bit on the call, we talked a little bit in your RBC conference when, you know, Scott sat down with you, is we wanna use this as an opportunity to say, how can we build our deposit franchise?
A lot of it comes down to, you know, focusing on the customer more importantly. We do know that all deposits are not the same and are not created the same when you look at from a liquidity perspective. Deposits, I believe, are good at all times. When the economy is doing well, it's not doing well, or if it's in volatile environments like we live now, it makes it much easier to manage the asset side of the balance sheet and therefore margin compression and so on. Easier said than done. I'll acknowledge that straightaway, right? If it was easy to be done, we could have done it. Our intention is to make progress, and hopefully we can talk more about it at the Investor Day, which we expect to have later this year, to lay out a little bit more about...
not about the what, which people know, about the how. It will be a longer-term journey that we expect to see progress going forward.
Okay. Okay, that's very useful. Thank you for that. Does it require a big investment? If you don't wanna outline the size or, But should we think about that, as a big strategic investment of time, people, and money to really go down the path of altering the deposit functions?
We haven't sized it as yet, which is why I said we have to talk about the how maybe in about six months' time or so when we put out the Investor Day. What I will tell you is, since that will be a number one priority, we will direct our investments to that. You know, we'll put in the necessary investments to make that happen. Investments to us is always about prioritization. If this becomes a number one priority, which I believe it is at this time, and something will be two and three, something will fall down the line, which probably was higher up today, and we gotta repurpose some money that we have invested in those and move it up to, you know, this initiative. This initiative are also branded more as a customer-centric initiative rather than just a deposit acquisition initiative.
It's more about thinking of the customer profitability as a whole, and how do we put deposits in the center of that. That way we get the holistic relationship with the customer and therefore improve the customer profitability. That's how we are approaching this.
Okay. All right. That's interesting. Good. Thank you for that. Now one of the things that came out last week as well was making sort of expense growth and expense control a bit of a focus for 2023. I think you provided a bit of a range for investors. When you provide a range, we always think, well, what's gonna get you on either side of that range? Maybe let's talk a little bit about the inflationary environment and other things that may pop up or crop up this year that could potentially cause or push and shove that range around. Do you feel absolutely confident you can stick within that range you guys provided?
Yeah. I think this is one of those years where, you know, it's gonna be more challenging than normal years. Inflation is one thing you mentioned. Prioritization, we just talked about the initiatives that we want to invest in. We have a new CEO. We have to support his strategic vision as we go forward, you know, starting this year. Lots of things are different this year. One thing I'll tell you for Scotiabank, one of the cornerstones of the bank is we know how to manage expenses in line with revenue growth, and we know how to manage expenses prioritizing where we want to spend it. I think we've done it for decades. We'll continue to do that. It's never easy, so I'm not gonna leave you with the impression that's an easy game that we know how to play.
We know it's difficult. It'll only get more difficult in an inflationary environment. For us, there are many initiatives we work on apart from prioritization and growing revenue and so on. People cost is the largest opportunity, like, you know, apart from technology. People cost is an opportunity that is available to us very frequently. Natural attrition is an opportunity, right? We have natural turnover that happens across all our businesses. We use that as an opportunity when we have to find some savings. When we think about this year, I talked on the call about this quarter was about 3.5% expense growth year-over-year, excluding FX, which is a factor for us because of the number of countries we operate in.
That I think is a damn good outcome considering the inflation both in Canada as well as in some of these economies you operate in Latin America, where you very easily have high single-digit inflation even in normal times. Productivity ratio of international banking, for example, has been declining because we're always focused on how to become more productive and therefore have a better efficiency ratio. Digital is a big component.
Mm.
Digital, I think the adoption rate, pick a country like Chile, has been very high. That has helped us bring the expense base down quickly in Chile. You know, if Diego Masola was here, who's the head of our Chilean operation, he's very proud of the progress he has made. Likewise, we have progress in multiple parts within the international banking space. Take the Pacific Alliance, which is the four countries we talk about. Productivity ratio there is in the mid-40's. Exceptionally good. It's as good as Canada, right? Most of us have it in the mid-forties range. We've done it mostly through digital adoption over there.
There are many levers that we work on to ensure that we are continuously focused on expenses, that if we have good times, challenging times like what we're going through now, revenue challenge environment, excess revenue environment, doesn't matter. I think if you constantly focus on expense, which is the DNA of Scotiabank, we tend to get it more right than otherwise. I think this will be one of those years as well.
It's always just surprising working in high inflation environments that you can control. It's just, it's always It's, as long as I've known the bank, it's been that. Speaking of the IB, international banking, the IBs will be determined. Strong quarter, compared to last year. I was surprised actually. There was some quarter-over-quarter compression. How dependent is it on short-term rates in the region, and what should we think about with that, with respect to IB?
Yeah. International banking rate situation is likely normalized, okay?
Okay.
Higher but normalized. In some respects. We're seeing some rate increases coming through both in Mexico and in Colombia. They're positioned differently. Mexico rate increase is actually good for our balance sheet, Colombia not so good. Okay.
Mm-hmm.
It's a bunch of countries. Not everything is the same, and it reacts, you know, in different ways like I just described. In international banking NIM, the most recent compression was all relating to the impact of inflation in Chile. The way it works in Chile, you have inflation-based pricing. Inflation goes up, your NIM will expand. Inflation starts contracting, year-over-year, you'll see compression. That's what you saw this quarter. I think that's mostly done because Chile is the biggest contributor to inflation and therefore net interest margin impact.
Mm-hmm.
I think the 400 basis points that we reported this quarter is likely the trough. I don't know how quickly it'll grow. International NIM is complicated.
Right.
in the best of times, as you know. There are so many factors. There are rate caps. There are multiple factors that impact NIM. What we try to do is saying how stable can we keep it and progressively improve it. Business mix makes a difference. We used to be about 65%, 66% secured going into the pandemic. Out of the pandemic today, we are about 73% secured. That reduces NIM as well, but so does the PCL ratio of international banking. You know, it was 96 basis points this quarter. We like it. We had indicated it'll be mid-90's. Is 100 basis points out of range? No, from our perspective, because we used to be at 130- 140 basis points PCL ratio. We feel good about how the quarter shaped up.
I think it's the beginning of a series of good results we should expect from the international bank. It's become a universal banking operation in all these countries. We talk a lot about retail because very topical, high margin, you know, tends to be the area of focus for a lot of our investors. GBM LatAm contribution was CAD 301 million of the CAD 661 million this quarter. That's part of the investment we have made over many, many years in the LatAm franchise for the wholesale bank. Of course, retail has done very well quarter-over-quarter, and so has treasury. Because all these banks have their own treasury groups over there where they're expected to manage liquidity.
From time to time, you find opportunities to either improve the NIM or just find investment gains with the bond portfolio we have. This is one of those quarters where all of them contributed very well. I see that continuing in Q2. You know, three less days and all that apart because of February being a month in between for our Q2. I see the trend continuing and the NIM continuing to expand.
Despite the mix, despite.
Yeah.
the shift to the secured, lending you... I mean, have you stopped that shift, or will that shift sort of keep creeping?
I think it's been stagnant around 72%-73%, Darko, since COVID. I think it'll remain around those levels because you're also seeing unsecured retail starting to grow.
Okay.
'Cause not all of it is driven by risk appetite changes. Some of it is simply driven by consumer preferences.
For sure.
Right?
Right.
Coming out of the pandemic, a lot of demand for mortgages because people wanted to, I guess, build homes because working from home is a concept in those countries too. We saw that demand, we kind of reacted to that demand, and some of it is our own risk appetite changes in certain sectors within those countries. I believe the mix will remain around the 72%-73% range secured. The NIM should be stable and then grow from here.
When I think of it, I mean, we used to talk about a certain range of earnings power. Started off at CAD 500. You know, once we get to there, we're kind of satisfied. Maybe you guys have sort of backed away from that kind of discussion. How should we think about the earnings power or where it should be for IB, all things equal?
I think so. Instead of speaking in absolute terms, what we're starting to talk about internally is we want IB to be between 20%-25% of the earnings of the bank.
Gotcha.
As we sold some of the businesses, as you recall, in 2018, 2019, we invested a lot in wealth management. Our wealth management earnings have grown. Like I mentioned, as much as IB is 20%-25%, half of it will come from what we would call commercial and corporate.
Mm.
The retail segment will be, in the big scheme of things, likely around the 10% range, which we think is the right range that we'd like to operate at. Depending on where the bank is, you could do the 10% rather than thinking about in absolute terms, because corporate and commercial may grow faster going forward than retail. It's the business mix and the diversity within international banking that we like.
When we think about that, though, I mean, the GBM component is, you know, it's growing. You've invested quite a bit. Could that not add a lot of volatility going forward, or how should we think about that?
I think it could if it was mostly capital markets, right?
Right.
A lot of it is our corporate lending book.
For sure.
Go back to the genesis of how we got to Latin America. We followed our corporate customers down, right? We went to Mexico and then eventually mining Peru, Chile and all these places. It's in line with the bank's focus in the corporate lending book. That's where we have grown, really. The capital markets is a client-focused approach, saying if you're gonna be the corporate lender, we'd like to be in the league tables and so on, because we've established a relationship. Would it be CAD 300 million next quarter? It won't be, Darko. There's always some opportunities, to your point, that we have volatility in these kind of countries that we are there to capitalize on it. I think a closer run rate for the rest of this year will be likely around CAD 250 million.
It'll be more stable than you think because it's driven off the lending book.
Right. Maybe shifting gears to capital.
Sure.
They've disappeared, but don't worry, I know what they are.
I have a printer. You can use it.
Shifting gears to capital, let's talk a little bit about some of the pluses and minuses to capital as we sort of go forward. One of the things that's been coming up is I'm getting a lot of inbounds on. This is not so much for your bank necessarily because you have more standardized. A lot of inbounds on risk, credit risk migration-
Yes.
RWA pressures. Maybe this is more for Canada than it is for IB, clearly. Maybe you can talk a little bit about that potential pressure and any of the levers that you can pull. Because we know we saw the DRIP come in-
Yeah.
For Scotiabank, so you're building capital now at a faster pace. RWA migration part of that thought process? Maybe you can talk a little bit about some of the threats to the capital ratio going forward, and if credit risk migration is in fact a threat.
It is a good question. Capital has got too many moving parts, right? I think in good times it has. Now with all the new rule changes coming in which we adopted in Canada as of February 1st makes it more complicated for readers to follow. When Scott committed to 12% in the meeting that you had, it did not contemplate a DRIP discount, to be clear, because we knew we had a path to 12% the way we think our internal capital generation will flow for the rest of the year, and likewise how much we'll consume for what we call organic RWA growth. This quarter, you saw we generated about 5 basis points for the quarter. Times four, 20 basis points.
We picked up through the implementation between 20 and 30 basis points that we talked about, which will show up in the Q2 ratio. You put those together, it gets you to 12% from the 11.5%. RWA migration has actually been a positive in the last three years. You know, all the disclosures, what we call book quality, which is disclosed in the REG CPAC shows you it's a credit. RWA migration will become even more complicated looking forward because of the new Basel rules, where, you know, you have the standardized floor, you calculate standardized capital, apply the floor, and so on. Hypothetically speaking, you may not see any RWA migration relating to, you know, real credit migration that's happening because standardized, as we know, is non-risk sensitive over there. I'm speaking to three years down the line.
Yep.
What we always contemplate is some level of migration in our forecast to see how it evolves. The biggest advantage we have, you talked about international banking, retail being standardized, so it's kind of there. It doesn't matter about the migration from a capital perspective. When you think about Canada, think about the GBM book that we have, which is a corporate lending book. Two factors which play in our favor, very high quality GBM book. You know, we tend to have, you know, low PDs, 91% plus is in the less than 50 basis points PD range. Likewise, in the Canadian retail book, we tend to be more secured than our peers. We tend to have a very small unsecured book. The quality, again, looking at it from a PDs perspective, we have the same percentage in the top three PD bands than our peers.
Being in the same credit quality across a book while having a more secured book, it feels like in the event you have a recession or you have some level of credit migration, it should have a smaller impact to us relative to our peers as well as in absolute terms to the bank. The past history has actually proven that. Through COVID, most of the credit losses we saw came in from international banking retail in one of the consumer lending books, which was in Peru mostly. That obviously we're getting out of the business. We definitely dialed it down. We still haven't closed the transaction to sell it. That should also help as we look forward that the level of impact in the event of a recession on the credit book should be minimal for us.
Okay. All right. Great. Wanted to shift gears now talk a little more about Canada.
Sure.
Topical news in Canada is house prices are falling and interest rates are significantly higher. Of course, there's negative amortization out there on some mortgages and some mortgage books. Your bank's different.
Yeah.
We know you've got an. Maybe because you're different, I always think, well, I would like to see how is that portfolio performing? How are the discussions going with customers? Maybe you can provide us some insight on some of the delinquency trends we're seeing. Again, maybe you can reiterate how you view that portfolio is different. In your view, you've mentioned many times that you think it's better than the existing variable rate mortgages that are out there. Maybe you can touch on this and wrap it all up for us. You got two minutes.
I'll do that. I'll do it as quickly as I can because it's a good news story. I'd like to talk about it for five if I can. I think our variable rate mortgage, like you mentioned, is a truly variable rate mortgage, so payments change with rate increases going up. We have a lot of early insight into in the event there is stress in the portfolio. What we are seeing and a couple of metrics I'll throw out, you know.
Agreed.
As we talk about peers and you know how we compare ourselves. In the 90-plus delinquency bucket, we have it significantly lower than our peers, although we have a big variable rate book. Our variable rate book is about 37% of the book, 63% happens to be fixed. That's been fairly consistent. What we also know about our variable rate borrower, they tend to be a better informed borrower and a higher quality borrower. How do we come to that conclusion? We actually can see where they have a banking account with us, and not all of them do. You can see it through how they manage their finances, where they get the revenue and so on. We are able to stress it.
Part of the examples we look at through our stress testing is, what if rates went up 25 basis points from now, let's say from 4.50% to 4.75? What's the impact? 47% of our borrowers have a CAD 100 impact to their variable payment monthly. Okay? I'm assuming mostly it's manageable because the average earnings of these people happen to be around CAD 7,000 a month. CAD 100 in relation to that is not a big number. That's been fairly consistent. You stress it another 25 basis points, another 25 basis points and so on.
By the time we get to an inflation situation which might be, let's say, 7.5% as part of the inputs we have, and we have rate increases going up to say 4.75% or 5% in Canada, we believe that they're still very well positioned where they have enough cash flow to service their mortgage. That's the quality of the book that we have.
Mm-hmm.
Okay. On average. We know the risk is always in the tail, right. It's not in the average. When we looked at the tail, we said, "Okay, how big is our tail?" Without giving out absolute numbers, our tail is actually, let's call it 2.5% of the entire mortgage borrowing book. That's not just variable, all book together. 2.5% of the tail, and in that we look at saying those are the people who we call the watch list. That's about 17,000 borrowers. 70,000 borrowers is, you've got to look at it in relation to what it used to be pre-COVID. We used to have 30,000 borrowers in that list of watchlist. It's still only about 60% today, right, with the exceptional high rate increases and the level of cash that they have.
Out of that, we look at and say, "Okay, who could be at high risk of default?" The people who have high LTV and likely have, you know, significant exposure to rates, how they move, and that's about 30 basis points. 0.3% of the entire portfolio happens to be in that or let's call it 2,000 customers. When you boil it down for a book which has got CAD 300 billion, what could be at risk or very high risk who we need to pay attention to? These people are all performing, they're still paying. There's not even close to being a default. Who we pay greater attention to is a very small percentage. The advantage for us, because you have a truly variable product, you get to see how they actually are behaving in real-time situation.
Unlike many of our peers who might get to know when they come up for renewal and they have to now service a higher mortgage or a higher payment. It feels very good with the quality of the book that we have, and the likelihood of delinquency is quite low.
An astonishing set of numbers given all the rhetoric that's out there in the housing market. What about the fixed rate portfolio? What about that as they come up for renewal in a couple of years, the ticker shock that might happen should rates stay higher?
I think we're seeing it already now, right? Because over 9% of our book is repricing, like I said. What we're seeing is two things, Darko. People are picking up the higher rates because that's what's available. It doesn't matter where you go to. What we're realizing is they're picking it up for a shorter term, one year and two years, and they're picking up fixed. Even people who are on variable, I'm saying.
Mm-hmm.
I think the consumer sentiment is, don't know where rate situation is going. I'd rather take the fixed rate because I can manage my cash flow. They're doing it for a shorter term because they do believe that, you know, rates will start coming down, and I don't want to hold on to a fixed rate for a longer term. Small percentage, but it's showing a certain consistent behavior from what we're seeing so far.
Interesting.
By the time it gets to 2025 and 50% of the book is going to reprice, if you're going to have exceptionally high rates, that's hard for me to speculate at the right time.
Okay. All right. Fair. Now we're already at a time period here where I have to hurry. I wanna take a look at my. Apologies. My eyesight's not what it used to be. Yeah. I guess with the limited time we have left.
Sure.
I think I'll just, I'll just bounce off of the business and just go and maybe talk a little bit about PCLs in general. Moving away from mortgages, think about provisions for credit losses all in. One of the things we saw with a little bit of a build in the quarter, a little bit of change to the outlook. As we move forward, we just had a pretty bad print in Canada on GDP. It wasn't-
Yeah.
It was weak. Presumably, you know, there's a possibility that you once again change your forward-looking indicators, but you've provided a pretty good range on PCLs. I wanna think about the outer boundaries of that range and maybe talk a little bit about, if you could, what gets you to the upper end, what are you concerned about, and could this happen pretty quickly? And quickly because of the Stage 2 and 1, or quickly because of the actual underlying impairment. What is it that you're monitoring right now with the chief risk officer?
Sure. Absolutely. I think, you know, we gave guidance on mid-thirties.
Yep.
Which we actually did in November 2021. We did it for two reasons. One is we wanted people to know how our risk appetite and our portfolio has changed, because traditionally we had been between 45 and 50 basis points of PCL ratio. We want people to understand, particularly international banking retail, how we think it's gonna play out going forward. That stayed true. In November 2022, we confirmed that, the mid-30s, and this quarter was 33 basis points, which to us is exactly in line with where we thought we'll be when we gave the outlook in November. We do think for the rest of this year it'll be around this range. Maybe 33 will become 34, maybe it'll become 35, right? We're not seeing big numbers which are changing. One of the key factors, Darko, as you quite well know, is unemployment rates.
Unemployment rates, both in the U.S. and in Canada for that matter, has been extremely low. People have income coming in. People have been very judicious, particularly in the Canadian retail space, at what we get to see, where all they're doing is changing their spending patterns. It used to be about travel and entertainment once COVID was done. Now it's moving back to groceries and day-to-day living. You're seeing that play out quite in spades actually with the data analytics that we have and we're able to mine and stuff like that. You're starting to see that, yes, there is stress because of high inflation, but no, we're not seeing it in the portfolio. Payments are still, you know, not delinquent, but are live and so on. The performing loans we built or the allowances we built was primarily based on forward-looking indicators or macro.
It's a prudent thing to do, particularly when you're getting into a situation which might be a little more uncertain than what we've seen in the past. Are we looking at it through the credit quality lens to saying I need more? No.
Mm-hmm.
What we built was relating to volume growth, which we're continuing to see, and of course the macro indicators. Take the flip side, stress tests that we run, as you would expect. We do a lot of stress tests. I talked about the 25 basis points, 50 basis points on the mortgage book and so on. There's so many stress tests we run, the range that you get to see is generally not exceeding 40 basis points at the all bank level. To us, it's not bad. You know, if you think in a stress situation, it could be 5 basis points higher. The challenge we have is, yeah, you can stress anything to whatever number you wanna get to. You wanna get to a plausible scenario.
Maybe a lot of the benefit that we have with the credit quality and the secured nature of the book and the high-quality portfolio they have both in, you know, FICO scores and all that in Canada is probably playing out. The one X- factor will always be unemployment.
True.
If unemployment, you know, most of these stresses we run between 7% and 8% to see how the portfolio will behave. Now, if it gets to double digits, obviously it'll be significantly different than that. I'll leave it at that.
Yeah. No, fair enough. I mean, it's just astonishing, 40 basis points in a stress scenario. That seems like a more normal level. As you say, a normal level far past-
That's right.
Well, we've run out of time, so, didn't get to all my questions. I apologize, but we had a great discussion. Thank you so much, Raj-
Likewise.
-for joining me and, have a great rest of your time here in New York. I know you're here for another day, so.
Thank you.
All right. Cheers. Thank you.
Thanks for your time. My pleasure.