Okay, thank you, everyone. We're in the home stretch here. This is the final presentation for today. With us, we have Royal Bank of Canada. Joining us is Katherine Gibson, Chief Financial Officer. Welcome, Katherine.
Thank you.
All right, let me start off with kind of as you're sitting in this role. You're a few months into your new role as interim CFO. Maybe tell us, tell us about what have been your biggest priorities since taking the seat, and whether it's decisions on capital, liquidity, or strategy.
Thank you. So let me start, Brian, by just thanking you for inviting us here today. My first conference, so really excited to be here, and, you know, just being here over the last couple of days, a very impressive conference. So, excited to be, I guess, capping it out with this session. It's been a busy and exciting time at RBC, and so coming into the role has just been fantastic. I've been, you know, focused on taking purposeful steps across the various aspects of my mandate. I'd maybe share kind of three areas to pull out. Number one is maintaining our discipline focus on efficient capital allocation. So in the second quarter, I think the group is obviously well familiar, we closed our HSBC acquisition with capital above our target, so CET1 or 12.8.
We also announced in that quarter the start of our NCIB, and so we've got that buyback in place, which is targeted on, you know, repurchasing the shares that we issued underneath the DRIP. And then, second area for me has been, you know, maintaining a focus on our balance sheet position. And over maybe just a couple examples to call out, over the second and third quarter for City National, we've been really focused on their funding and looking at bringing down their FHLB to zero. So happy to report as of the end of Q3 , we have that as a lever, but that is no longer a costly funding for us.
We've also, on that front, been looking at the asset sensitivity for City National and put in place some forward-looking swaps to help mitigate, you know, against the volatility in a lower interest rate environment. And I would say last, but definitely not least, is a laser focus on efficiency and cost synergies, and the item I'd call out there relates to our HSBC acquisition. And a part of it was, you know, cost synergies. We're very clear that we felt there was opportunity of CAD 740 million, and, you know, happy to report we're well on our way there. Already booked 120 million, and if you take that to an annualized run rate, we're well on our way to hitting 50% of that run rate.
Okay, so let me just talk a little bit more about the HSBC Canada acquisition that just closed in March. As you sit here now, nearly six months after closing, how has the acquisition performed compared to your expectations? And are there any areas where there could be incremental expense or revenue synergies?
HSBC, we're so pleased with the acquisition. We've been asked a couple of times: "Did you get what you thought you bought?" Absolutely. The quality of the book is very good. If I start at it from a balance sheet perspective, what we were looking to come over is largely aligned from a client attrition perspective. We were expecting. It's, I think, normal course for anything of this size in this transaction, that you would have a bit of client attrition. Pleased to say that we're actually seeing client attrition below what we had forecast in our due diligence model. From a credit quality, we again completed heavy due diligence on it. It's a really clean book. Happy to say that once we've got it on, there's nothing changing on that front.
And the other item, I would just call out from an overall maybe perspective of did we get what we thought? The one thing is on the growth trajectory. It was a bit of an extended time horizon between announcing the deal and when we got regulatory approval and closed. And so you can imagine that, you know, clients and even sales force here, you're not probably as excited and geared up to get out there and be driving, you know, high growth, only to then have to move a client, a new client over into RBC. So we saw growth a little bit slower. The pipelines were a little bit lighter than expected. However, now that we've completed the close and have them on board, teams are really energized and excited.
We're looking at it as: How do you bring the best of both worlds? A very strong commercial banking team in HSBC. We also have a very strong commercial banking team in RBC, and so bringing them two together, we're just seeing the momentum and the energy coming off of that. I'd be remiss if I didn't call out two other areas on HSBC. We already touched on cost synergies-
Mm-hmm.
And maybe just the one thing to add to that. I've met with a few people earlier today and the last day as well, and I've, m y experience with acquisitions has been, I'll call it more of that traditional perspective, where you close and then you bring them in and you integrate over a period of time. With HSBC, given the nature of the transaction, we completed it in what is described as a close and convert. So we brought the entire organization in over three days, and what that meant is that all of their data was into our core system. And I just wanted to add a little bit more color on that, 'cause that really adds emphasis to the cost synergies.
'Cause, you know, day one, after that three-day weekend, they were fully on our systems, and immediately had recognized, you know, significant technology savings, 'cause normally that's a fixed cost, and so that fixed cost that HSBC was running with was no longer being allocated to the business. This was coming into ours. So it really speaks highly to the strength of RBC's technology stack and investments that we've been making over the years to enable that type of transaction, and then it gives you the power of those really quick cost synergies that are coming. The last area I would just comment on for HSBC would be around the revenue synergies, and we're quite optimistic on this front 'cause we're really seeing it in three areas, and it's only four months, but we're seeing the momentum.
And so the first area I would call out is around the opportunity of, you know, cross-selling the strengths and the breadth of RBC's products into the HSBC client base. The HSBC client base skews higher on the affluent side, and HSBC's wealth management products, compared to RBC's, were not to the same kind of breadth. And what we're finding is that with the HSBC clients on board, we're able to provide this broader kind of service from wealth management. And as of Q3, we'd already had one hundred million AUM connected with providing wealth management services to HSBC. The other area on the revenue synergy relates to new products and capabilities that we've brought on board to ensure that the HSBC client set retain all of the functionality that they had before.
And what that means for RBC clients, though, is that we now have these new products, such as multicurrency or enhanced trade finance. That's another opportunity of new products being sold into the RBC legacy. And then the last bucket I would call out on the synergy front is around just bringing in new clients. So we've got merged teams, we've got new products and capabilities, and really seeing ourselves appealing even more to that commercial client with international needs, given the breadth of what we can be offering to them.
Okay, and then you talked about some of the capital impacts from HSBC, and even after absorbing the 240 basis points, the CET1 ratio remains healthy, somewhat aided by continued internal capital generation. As you look for potential ways to deploy that capital, are there any geographies or segments that you find particularly attractive?
Great question. From starting with capital generation, we're really confident with our ability in generating internal capital. Just as a reference, in Q3, we generated internal capital of seventy basis points, and if you net that with the dividends that we paid out, that turns into thirty-eight basis points. From a capital allocation strategy perspective, I would say, you know, no change to how we've been operating in the past. We continue to prioritize our capital allocation to organic growth with high, high return. Also important, and I would say second on the, on the list, would be our capital allocation for dividends and then also the share buyback that we talked about. Third would be inorganic, and it's, it's something where we would be more focused, I would say, on smaller kind of bolt-ons-
Mm-hmm.
Just given, you know, changing environment at the moment, lots of moving parts in macro and lots of moving parts on the regulatory front. But really, you know, feeling strong about our organic growth opportunities, and then looking at where do we bring in, you know, the right kind of bolt-ons that meet our, you know, our strategic needs, as well as our, you know, our goal to be delivering that high ROE performance. You asked about regions. Maybe before I get to regions, just a comment on... There's always lots of interest around where do we think, you know, is the right operating level for CET1? And we believe that, you know, operating or running around 12.5% is appropriate. It gives adequate buffer off of the, you know, regulatory minimum. Do we see that as a target?
I would say, no, that's not, you know, a target that we're operating to. I feel that, you know, back to what I was talking about for that capital allocation strategy, we think it's really important, right? You're investing at disciplined, you know, disciplined capital allocation. We wanna make sure that we're investing and getting the return that our shareholders and our investors expect. So we might find ourselves where it, you know, pops up a little bit, but just wanted to be clear that we think twelve and a half is mm-hmm. And we do. Like, the team likes to say, "You know, capital doesn't have a half-life, so you don't have to get out there. You can, you know, manage it appropriately.
Maybe a little clarification on that 12 and a half, because right now, the minimum regulatory minimum is at 11 and a half, but they could still bump it up to 12. So would you think that 12 and a half is always, like, a 100 basis point buffer, or you could just keep... And then if it moved up to 12, you would retain a 100 basis point buffer, or just kind of keep it 12 and a half and let that buffer shrink?
Hey, I was gonna say, the buffer that we've got in place is, I would say, is reflective of the environment that we're operating in. I would say, like, we, we feel that it's really important to have, like, a stable capital allocation framework. I would say we would generally operate to keeping that buffer, you know, consistent, so it's pretty clear how we're operating going forward. But if there was any kind of change in broader pieces, maybe we would see that buffer kind of move around.
Okay, great. And then another question on capital deployment. Other Canadian banks have been looking to deploy capital within the U.S. Relative to RBC's overall size, your branch presence in the U.S. is not that large. Would you consider acquisitions as a way to grow scale in the City National franchise?
City National is predominantly a, like a private and a commercial bank, and because of that, we operate with a lighter, we'll call it, branch network.
We don't need that extensive branch network. If, like, if we had an intention, and we don't at the moment, to go into mass retail, we believe that, you know, it's critical to have, you know, significant scale, excuse me, to be successful. Where we're looking to, you know, continue to operate is in that high net worth space, as well as the commercial verticals, as we feel that we can deliver kind of that differentiated, you know, value in that space. To your question on City National and acquisitions, our focus is on driving improved efficiency and profitability in the City National business.
We're taking, or I'll call it, we're pulling the playbook off the shelf that we used for Capital Markets, a few years ago, after the global financial crisis, where we looked, inward and said: We've got a, you know, a good, a great opportunity to be looking at how do we improve our profitability? Like, let's grow, but with increased profitability. Let's grow with improved, you know, efficiency. And that's the same playbook that we are, you know, using for City National at the moment. We feel that there is ongoing opportunities to improve our efficiency for that business, and there's also ongoing, opportunities to improve the profitability by looking at how do we extend our relationships with clients?
And then also looking at our book and identifying if there's areas where we're not meeting hurdle rate, well, then we need, you know, we need to be in a position where we, you know, demarket that at City National, if you look to the broader kind of U.S. horizon, City National is a key part of our overall U.S. strategy, and we feel that there's, you know, the opportunity in increasing that connectiveness across, you know, capital markets, wealth management, and City National, and that's really our focus.
For inorganic, to the coming back to your question, for the inorganic on, you know, do we believe, you know, acquisitions? We feel strongly on that opportunity with organic growth. If there's something that would be small as a bolt-on, maybe, but you'd need to make sure it's fitting right into our strategy, it's fitting into a need that, you know, it makes sense to address the need through an acquisition, and then we also, you know, given the importance of funding, we want to be ensuring that we're not bringing on, you know, someone else's problem, where the deposit funding is not there, so a few things that we're thinking about, but feeling, you know, strong on the organic growth as we move forward with the U.S.
Okay, great. Continuing kind of on the capital theme, although it's not talked about as much, the leverage ratio has been consistent in the 4.2% area. Are there any scenarios where you might become more concerned about the, or focused more on the leverage ratio, where it could become, like, a binding constraint?
Leverage is one of the metrics, you know, on the capital side that we keep a close eye on, manage, you know, like our CET1. At the moment, we do not see, you know, scenarios or see us being in a position where we would find ourselves with a binding leverage ratio. At Q3, our leverage ratio was 4.2 versus regulatory minimum of 3.5. So overall, feeling, you know, obviously, key metric, need to keep, you know, a close eye on it, but not seeing it as a binding constraint.
Okay, great. Let's just talk about the Canadian business. We've seen some sequential loan growth in resi mortgage, personal, card, and business has been pretty healthy across the board, despite already leading market shares. What steps are you taking to continue to gain market share, and do you see any kind of constraints on or limitations on loan growth?
The Canadian banking, I mean, if I step back with a bit of a broader comment on what underpins that loan growth, like, the Canadian banking business is on a really strong, you know, foundation. We've got a strong, solid, you know, core deposit franchise, and that drives, you know, leading loan-to-deposit ratio of 100%, which is, you know, key in this market, as we've got low funding or cheap funding to be driving that loan growth. We've also got, w e proceed with, you know, very prudent, you know, risk appetite on the overall book, and we are, given our scale and our size of the broader operations, operate at a best-in-class efficiency of just under 40%.
And so with all those pieces together, we've got that, you know, foundation that enable us to have this strong loan growth going forward, and you know, we're sitting in a privileged position, with we're number one market share on cards.
We're number one market share on mortgages, number one market share on commercial, and then also on deposits. And we're seeing strong growth across all of those categories. The one I would call out would be in mortgages. I would say that we're seeing, you know, lower growth on mortgages. I don't think we're unique versus anyone else in the industry. Expecting that, you know, once interest rates are to, you know, come down, we'd expect that, you know, demand would see that accelerate. But to your question on constraints, I would want to call out for the group that our, like, our view on market share is that we don't, you know, go after it at all costs.
We want to be, you know, definitely taking every step forward with that profitability, you know, that high return in mind. Mortgages has been one where we have seen, you know, high competition over the last couple of years. Margins have compressed, and it's something that we've been keeping a really close eye on. The mortgage is a key product key to the client relationship, so it's critical that we, you know, maintain a number one market share. But we'll not be going after additional market share at all costs and just really keeping that eye on profitability. As we go forward, you know, thinking in the lower interest rate environment, I think there's, you know, the mortgage pool will be getting bigger, and so maybe opportunity there to see change in spreads as we go forward. But that's something that is a top-of-mind balance as we go forward.
Okay, great. Within card, the rewards program has been crucial to customer acquisitions, especially when looking in the U.S. How are you approaching the credit card market, and how is your rewards experience differentiated from your competitors in Canada?
Yeah. Our bank-owned rewards program is one of the longest running in Canada. I guess so two years ago, we relaunched as Avion Rewards. As part of that, we really stepped back to say, like, "How do we come at this slightly differently?" Our goal was to step back and provide kind of value of the rewards program to all of Canadians. What we did at that point was look at all of our reward programs and bring them together underneath one umbrella. We had, you know, our travel program, we had our experience, you know, offers, we had cashback, we had points, and so we brought those all together and put them underneath the Avion Rewards. At the same time as we brought all those together, we opened up the, we call it the offering.
What we really wanted was, you know, all Canadians to participate and to have a value experience that ranged from, we call it the everyday up to the aspirational. And so up until that point, it had been, you know, if you're a credit card and you had the rewards, those were the individuals that were kind of had to opt into it. And so what we did is we opened it up to all, banking, you know, clients, so went from credit cards to mortgages to lending, et cetera. And so that, you know, RBC client group then had the extended value. And then we actually opened it up to all Canadians. We said, "You didn't need to be an RBC client to participate." And the reason why we did this is we wanted to, you know, be relevant in the day-to-day, you know, lives of Canadians.
We wanted them to be seeing the value that was being brought to the table. And so when they thought about their bank of choice, not just thinking of RBC for credit cards, but also thinking about RBC as that broader, you know, financial offering. Just two other quick things to call out in connection to that. As it's bank-owned, we are our own manufacturer, and so we're able to do, you know, provide this program at a lower cost point that allows us to differentiate on the offerings. And I'm pleased to share that the program has been doing really well. As we approach the end of the year, we're just shy of having 10 million Canadians in the program, so.
Great. Staying within the Canadian banking market, one of the themes we've been hearing is the consumer has been surprisingly resilient, despite maybe a kind of a cloudier outlook at the beginning of the year. Maybe, maybe talk about any segments or geographies that you are seeing signs of concern within the consumer?
Sure. As, as you said, the Canadian consumer has been very resilient. I would say that the theme that came out across the Q3 results for the Canadian banks, which is the health of the Canadian consumer, when you look at it from a couple of different lenses, the liquidity that the Canadian consumer is sitting with is still much higher than it was before we entered into the pandemic. We're also seeing that the Canadian consumer is taking, you know, prudent steps in looking at managing their discretionary spend, thinking about how they're managing that liquidity, getting, you know, ahead of, you know, potential changes to their mortgage payments that are coming. So we are, I would say, cautiously, you know, optimistic as we think about the credit horizon.
We are really clear on that we are working through a credit cycle. And from a, I guess, the areas where we expect to see, you know, impact on the, on the consumer side, mortgage book, we're not expecting to see any, you know, material PCL. Like, back to what I was saying, we've got high liquidity, you know, the behaviors that are, you know, supporting, you know, payments going forward. Our overall quality of our book is high quality. We've got, you know, FICO scores in the high seven hundreds and loan to value of about, you know, 50% on average and about 70% at origination.
So the quality of the book supports, you know, that overall view that we're not expecting to see any insignificant deficiencies. As is typical for a credit cycle, we do see uptick in delinquency on unsecured book, and for us, that's, you know, credit cards, personal lending. So we have seen that tick up. We are expecting that that will continue as we move forward. However, that is in line with our expectations. There's nothing here that's been surprising us from that point.
Great. Let me talk about, like, rate cuts. We've already seen three rate cuts from the Bank of Canada, most recently just last week. Can you talk about how much of an impact do you think that'll have on the consumer? Will that change any behaviors?
Yeah, we've had, I guess just as of recently, a total of 75 basis points rate cut. We have not seen any significant change at this point in client behaviors. I would almost frame it from a interest rate perspective that, you know, what the changes that we've seen has really been almost like pulling the foot back a bit off of the brake, versus us getting into that period where we'll see, you know, individuals coming off the sidelines and we're kind of stimulating the growth going forward on that. So expect there's more, w ell, our forecast is that there's more cuts to come, so we're expecting that, and with that, we'll see that pent-up demand.
An interesting stat to share is that with every 25 basis points, you know, cut in the Bank of Canada rate, it equates to about, you know, CAD 7-7.5 billion of surplus cash into the Canadian economy. And so as you think about that, as we move forward, it's not going to happen, you know, in the snap of your fingers. That would be like an 18-24 months kind of positive impact that flows through. But when you think about putting all that together, that is a nice kind of positive data point as we move forward through this cycle.
Great. You know, still, RBC's balance sheet probably remains asset sensitive. So I guess the flip side of the rate cuts is, how do you think about, you know, offsetting the impact on NII from declining rates?
Yeah. There's always, you know, never a simple answer. There's a lot of moving parts there, so maybe I'll just step back at a higher level and just take you through the parts that we are thinking about as we look forward into this environment. So one thing that we always operate against is to drive, regardless of the interest rate environment, to have stable net interest income, and that drives the hedging policy that we put in place. And earlier in our conversation, I made a reference to the strength of our core, you know, low beta deposit book. And what we have done with that book is put hedges in place that basically are laddered up, you know, term hedging. And we basically are hedging back to five-year swaps.
I'll throw the term out there that it gets described as, you know, we put tractor hedging in place. And it basically is giving us a strong, you know, tailwind as we go into this interest rate, lower interest rate environment. As I was saying, the majority of it is hedged through five-year swaps, and the delta, if you look at the roll-on, roll-off at the moment, is about 200 basis points. And if you also look at that five-year swap curve, that benefit is going to be, you know, a tailwind for us for a period of time. So even though we're expecting to see, you know, lower rates, that this will be a tailwind that will counter it. A few other items that will have impact on Net Interest Income as we go forward, competition.
We talked earlier about mortgages, so we've seen, you know, margin compression on mortgages. We've also, on term deposits, seen, you know, competition on that front as well. As we move forward, that'll be something, you know, depending on the dynamics, I'd reference that as pent-up demand, you know, gets back into the market for mortgages, I think that mortgage pie will get bigger, so we might see some, you know, expansion there on the margin. Will we go back to where we were? I don't see us, but I think there's some opportunity there. On the GIC side, or sorry, my Canadian lingo popping out here, on the term deposit side, really, you know, keeping a close eye on that.
As I mentioned, we're seeing the competition, but what we're seeing as an offset to that is back to that core deposit book. And, you know, it's, it's sticky, it's a core to the organization and seeing that as a, as an offset. The other piece, maybe two quick pieces, just to call out on this topic. In a lower interest rate environment, we're expecting to see growth pick up, so it'll be a positive to our net interest income. And then the other, you know, significant dynamic that came out as we had interest rates increase significantly was the movement of flows. We saw, you know, significant transfer or money in motion, I guess, move into term deposits. We're continuing to see strong growth on that front. It's not at the levels that it was previously, but it's still, you know, double digits going through.
As rates decrease, we expect that we'll see, you know, consumers make that choice to point their investment in another area. And so the reason I bring that out is, yes, that'll mean that term deposits flow out of Canadian banking or retail bank, which would be a negative for net interest income. However, the offset to that, the diversified business model that RBC operates under, we have a really strong wealth management business, and the expectation is that as those flows move, we'll see them, you know, transfer from term deposits into investment products like mutual funds. So we may be lower on the net interest income side, but we expect we'll be picking that up on the fee income side. So net-net for the organization, overall flat.
Lower interest rate environment, lots of moving parts, but looking to have, you know, that tailwind from tractor hedging as a positive going forward.
Great. I think that's a nice segue into my next question, which I was just going to ask about wealth management. Now, wealth management is kind of a significant driver for the RBC business mix. Can you talk about how you maintain a differentiated edge in this segment? And do you see any further opportunities to deploy capital in wealth management?
Yeah. Yep. As you called out, like, wealth management is a significant business for RBC, deliver, you know, high ROEs and, you know, very capital efficient. We are coming from a really strong position if you look at our key businesses that we have in place. So Wealth Management Canada, anchored in Canada, as the name suggests, a strong broker-dealer. We're number one in the market space for, you know, high net worth and ultra-high net worth. We also score at the top of the list for the highest productivity for advisors. Moving into our global asset management business, again, we're number one market share for retail mutual funds. So again, it positions us really well to have the manufacturer, low cost of distribution, as we have that in-house. Our third key business is Wealth Management US.
We're number six in the U.S. from a full advisory perspective, based on assets. That business has been doing incredibly well. And, you know, our more recent acquisition, I guess, in the last couple of years, is Wealth Management U.K. We had presence, and then we've expanded that to add in Brewin Dolphin. So a bit back to your question on how do we differentiate, we're really back to that power of, or that position of strength and that number one in broker-dealers, number one in asset management, and strong, you know, position in, you know, second home market in the U.S. and in the U.K.
From a question on, you know, do we see where we might, you know, deploy, you know, capital or inorganic, I, I would say that our focus area is U.S., U.K. U.K. is heavily fragmented and lots of opportunity there. Understand it's number three in the world from, like, asset pool, and that's something that we would continue to look at. What's the opportunity to bring in a small acquisition to expand our wealth management offering there?
Great. And we spent a lot of time on capital and kind of some of the top-line-
Yeah
-drivers. We don't have too much time left. I just want to talk about, maybe kind of like the efficiency targets. How are you balancing efficiency goals versus the need for a continued investment?
Great question, because it's critical, right? You can't, like, starve one and spend out, so you have to, you know, run with this appropriate balance. And so we're always very focused on, you know, positive op levs, and we're doing a great job, you know, with, you know, this quarter alone, or actually year to date, we're, you know, about 3% positive op lev. We come at it as a long-term, disciplined approach. I think it's really important that we're always looking at it from a "what are the structural opportunities?" And so as we drive those structural opportunities, it translates into long-term value.
And with that, I think it's depending on, you know, your strategy and where you're at and, you know, certain environments, it's a call then between what are you aiming to invest into, you know, your prioritized, you know, areas of growth, and then what do you, you know, have as flowing to the bottom line? And so we find that with that, that gives the appropriate kind of structure and even the culture of that continuous focus. If we find ourselves in a situation, right, where you need to maybe pull levers a bit faster, we always have that at our discretion. If you need to pull back on discretionary spend or slow hiring, or maybe prioritize to another level on investments, we always have that.
But our focus is coming back to how do we make those structural changes, that longer-term view, to have that longer-term value, to avoid having to take, you know, significant restructuring every, you know, few years.
Great. And of course, you know, I couldn't let a bank CFO get off stage without talking about credit. But-
Okay.
Given that credit didn't come up for the last five minutes, I'll probably say something about overall credit quality. So while overall, deal formations were relatively stable in 3 Q, there was a tick-up in Canadian banking. Maybe can you talk about the increase in commercial new formations and any outlook for, you know-
Sure
potential for further deterioration?
Sure. I was going to say, my CRO will be happy on your last question, was on credit. So the Canadian consumer, we talked about, the Canadian commercial book has been very resilient as we've gone through. And Q3, excuse me, was the first quarter that we did take impairments. And so we had one. We actually had two, one in the real estate sector and another one in the forestry sector. On the wholesale side, or the commercial side, it's natural to the business. They're large, and they're lumpy. And so even though we took, you know, a couple this quarter, it's in line with expectations. We don't see it as a trend that's signaling we're on a, you know, a negative trajectory that is outside of what we've outlined for expectations.
These two were both in our HSBC book. I do want to just call that out. I do want to though be really clear that just because it's in the HSBC book, it doesn't cause us to have a different perspective of the quality of that book. As I said at the very beginning, that we're quite happy with the credit quality of that book. It's like, it skews to larger commercial clients, and it's actually equivalent to even, you know, performing better than, you know, the broader RBC book. So no concerns there on the HSBC front.
Excellent. We have two minutes left. Maybe we'll open it up to the audience for-
Sure
- one or two questions.
Sure.
In the front row, we have
Go ahead. I think you're up.
Just wait. The mic is-
Oh, the mic's coming. I was like, the lights are bright, so I can't see.
So congratulations on the HSBC acquisition. I think it's, it's a fabulous acquisition. But if I could come back to City National.
Yes.
That was 2015 . I think it was, like, CAD 5 billion at the time, something like that, five or six.
Mm-hmm.
Can I ask a couple of very broad questions? I mean, firstly, I think in the last year, you've had to inject capital again into that. So I'm wondering how much that was. And just in very broad terms, given that I don't look full time at Canadian banks, what went wrong at City National Bank?
So, at City National, when we acquired the organization, I would describe it as it was like a community-sized bank, and it grew rapidly. And we found ourselves at a size where we needed to be compliant with heightened standards. And I would say that we also found ourselves in the middle of, you know, changing regulatory expectations. And as a result, we needed to grow the infrastructure to underpin an organization of that size, as well as meet the regulatory expectations for an organization of that size. And so that's been our top priority, is moving through the necessary build-out for that infrastructure. We've also been looking at, you know, what are the other areas of opportunity?
And I touched on it before, in that when we look at the book and when you compare City National to peers, we're running at a really high efficiency level. And so there is opportunity, and we've already been, you know, executing the initiatives on that front to bring down the efficiency, and we see more opportunity to go forward. An example, we've reduced our headcount by about 500 already, and there's more opportunity there. From a profitability perspective, we talked about that before, so also seeing there's opportunity there. We're looking to simplify the business as well by taking it back to our core, our core operations that will deliver that, you know, targeted ROE for us.
And that's what you've seen kind of over, I would say, last year and even, you know, some quarters this year, in that we've looked at where do we need to exit. So, you know, sold a couple of non-core investments. We are also, like, looking at, say, for example, our real estate footprint, and how do we optimize the real estate. So stepping back and looking at it on all fronts to say: How do we optimize? 'Cause we feel like we have significant opportunity there, but as a priority, making sure that we build the infrastructure necessary to address the heightened standards expectations. I will need to come back to you on that one.
Sure, quickly.
Just a follow-up on Julian's question a bout City National. I think it's clear for me what essentially will be done in the efficiency front and right-sizing the business, et cetera. But just on the revenue side, you talk about opportunities. Can you put a little bit more meat on that? Like w hat opportunities are you seeing that could grow that franchise?
Yeah, well, I was going to say it's a bit of, like, looking back in on how do we improve that profitability, and so on the revenue side, looking at how do we extend our relationship with clients, taking it beyond just, say, one product, and looking at it from all of the suites of products that City National has, but also improving that connectedness between City National and the rest of RBC's businesses, so looking at how are we connecting with, or doing a better job of connecting with our capital markets and our wealth management, and then the other piece is just back to, you know, going through and being really clear on what's our hurdle rate.
If there's, you know, loans on our books that aren't at the hurdle rate, you know, like making the call that that's below our hurdle rate, and we need to be, you know, demarketing.
Great. Please join me in thanking Katherine for her time today. Thank you very much. Also, please, I invite you all to come join us for lunch, downstairs, I believe, in the Metropolitan West room. Thank you very much.
Thank you very much.