Hi, Dave.
Good morning.
Thanks so much for being here.
Sit here?
Grab a seat.
Morning, everybody.
So I was debating, should we talk about Taylor Swift or-
Yeah.
or macroeconomics? So
I can take it.
I went with macro.
Right here. I got a lot of new friends.
So I think the best place to start, or really where I want to start with you is on the macro, because on your Q3 call, you made a number of comments about the macro outlook that I found very interesting as an analyst, as a former economist. You talked about structurally uncertain macro backdrop. You talked about an operating environment that's changing at a faster pace than what we've seen in over a decade. So can you elaborate on those risks and how they impact how you manage the bank? It seems like it's definitely a challenging period here in terms of being the CEO of Royal Bank of Canada.
Well, I think it's challenging for any CEO. I think it's maybe less challenging for the bank or RBC CEO, given the diversification of our business and the strength of our customer franchises. But a lot's changed. Some of these trends and thematics on the macro side were happening before the March financial crisis in the United States, and then some new ones have manifested themselves that we should talk about. But really, you know, some of the themes that have pushed this year are themes we've talked about on stage before, and that's, you know, the need for a strong deposit franchise and how funding and capital have been, you know, key issues. But the funding markets and the funding environment in both Canada and the U.S. have changed.
Deposit betas have changed much more significantly, and there's very different dynamics happening in the U.S. and Canada that are diverging the market and I think the opportunities. In the United States, you have fundamentally a lot of liquidity has left the system. $2.5 trillion have left the system out of $19.5 trillion. That's put pressure on regional banks to fund their model. You see U.S. regionals selling assets, paying much higher deposit betas for their existing funding, and are really struggling to grow, given the inability to fund and the question about how much capital is gonna be required to absorb some of the, the mark-to-market losses they'll have to take to their balance sheet they haven't taken before. So very difficult funding environment in the United States.
Having said that, the asset betas are a little bit higher, so some of those funding costs are being passed on in the marketplace, but certainly having a core deposit growth franchise, and that's one of the reasons that we've invested so heavily in U.S. cash management. We'll be launching that this fall, but certainly a very important part of our overall U.S. strategy is to build a U.S. core funding capability for the long term. We've done well funding our business now, but as we think into the long term, having a U.S. corporate cash management capability, we think, really enhances our franchise. Another service to sell to our, our kind of, our ninth-largest Capital Markets business in the United States, and therefore, you know, a very strong component. So addressing some of those challenges, coming back to a great customer franchise with, with core funding.
The U.S. consumer is more resilient than the Canadian consumer right now because they have a 30-year fixed mortgage, and therefore, they're not being disrupted by higher mortgage payments. They've managed down their cash quite significantly, so you've seen that runoff happen on U.S. balance sheets, but there's still strong spend, which is why inflation is so persistent in the United States, is you've got a very strong consumer. Contrast that to Canada, where the consumer has not run down their deposits. They're keeping a much higher liquidity position. We've not seen a runoff of all the pre-pandemic deposits that built up, but we are seeing cash flow, disposable cash flow, reduce by higher mortgage payments, and therefore, the Canadian economy is slowing faster, and rates will probably start coming down faster in Canada than the U.S.
You know, it looks to us right now that we will be able to engineer a softer landing. But a very different dynamic in Canada, a more conservative consumer, growth is slowing faster. You're seeing certainly those mortgage payments increase, and therefore, the economy is cooling a little bit faster in Canada. But the banking environment and the funding environment remains much more solid because of those surplus deposits, because of the nature of the environment. And that's where our core capability, again, comes into play with the strongest core funding ability in Canada, with our large market-leading consumer and commercial franchise. Very, very strong from a funding and capital position. And therefore, those two worlds, from a macro perspective, are playing out very differently.
Inflation will play out differently, the rate environment will ultimately play out differently, and therefore, you have to manage the businesses quite differently. And both play to our strengths and the diversification of our strengths across Canada and the U.S., but will not be exactly the same. So I think from that perspective, a complex environment, an evolving environment, and why having scale in North America across industries, but an ability to fund and have the capital is really, really important.
I wanna dig into your U.S. strategy in more detail.
Yeah.
You touched on the cash management, which is part of the Capital Markets strategy in the U.S. But before that, you know, sticking to one more macro question, just from a rate perspective, I mean, it sounds like you're maybe leaning more towards the dovish side when it comes to the Bank of Canada, and we'll get a rate announcement today. But how big a risk in your mind, especially in Canada, is the higher for longer scenario? It sounds like it is a very significant risk.
It's a tail risk for Canada, and I think it's a tail risk that's manageable. I think we're seeing, you know, the good numbers come out. We're seeing that disposable income drop. We're seeing spending drop in Canada across a number of categories when you look at your credit card flows, and therefore, Canada is getting a handle on this because higher rates are repricing credit and therefore slowing inflation. So I think we should expect to see rates start to come down next year, and I think that's well in advance of any, you know, major repricing of the mortgage book. So as you look at kind of the mean scenarios, we should be fine. We should engineer a soft landing here, and there's lots of room to do that into 2024.
The majority of the repricing will happen in 2025 and 2026, and therefore there's lots of time to hold, make sure we have a handle on inflation, get rates down, start to signal to the market, and therefore, we have lots of room to manage a soft landing here, and we expect that to happen.
I want to shift to, you know, before we talk about-
Very positive on the Canadian, Canada's ability to manage this. It could be a little bumpier in the United States.
And we'll get to that. In terms of... One thing I wanted to talk about first was just expenses and expense management-
Yeah
in a slowing revenue environment. You know, you announced some severance in Q3 and highlighted you know, the actions you're taking in order to better manage expenses, not just in terms of salaries, but also in terms of the discretionary spend in order to drive operating leverage going forward. The question is, is that gonna be enough in your view? And, sort of, a part B to that is, you know, historically, Royal Bank has been very reluctant to take big restructuring charges, and I'm wondering, has that view changed at all, given you know, this environment, this inflationary environment, a more challenging environment? Is there any sense that maybe now there is...
You don't have to commit to anything, but at least philosophically, is there potentially a change in the appropriateness of that kind of more severe action on your behalf?
You know, as you saw, we announced internally and externally a reduction in employment levels of about 2%, where you're not taking explicit charge. We'll absorb that in our cost structure. I feel like we've really. It's taken a couple of quarters for a number of reasons. One, you know, you need regulatory approval to move these programs forward in Canada, or you don't in the U.S., so it's a very different market, and therefore we've obtained regulatory approval to move these programs forward.
And therefore, we'll absorb that cost, but that is, you know, a net 2% reduction as part of an overall program to manage our cost structure down, whether it's looking at different projects and where we're spending on technology and making sure that we adjust to an operating environment that will see reduced rates over time. But to get that inflationary cost structure that's pervasive across all our suppliers and higher salaries for employees, we feel, as you heard us talk about in the Q3 call, that we've got a handle on that, now that you'll see a significant change year-over-year and quarter-over-quarter in our Q4 results, and we're forecasting, you know, in mid-single digits, and hopefully, kind of flattish quarter-over-quarter.
Therefore, cost shouldn't be a story as far as, you know, the types of increases you saw in the first couple of quarters. You have to be cognizant that we are undertaking the largest initiative in our history in acquiring and absorbing HSBC. It is a phenomenal opportunity for RBC and for Canada and for the HSBC clients and employees. We see significant operational synergies, client synergies. We're excited about the franchise. There's lots of capabilities they have that we're bringing into our RBC.
We took a very significant positive step forward last week with approval by the Competition Bureau and their view that there's a healthy, competitive environment in Canada, and that this transaction does not change that healthy, competitive dynamic that we see in asset betas and all the pricing competitive pricings that happens in Canada and the robust, competitive market we have across so many institutions. So that was a big step forward for us. We still require final approval from OSFI and the Minister of Finance to conclude that, and then we have an implementation period, which will lead to a close and conversion we hope early next year. So I think from that perspective, that is a heavy load for the organization to carry, and therefore, we are working very hard on that right now.
It's a very exciting opportunity for us, with very significant shareholder returns and synergies, not just in the short term, but in the long term, and you'll see us outline that early in the new year, subsequent to approvals and how we see that. We feel very good about cost structure, but we'll start to talk a little bit more about the revenue and client opportunities that we haven't talked about today going forward. So I think from that perspective, we have almost 2,000 people working on this transaction right now. We've moved a lot of them from other projects to this one, and therefore, we need to carry a little bit of that extra cost structure to make sure we do this really, really well. It's a seminal opportunity for RBC and for Canada.
So I think from that perspective, we're managing that well, and therefore, as we come through that, we start to redeploy some of those resources, mid-next year, subsequent to, you know, hopefully a successful approval and close. So I think that is, you know, part of what we're trying to manage, and it's a big undertaking to take a large bank and in one weekend, move it on top of all those clients on top of your technology infrastructure. But accrues enormous benefit to clients and employees and shareholders and Canada taxpayers immediately because we unplug from one system and all that cost structure and move it on to our technology stack overnight. So that is a big undertaking right now. We just sold the Investor Services business, which was also a big undertaking, very complex undertaking detaching from the organization.
So we're handling a lot of heavy stuff. We see that, we're moving through that. We've already got control over our cost structure. You'll see, you know, strong performance coming out of Q4 into Q1, and therefore, we feel very good about, you know, the coming quarter and quarters.
I want to get back-
It shouldn't be, shouldn't be an issue that we're going to have to keep coming back to.
Okay. I want to get back to the U.S. strategy. You talked about the macro and some advantages that the U.S. economy has or the U.S. consumer has over Canada. But, you know, when I listened to you two weeks ago now on the call, you sounded quite negative on the U.S. banking sector, maybe more negative than I've ever heard you. And it didn't sound like this was just a cyclical commentary. It sounded a lot more secular in terms of just the operating costs weighing on profitability in the U.S. banking sector. So the obvious question is: how does that impact your U.S. strategy across City National, Wealth, and Capital Markets?
And where does it change the priority in terms of where you're focused, where you're more willing to put extra capital into the business?
I would say that inherently, yes, the U.S., you know, economy is performing very strongly. The U.S. banking system is not performing very strongly compared to that. Whereas the Canadian economy is performing well, and the Canadian banking system is performing very well. There's a lot of uncertainty around deposit flows, as we just talked about. There's uncertainty about the ultimate kind of, kind of regulatory changes around capital, liquidity, funding, term funding, that still have to come down and how the system's going to adjust to the risks it just went through. So the nature of my comments, and just to reinforce them, is it's an uncertain operating environment and a challenging operating environment to fund your balance sheet and to capitalize your balance sheet.
When you see banks selling assets because they can't fund them, that's not a normal environment, and that's not good for the long-term health of the economy, even though the economy is performing strongly. So I think it is a challenging environment, and that was the nature of my comments, and, and it's uncertain. And therefore, you got to get back and stick to the basics, and you got to really focus on how you're going to fund your balance sheet going forward, how you're going to capitalize it, and wait to see these rules play through. Whereas in Canada right now, we understand the rules of engagement. We understand, and we're, we're excited about the HSBC transaction because you can't be more sure-footed than in your own market.
To be able to take in an incredible franchise like that and put it onto your technology stack and serve all those customers in an environment you understand, you can. You know, the rules are stable right now, and you can plan going forward. It just makes it easier to do business. Any business in any sector doesn't like uncertainty, and therefore, we have to, you know, work through that in the U.S. and see where those rules go and see how the system funds itself, see how those $2.5 trillion that moved out of the banking system, does that increase, does that decrease? Does that flow back? Do you see greater liquidity, or does quantitative tightening continue to squeeze the banks? This is, you know, not normal environment.
It's a stressful environment, and any U.S. bank CEO will tell you the same thing. So I think it's that uncertainty to manage it's a difficult environment.
So, in terms of the levers that you have, in terms of the business mix in the U.S., how does that translate into-
Yeah
... how you're thinking about that?
So again, the diversification of our business in the U.S. is really important to come back to. We've got three fantastic client franchises. We've got the ninth largest Capital Markets franchise in the U.S. We've moved up from eleventh to ninth. We're seeing strong underwriting activity, strong advisory activity, even though it's been a little more muted given the rate environment, but we see the pipelines building, we see strong hiring activity, we see, you know, great opportunities to continue to build on some of our sector-industry focuses around tech and, and healthcare, and the leaders in that business are doing very, very well, in addition to banking and, and others. So we're seeing, you know, the breadth of the investments we made across sectors start to grow our advisory business.
We're seeing strong, stronger markets performance in the U.S. on DCM and others. ECM, obviously, a bit slow. So the Capital Markets franchise and its ability to continue to grow with corporate cash management ability to cross-sell to all those relationships where we're usually in the top tier in their credit syndicate. We have a right to ask for the business. We've built this corporate cash management product with top CFOs and treasurers across the U.S., so we've got a ready-made customer base that are willing to adopt this, and we're very excited about bringing that, not only funding, but that fee-based services as well onto our services list for all of these clients. So the Capital Markets opportunities, we're very excited about, and we see good pipeline. The U.S. wealth story is just a...
We're moved up to fifth in the U.S. on the assets under administration. We continue to hire advisors, add advisors. We've invested in technology. We've grown our secured lending portfolio to CAD 8 billion-CAD 9 billion now. We see other products now that we can add to this franchise, continue to cross-sell those customers. It used to be uniquely an advisory trading relationship with a customer. We've added a secured lending relationship. We'll add a mortgage capability and other capabilities to that and continue to grow these affluent and high-net-worth client relationships through that Wealth franchise. It's very, very exciting. While we're hiring more advisors and continuing to migrate advisors in, I think we brought 127 advisors in and almost CAD 30 billion of AUA.
Every year, year on year, we continue to grow this franchise and perform very well in advisor and customer satisfaction. So just a fantastic organic growth story there as well. And on the City National side, we've tripled this bank since we acquired it. We thought we'd have, you know, a record year in City National this year, and everything got turned upside down in the March upheaval, when, you know, certainly deposit betas changed and customer flows, and we have a, you know, high net worth, ultra high net worth and Commercial customer franchise, and they started moving money around, and that was replaced by money coming in from new customers and other customers.
So net-net, we did very well by, particularly in the U.S., by having a stable funding base in the U.S., albeit at a significantly higher beta, which all banks are seeing. Some of that's been passed on with better asset pricing and better asset betas, and we'll hopefully will continue to see that perform in the U.S. that way, and an opportunity to really improve on a revenue stream, manage our costs down, certainly, and improve the operating environment. So it was a challenging quarter. Everything ran against us. You'll see it stabilize in Q4 and improve next year, and we still see, you know, enormous opportunity for the City National franchise.
So with diversification of institutional and corporate, high net worth affluent advisory, Commercial and P rivate Banking, City National, with upside to perform better, it's a great franchise to have in the U.S., and they're very, very hard to build at the end of the day, very hard to build. There's not a lot of acquisition opportunity. It's an organic build, and therefore, we've got the capital, the scale, the ability for Canada to help. This is a great story for RBC, and, you know, very, very hard to replicate.
I'm curious, the competitive landscape for that business. I mean, obviously, you know, this time last year, I might have probably still asked you, are you interested in First Republic? Obviously, it doesn't exist anymore, or, I mean, they're part of JPMorgan. So the question is, from a competitive landscape, is there opportunity there, or is it now you're competing against JPMorgan instead of First Republic, so that's,
Competing against everybody. I think at the end of the day, it creates organic opportunity for us as we offer choice, we offer, you know, great service. It's a fantastic franchise. As the industry consolidates, I think clients look for alternative solutions, and therefore, you know, a fantastic customer franchise that we have from Wealth. We have brought in teams from First Republic on the Wealth and City National side, and SVB. We continue to see great organic opportunities, so I think that's the focus, first and foremost. Matching culture and matching strategy, yes, there is less opportunity out there right now in the U.S. We have Personal Banking, and consumer banking is a scale business, and you've heard me say for a decade now that that's not a strategy, continues to be not a target for us.
We have a good commercial bank within CNB, and we want to continue to grow that commercial bank, and we'll continue to focus on that. But, you know, for me, I just continue to see significant organic growth opportunity. The biggest challenge for every bank, except a couple in the U.S., is to find funding. Like, we could grow from demand, customer demand alone, we could grow our asset business in the 20% range. We can't fund that growth right now in the U.S. profitably, and therefore, you have to manage your growth much more carefully around funding levels and the cost of funding and how much customers will pay versus what competitors are offering. So it's a trickier environment to grow, for sure, but very significant growth opportunities. But no, I don't see...
You know, on the Commercial side, we'll continue to think about it. On the Wealth side, we'll continue to think about it, but we're doing a really good job growing organically.
So, that was my follow-up question in terms of M&A. You know, it, it's still an organic growth story in terms of Capital Markets and Wealth, and that's not changing.
Certainly, Capital Markets is an organic growth story. We have scale already. Our acquisition wouldn't make sense for us. You're buying people and relationships that are mobile. They're very difficult strategy. They had tended to not worked very well. Historically, some banks have disappeared because of their Capital Markets M&A strategy gone wrong and the cultural shift that it brings. We have scale already, so for us, where we need scale, we need more MDs. We need more MDs in certain industries like tech and healthcare, continue to build those out. That's where we're under scale, but you don't get that through acquisition. You get that by attracting, through culture, through a strong balance sheet. You attract teams, and you attract people, and we'll continue to build that out. But an M&A strategy in Capital Markets wouldn't make sense for us.
We've got the corporate cash management capability we've built, and therefore, we feel like we have a really strong global Capital Markets operation that's capable. You will see us continue to think about U.K. Wealth and to build on a very successful Brewin Dolphin acquisition. We're very interested to continue to build a global Wealth franchise and to serve that high net worth franchise. It's a higher ROE business. It performs well for us through a cycle, and therefore, helps us build a higher ROE, lower volatility customer franchise, which is our investment thesis. And we continue to deliver that, and we continue to build a franchise that delivers a premium ROE, lower volatile, premium growth franchise. And we're investing in that growth, whether it's HSBC, corporate cash management, new MDs, City National.
We continue to invest in premium growth, the same customer targets that we know produce lower volatility through a credit cycle, and therefore, that's the franchise we promised we'd build you, and that's the franchise we're building. You're seeing the benefits of that organic growth and that customer franchise. We just need to get the cost structure down so the operating leverage pops through a little bit more, and we feel that's eminently within our control. It's nice to say, "Okay, customer franchise is doing really well, growth is doing really well, our deposit franchise is throwing through, our diversification and risk management is throwing through. All I got to do is get that cost bit down, and we'll be able to deliver that operating leverage that we want.
But that's within our control at the end of the day, so it's good to be in that position.
And so, so if I heard you right, so the aspiration from a Wealth perspective is more of a global franchise. I mean, you're number one in Canada, top three in the U.K.-
By a ways, yep.
With Brewin Dolphin. And so... Okay.
We'll selectively look at opportunities. There's not a lot of targets, as you can imagine, in the Wealth franchise. We probably would focus, and we are focusing on distribution versus manufacturing. We have, for the past decade, focused more on the distribution side and owning that customer relationship and trying to cross-sell that customer relationship is where we're focused, which is what Brewin Dolphin was, certainly, and we're continuing to look for those opportunities while we deepen our product suite and deepen our relationship with those existing customers, which are quite significant. Great opportunity in the U.S. We're doing a better job in Canada with our Private Banking and premier banking cross-sell into our fantastic RBC DS Wealth franchise. You're seeing deeper product shelf in Canada. We'll deepen that in Canada.
That's a big part of the value proposition in the U.K., is to deepen that product shelf and cross-sell. So that drives higher ROEs, that drives organic growth, and that drives the premium, premium EPS. So I think that's how we think about it. That's how we're executing. We've got the pieces, and we're pushing it forward.
So shifting from strategy to management, I'm curious your thoughts. You know, in Q2, you were very candid in talking about two mistakes that you, the organization, made. One was overhiring during the pandemic, the other one was not foreseeing the rapid move in deposits into higher-yielding products. The question is, just as you take a step back, what management lessons do you take away from that episode?
Well, I think every bank in the world, including JPMorgan, didn't see the rapid shift into higher beta deposits, so I wouldn't say it was a mistake. It's something that we have to adjust to, for sure. I think we saw, given the affluence of our customer base and the size of our customer base, we did see faster flows. And, you know, part of our overall strength as a franchise and why we're number one in J.D. Power, for, I think, seven out of eight years now, we're number one in the, the Wealth side on advisory and customer satisfaction, is we do the right thing for the client day in, day out, year in, year out. And this was about doing what's right for the client and reaching out to them and saying, "You have surplus liquidity.
You should be putting it to work. Don't leave it in your core checking account." We'll watch that. We've got great AI technology. I know you want to talk about AI. We monitor, you know, 15 million customers' accounts every day for... and give them advice about what they should be doing with their money. That's why we're number one in J.D. Power, doing the right thing. The right thing was to talk to clients. Not every competitor did that. I think some competitors, you know, counted their margin. We did the right thing by the client. That led to an acceleration of the flows into higher-yielding products for the customer, but higher beta costs for us.
And it was, it went so fast that our revenues were shocked by it, and that, again, was not something we had planned for, and therefore, it was hard for us to adjust the cost base to the big gap in revenue we had to our plan. So the rapidity of the change caught us a bit off guard, but not... The whole thematic around the change was the same every bank faces: Are you gonna do the right thing for your client? And that was absolutely the right thing to do for our client, and our clients will reward us for doing the right thing. As far as the hiring side, yes, every bank and most companies outside the tech companies had significant, in 2022, significant turnover. Like, we saw tech companies hiring aggressively.
We saw higher change in employee turnover that we hadn't seen before. It was benign through, obviously, the pandemic, then we saw tech companies hiring. We lost a lot of frontline people. We had to replace them. It came to a point in the summer of 2022 where we couldn't open certain branches, even in the province of Quebec, 'cause we had such significant turnover. They went through a massive hiring spree, so that didn't happen again. In the summer of 2022 into the fall, then the tech companies stopped hiring as they went through their challenges. Attrition went to zero at the end of the day, and we overshot. But we overshot because we tried to solve the core problem of serving the customer properly at the end of the day. And, and JP Morgan, again, talked about the same thing.
So we overshot for the right reasons, and we could have adjusted a bit quicker to that overshoot, and we were a bit slow doing it, but we've got a handle on it now, to the point that we talked about, and we've got our cost structure moving down. We've got our FTE moving down in the right direction. We'll keep managing that with a number of levers that we have that we just talked about. And, you know, that should be a story in the past. But we did it because we put the customer first, put service first, and that's how you build a long-term franchise, a sustainable... Yeah, we disappointed for a couple of quarters, but we got it back in Q3, and we'll get it back in Q4 again, in Q1, and move forward from there. But we did it for the right reasons.
We just... You know, it had a little bit more volatility to it than we wanted to see happen, but we've got a handle on that, and we'll move forward.
I wanted to, and you mentioned it, I asked Scott about AI. I want to ask you, I know, you're very passionate about technology. I always enjoy getting your insights on technology and how it relates to banking. So the same type of question, you know, a lot of hype around AI, but from an investor's point of view, is this something that is gonna move the needle on expenses or revenue or both or neither? How do you see it from that perspective? Obviously, a very exciting technology, but what's the bottom line here for investors?
Yeah, I think the headline is: This is an incredibly exciting technology that's not ready for prime time, but we'll be ready in a foreseeable short to medium term. And I think each of these technologies are kind of building. I would say, you know, we went through the blockchain technology, and I think it hasn't proven to be a great changer, but it's still evolving and still changing, and, you know, it could continue to create a powerful technology, but it's taken a long time to evolve. The first phases of reinforcement learning and the first phases of AI, we invested heavily in, and they've produced great results for us, you know, across the bank.
They're not game changers, but they are small scale innovations that are changing different parts of our organization, from AI in our trading and equity trading, block trading business to our adjudication businesses. AI has been deployed across the organization very successfully by our Borealis AI team and our market-leading Borealis AI team that we built organically. We didn't acquire. And they've created great value for us, and they've—we've earned a great return on that investment. But I saw the curve starting to shift, and I saw the innovation starting to slow a bit. But that curve has led to this new generative AI curve, and it is exponentially different and more exciting.
But those models have been trained in a very different open environment that you now need to retrain those models on your own data in a more of a closed environment, in a hybrid environment, with trust layers to protect your data and protect their privacy. All that has to be done in the right way. The potential of the model is there. The use cases are incredibly exciting. They have revenue opportunity and cost opportunity. They have an opportunity to make our employees better and faster in front of the client and more productive in front of the client, with potential, I think, to wow the client in many ways. So we have a number of use cases there.
We have a number of use cases that we've started already within the technology group in coding and lowering the cost of delivering technology significantly, and those are real. And then we have real use cases on the operations, obviously, contact center, branch side, in improving the cost structure of the organization. So when you look at this. But it's not something that we can do tomorrow. It's something that we can do over the next two years, I would say, to retrain the models. We've chosen a couple of partners already. I've spent, myself, a lot of time in California talking to many, many companies about the where their development's at, what's required, how we're gonna do this, who we're gonna partner with.
So I think we're pretty evolved as far as our knowledge of the sector, to the point where we're moving forward now in building these use cases. But it's not gonna happen in 2024, I don't think. But I'm pretty excited for 2025, and they are, I think, pretty fundamental at the end of the day, so very excited about the technology. But everything's building.
Right.
It's an exciting future, but we've got work to do.
Is this something that could be a sustainable advantage for Royal Bank, or it's more along the lines of, you know, every bank, maybe Royal Bank is ahead, but everyone's gonna catch up, and so this is not a sustainable advantage for your bank in particular? How do you view that?
You know, accessibility to the technology will be universal. You will have large tech firms that provide this as a service, so you can plug into a generative AI model, a large language capability, and it will sit on top of your data, potentially, and you'll adjust to it. But the real value comes from your ability and your scale in using the technology and understanding from prompt engineering, which will be a word that you'll hear over and over and over again as we hire and develop prompt engineers. How you train them, how robust and broad your data set is, will create ability. As an organization, your facility in deriving value from data and your accessibility and organization of data, how you have a franchise that collects data is really important.
So data scale becomes really important, as well as brand scale and trust, and trust in how you're gonna use it. So I think brand scale and trust scale is also very important. So the benefit then comes from not accessibility. Everyone will have an ability to plug into a generative AI model. But the expertise that you've built over this decade in AI and other technologies will facilitate your organization in leveraging this technology into value, into competitive advantage. That's where the differentiation, that's what we've proven through the first generation of AI with Borealis, and we have adapted this to our environment. I think we're well positioned and ahead of the curve in executing against this new technology. It is very exciting, and it's different.
A large language model, concept and capability and trust layer is fundamentally different.
Well, I think that that's all the time we have, so we'll leave it there. But thank you so much, Dave.
Thank you.
Appreciate you being here.
Thank you, everyone.