Okay, we're good to go. All right, great. Good morning, everyone, and welcome to the RBC Canadian Bank CEO Conference. For those of you who don't know me or have forgotten what I look like over the years, my name is Darko Mihelic. I am the research analyst here in Toronto. I cover the large Canadian bank space, and I'd like to formally welcome you all back to an in-person conference this year. Similar to prior years, our presentations today will be in a fireside chat format. You should all have a schedule. Each speaker's biography is available on our website, so I don't have to do these long, time-consuming introductions. Like previous years in person, there was an opportunity for audience Q&A through an app called Slido.
What I'm gonna try and do today is sort of block off the last five minutes or so of each chat to take the most popular questions that's been upvoted by you, the audience. If you'd like to submit a question during any of these sessions, just please click on the QR code on your table and log in to Slido with a password. Once you're in there, you can choose the room and you can log your questions in for each session. I would really appreciate some participation from the audience. I have my own set of questions that I intend to ask, certain angles that I see.
Every year, I get surprised by what some people ask and what people are interested in, and I, and I get to learn along the way as well. Please, big encouragement from me for all of you to please type in a question and up vote to the question that is most near and dear to your heart. Without further ado, I think what we might try and do is start this session a little bit earlier and ask the CEO from RBC, Dave McKay, to please come up to the stage. Good morning.
Good morning, everybody. Imagine a RBC Capital Markets conference without snow.
Yeah. It's.
Travel after all. Good start to the year.
Yeah. Hopefully it, hopefully the weather cooperates for a few more days, for those of you who are in town a bit longer. Dave, I wanna ask a bunch of questions, and I think I wanna start off digging away at capital because it's been a pretty big issue lately. We've had the Domestic Stability Buffer increased by the regulator, and it elicits a number of questions. I think right off the top of the bat, I just wanna start to ask about capital and dig away.
We can take this conversation any way you want, but why don't we start with your view on how Royal is positioned in light of a higher capital requirement and in light of the fact that you'll be closing an acquisition at some point and possibly the DSB even rising by that point. Maybe we can just open it up a little bit wide and let you kick off and talk about your position on capital and how Royal is positioned for HSBC in light of the change.
I know it's on everybody's minds. It's great to see everybody off the top of the year. Certainly for us, capital's been a strength for a long time. We've managed the organization conservatively for a long period of time. We've always said that capital has no half-life, and we'll use it well. You know, we felt that we've used it extremely well. From that perspective, it's given us a lot of flexibility. As you think about the recent changes to capital levels from OSFI, the announcement of a wider range of DSB, maybe I should just kinda walk you through how our strength and our flexibility and the size of our balance sheet and how we managed it gives us enormous confidence in absorbing the acquisition, having capital for growth and having capital for future acquisitions.
As you know, we finished the year Q4 with 12.6% CET1 ratio. As we think about organic growth, and we're gonna see strong organic growth, we think, this year across most of our businesses. Therefore, we're looking at, you know, a net capital organic generation ability a little bit below what we would normally run, 60-80 basis points. This year, we think we can do around 50 basis points of organic capital build. We have, you know, a positive impact from Basel IV reductions because we had managed our assumptions conservatively, particularly around LGDs and others, we'll have a positive 70 basis point impact from Basel IV. Already you're looking at a 120 basis point capital build from those two impacts.
As you saw, we turned on a drip with a modest discount, and that will give us around 30 basis points. We're looking at a 160 basis point capital build in 2023, which will take us up to around 14.2% pre the close, subject to approval, obviously. I'm running through the hypothetical scenario of the HSBC acquisition, which is gonna impact CET1 by around 240 basis points. If it gets approved and closes in Q3, or if it gets approved and closes in Q4, you'll see us in a range of just under 12% CET1 ratio at the close of HSBC, assuming it's in, say, Q4 2023.
Enormous ability to absorb that acquisition still be well above the threshold of 11% with a comfortable buffer to continue to grow organically. That's in 2023. As you go through, and if you make an assumption, if there's further utilization of that DSB range, historically, there's been time to adjust. Doesn't come in and get, you know, a significant impact like that wouldn't come in and get implemented overnight. Therefore, you'd have time to build into that. As we look into Q1 2024 and Q2 2024, you're again gonna build capital pretty significantly through earnings through the DRIP. As we look through the capital build in 2024 after organic growth, you're gonna see 60-80 basis points of organic capital build. You're gonna see another 40 basis points of DRIP.
As we look through to 2024, we see even by Q2 being, you know, well into the 12.5% range, and then finishing the year closer to the 13%+ range in Q4. Irrespective of what happens with that DSB range, we're gonna close, subject to approval HSBC well above the current minimums. We'll move well above any type of minimum threshold at the max range of DSB, have capital for growth, have capital for acquisitions. Therefore, the conservatism that we've had, all that capital, the earnings power of the franchise diversified across so many client franchises.
It's just the confidence we have in moving through that and being well above, you know, 12.5, 13% in the next six quarters is really gives us enormous flexibility to absorb an acquisition, to grow and not need an equity raise. I think off the top, wanted to give everyone comfort, that's the capital waterfall, and therefore we have enormous flexibility. Having said that, There's no having said that. That is our kind of our perspective on going forward with a lot of flexibility. If there is a recession that's more severe than the mild recession that we forecasted, you know, this is a cyclical buffer, right? It's supposed to be built up in good times, and you'll hear, hopefully, and you should ask Peter this his question.
He's clearly said it publicly many times. The buffer is to be used in a downturn. If the downturn is more severe and you're seeing more volatility in earnings and credit, you would expect that wouldn't be the time that the DSB gets used. To be used upwards, it should be drawn down from that point. As we look through scenarios of modest recession to maybe severe recession, We put a much lower probability on that, much lower probability, we look at, you know, where the DSB might go. You have to take into consideration how it's supposed to be used. If there is a more severe recession, we don't forecast that, you would expect some flexibility in lowering the overall threshold. That's how, you know, we understand the buffers are to be used.
Peter and OSFI have said that publicly many times and obviously shouldn't be discussed today. As we look at those scenarios, we have enormous confidence in the flexibility to absorb any volatility around uncertainty. We have the flexibility to absorb our largest acquisition ever subject to approval, and we have the flexibility to continue to make acquisitions to grow our franchise. We're in a great place to continue to create significant shareholder value. I want to give everyone confidence to do that. I think that's one of the most important... I know it's on your minds. That capital waterfall gives me a lot of confidence in the organization, confidence to continue to hire, to grow, to look for growth.
Number of follow-ups on that.
Yeah.
Thank you.
Fire away.
Thank you for the waterfall. That's very helpful.
Yeah.
It does elicit 2 follow-ups. First follow-up would be, what about the, you know, the level of buffer that you wanna run over and above what OSFI sets? Is it now almost necessary to run with a higher buffer just because you never know tomorrow he could raise it, and he could raise it pretty quickly on you. Does it necessitate a higher hurdle rate for future acquisitions as well?
We always run an operational buffer, just because you don't wanna dip below your minimum thresholds ever, right? And face the need to maybe do something that's off plan. So we always run a buffer above minimums, and you've seen us do that, and it tends to be in the range of kinda 50 basis point buffer just for volatility and uncertainty from quarter to quarter. You never wanna run it close to the line. We've always done it that way. Is there a need for us to? No. We certainly, as a G-SIB, as a large organization, we've run this organization more conservatively so we can take advantage of opportunity, which you just saw us do. Capital has no half-life. So you'll see us continue to rebuild that capital for flexibility to other...
Continue to grow in the United States is a core part of our overall thesis. That hasn't changed even with the HSBC transaction, and it continues. We'll continue to build with an operational buffer, and we'll continue to use capital wisely. You saw us kinda build capital and hold capital till the right opportunity came along, and we used it judiciously to create great shareholder value in organic and inorganic growth. We'll run the bank the same way while continuing to return capital to shareholders. You saw us pursue share buybacks pre HSBC. You'll see us continue to do that, you know, once we rebuild our capital. There's really no change in how we wanna manage our capital.
Even to future acquisitions. I guess the other thing is when I look at.
We're building capital for the flexibility to take advantage of opportunities to create shareholder value, and there's no change to that. Generate strong premium ROEs along the way from The strength of our client franchise and the cross-sell and the returns and the efficiency and scale that we bring allow us to drive, as you've seen, higher ROEs off a higher capital base. Like, even with all that capital we're carrying, we're still driving 16 % ROE from that. That's the strength of this franchise to even with all that excess capital to still drive premium quartile ROE off that higher capital base.
Given the waterfall that you've provided here, it almost seems as though it means that a U.S. acquisition, which sounds like you'd still like to do in the U.S. to build upon that platform, still seems like it's not in the cards for this year. I mean, it looks like you're generating enough capital for HSBC, maybe a little bit for some bumps along the road in case, but it almost pulls you out of the race, so to speak, for an acquisition in the U.S. this year.
I don't think there's a race for an acquisition.
Race is a bad word.
Yeah. We're tending to focus on smaller technology capabilities right now. Yes, for us to turn around and do something significant on the back of HSBC in the next year, that's not in the cards.
Has the mood changed out there for acquisitions? I mean, we're getting, you know, Competition Bureau talking, you know, they wanna look at I think they sent out a tweet. You know, there's lots of push and pull in the U.S. with regulatory approvals, with other acquisitions. Has the mood changed a little bit? Has it made it more difficult to make an acquisition? It doesn't necessitate perhaps going forward smaller acquisitions.
Right. I mean, I think there's so much value to be created in growing and adding capabilities that accelerate organic growth, right? Versus absorbing a franchise that there's always a good reason to sell, right, versus to buy. We still see enormous opportunity organically in the organization, you know, across all our U.S. franchises, not just City National, but you look at the opportunities within capital markets. You know, coming off a soft year, we're certainly very excited about the capabilities that we've invested in from cash management to more advisory capabilities across the business and that getting traction through the year. The wealth management franchise continues to hire advisors and grow and add product and deposits. You know, very excited. We're the sixth largest wealth manager in the U.S. and continuing to grow.
City National, obviously, with very strong core organic growth within its footprint, within its customer franchise. We're serving the same types of customers, entertainment industry, the technology industry, real estate. We moved into the mid-corporate area, there's enormous organic growth opportunities in the United States. That is the core focus of what we're doing, and, you know, we'll add on where necessary. For us, even through Q4, you saw the strong performance across our U.S. wealth franchise. We're very excited about that. You always have to debate, do I distract management with something small versus just having them stay focused on the organic growth and continue to build that franchise?
We've taken it from a $20 billion franchise to a $90 billion franchise, and that's by staying focused on the customer franchise, staying focused on improving our operational performance. We're very excited about the ability to improve the profitability of the existing balance sheet and efficiency of the existing franchise, as well as growing it. I always debate to say, if I do something small, it's gonna distract management and could detract from the core organic growth capability. For me, it's rather being patient, waiting for the right opportunity and staying focused in the U.S. on core organic growth.
Okay, I wanna switch themes. You know, there's been a lot of talk about Canada as a country having a very indebted consumer base.
Yeah.
A lot of people have gotten into mortgages with very low rates. You have a very large mortgage book in Canada. I wanted to talk a little bit about that vulnerability and to sort of flush out sort of what's coming down for the next year or 2 on the mortgage front. There's a lot of talk of people hitting their triggers. There's significant increase in mortgage payments coming. Can you maybe share some statistics around your mortgage book that should make us feel like this pig in the python kind of effect is not scary? You know, how many people have hit the trigger point? How many people will have a very big increase in mortgage payment in the next year or so?
Is there anything you can flush out here for us to make us feel better about that vulnerability in Canada?
Yeah. I know, again, it's on everybody's mind. You know, I think we all have to start by the strength of the mortgage franchise and the mortgage market in Canada, right? Yes, we're seeing significant reduction in core resale and purchase activity, down on average, what, 38% across the country, more in core markets like Vancouver and Toronto in the low 40s. Yes, prices have come off from their peak in March, we're up 14% and are down about 6% year-over-year, but on the back of a very significant increase. We're still, having said all of that, when you look at sales to listing ratios, you look at overall demand factors in the core mortgage market, immigration, household formation, jobs. This is still a balanced marketplace with very strong demand supply fundamentals. We've been saying that for years.
That has not changed at the end of the day. Yes, prices moved up rapidly and are going through a correction, a need, a needed correction, because the affordability of a home in Canada has never been worse. That's driven, you know, by rates and house price increase. As you think about the overall structure, which you can't lose sight of, this is still a very well-balanced, well-structured marketplace without excess supply, with a shortage of supply, and continuing long-term persistent demand creation from immigration and household formation. Let's not lose sight of that. Notwithstanding that, we're in a cyclical delta here that we have to understand. I come back to, so how do we at RBC sit down and answer your question?
I think it's really important you understand the structural advantages we have in gaining insight into our customers and into that question that you asked. I'm gonna give you the structural answer, then I'll give you the specifics to our portfolio. Structurally, our two-decade investment in core banking and core checking pays enormous dividends to us. One, it's core source of funding and low beta funding, which I'm sure we're gonna get to around NIMs. Huge advantage right now in income tailwind. Two, it gives us enormous data. Data that we use to understand cash flow and cash flow stress and income stress, and we model off of that. Huge data to cross-sell. We have a 50% premium on our cross-sell ratio to the industry average of 11%. We're cross-selling at 18% of our customers have three core products.
It's because of the core information and our, and our banking relationship. When it comes down, those three benefits I've talked about for a decade now, and they're paying huge dividends for us. Drive our ROEs and drive our premium franchise performance. I can't say that enough on stage. When we take the credit benefit of that, then, how do we take that information and answer your question? We apply a lot of AI capabilities and models to all the cash flow data. We look at incomes, we look at the stress of inflation on expenses in a household, and we monitor cash flow to interest payments, as you would in any corporation. We do that at every single consumer in our portfolio. Because over 80% of our clients have their core checking and core cash management with us.
We have deep insight into our overall portfolio. We monitor house prices at the MSA, at the street level, and we know our collateral values. We use AI, and we use all this data to segment the portfolio. When it comes to the variable rate portfolio, which is roughly CAD 100 billion-CAD 120 billion portfolio, we go through that variable rate mortgage portfolio, and we start to segment out what the delta is in the trigger rates and the rate resets in 2023, 2024 to 2025. We model that cash flow. We model the cost increase from inflation, and we come up with a perspective on this group of clients with these rate resets that are coming at them in each of the sequential two, three years, will or will not have a cash flow challenge.
We have a pretty clear view of that, and we stress that cash flow challenge. We look at a bucket, then when we get into a bucket that we think you might have a cash flow challenge, we say, "What's the collateral value of your home?" We have deep insight into collateral value of your home. We put the two together to say, which one of our clients has a cash flow challenge? We stress that against today, no, but in the future, if you lose, what's the probability you might lose your job? Then who also has a cash flow challenge plus has a collateral challenge. That's the bucket you have to be concerned about. 'Cause if you have...
The customer's unable to make their payments and you have to take an action with that client to realize on their collateral, which is the last resort, you have skip a pay, you have payment deferrals, you have maturity extensions, whatever it happens to be, you have a lot of ways to work with that client. You look at that bucket with your analytics and your AI to say, "Where do you have a joint problem of cash flow and collateral?" We do that actively all the time. We have a bucket that we're monitoring that has both. That bucket, I can tell you, is in the low single-digit percentages of our portfolio. That's the bucket we're managing. That bucket changes, but it doesn't change by 10%. It changes by CAD 10 million here and there.
That is a very small part of our portfolio. The vast majority of our portfolio has the ability to absorb the cash flow delta because we see their income. We see the volatility of that income over time. We know where it comes from. We see their house and their collateral value, and they have significant equity in their homes. We watch for the situation where they have, and we work proactively with those customers. Even if you were to apply a 100-fold increase in default and loss on that portfolio, it's not meaningful to our overall business when it's in a low single-digit % of your portfolio. The comfort you should get is deep data and deep insight. It still gives us confidence in where to focus, where the risks are. We have tools to manage that.
You know, we'll work through this. It's not a big part of the portfolio at all. That's on the assumption that the vast majority of... Well, the majority of that, not the vast, but the majority of the more than 50% of that variable rate portfolio will have a trigger impact. We do see a significant trigger impact in the variable rate mortgage product, but the cash flow is there to absorb it and the collateral is there to absorb it to a large degree, and we'll continue to monitor that. There's significant buffers there. The other scenario you have to look at is we're in a very strong employment market. We still have 900,000 open jobs in Canada.
If there is a displacement from one sector to the next, we still have significant demand in construction, in retail, in hospitality, healthcare. There is still strong demand for jobs. If you're displaced in one sector, there is a job for you in this economy, and that's different than other recessions that we've been through. The last piece is there's still the significant excess liquidity buffer in our country. It's coming off not as fast as coming off in the United States. If you look at the liquidity buffer built up during the pandemic in the U.S. of $2.5 trillion, $1.5 trillion is rolled off already. It's down to about $800 billion, and you're starting to see the credit manifestation of that. Slowly.
It's still nascent, but you're starting to see, you know, the default and bankruptcy manifestation from that. In Canada, we still have roughly 70% of that build is still there versus 30% in the United States. We've seen roughly 25% roll off. A big chunk of that roll-off is in your more affluent customers who are reinvesting for yield versus burning cash because of inflationary cash flow, cash flow burn. It's for a good reason, it's a reinvestment reason. We still feel very strongly about the fundamental supporting cash flow, employment, even with displacement shocks, with the tech layoffs that are coming, there are other jobs in the economy to continue your cash flow.
There's a significant liquidity build to absorb the shock if something's happened to you, and there's a time lag between when you lose a job and get a job. There's significant collateral in the system, and we have deep insight into that. From our perspective, the investment in core banking, the investment in data and AI give us this really unique ability to see and understand our portfolio and monitor it continuously and act with our customers to mitigate risk. I think the structural capability answer is as important as the message I want to leave that low single-digit % of our portfolio has a payment and collateral potential, but they're still working. I think that is really important kind of overall perspective on, you know, why we're not blindly going into this.
We have deep, deep insight into what's going on. We have deep ability to use AI to stress and to model and to look at it, and therefore, confidence in the different scenarios that come out of our portfolio, and therefore a willingness to continue to find those customers and to lend and can support Canadians going forward through this difficult time, which is a difficult time for many Canadians. Really important question and answer.
It's a good, thorough answer. I wanted to really quickly hit a couple of.
Yeah.
follow-ups before we hit PCLs and NIM. What if rates go higher? How much can the mortgage book handle if rates kept going higher?
Yeah. We've obviously stressed to higher central bank rates.
Yeah.
Therefore, the problem doesn't shrink. It does grow. But it doesn't grow materially from where we were.
Okay.
If you take that low mid-single digit, you could see a 30%-40% increase with another 75 basis points, say you go to 5%. But it's still off a very small base of problem.
Despite the strength that you see in the economy and the ability to absorb shocks, we're still looking at normalizing PCLs into 2023. Maybe you can talk a little bit about what you see normalizing where. If I'm not mistaken, my check was the consensus had you growing EPS at 5.5% this year. Now that's below your medium-term target. That can happen. I'm just curious if you can talk a little bit about where your PCLs might drift to, you know, and why they're normalizing higher. Is that gonna be the big swing factor, that maybe, you know, the 5.5%, is that reasonable to think in a normalizing sort of PCL world?
PCL is very difficult to forecast. You know what we're forecasting at our base case is a fairly significant increase in unemployment given the timing may be a mismatch between losing a job and finding a job, as we see kind of a reallocation of human capital within our economy. In our base case forecast, we do have unemployment going up to, I think we're closer to 6%. In that normalization scenario is a higher unemployment rate.
Right.
-which is driving that. What we are seeing currently in our portfolio is we're seeing very low bankruptcy default, and most of it's still flow default. Usually it's about 50% bankruptcy, 50% flow default in your consumer portfolios. We're seeing, you know, pretty consistent flow. Those could be driven by all the other factors from job loss like divorce, health issues are still large macro drivers of financial challenge, and those drive kinda your flow write-offs. In a bankruptcy, we're forecasting because of that expectation of a tick-up. May not happen, but, you know, in that normalization is built, you know, a fairly significant kinda 80 basis point increase in overall unemployment.
If that doesn't happen, then you won't see the same normalization. It's not status quo unemployment that drives that, it's an increase in unemployment that would have to drive that normalized loss ratios of kind of 25 basis points.
maybe-
Is that where you wanted to go?
Yeah, that's where I wanted to go.
Yeah.
Thank you. I'm just keeping an eye on time because I want to touch on a couple of other topics. Maybe we can touch on net interest margin, net interest income growth.
Yeah, yeah.
for the year. The bank has had pretty good expansion of NIM, but are we reaching the peak of it? How should we think about your net interest income growth? I mean, it looks like consensus has it around double-digit growth.
Yeah, absolutely.
Maybe you can talk to expectations.
Yeah, absolutely. Again, one of our core strengths. You know, the investment in commercial and consumer core checking low beta capability, low beta deposits continues to be, you know, a franchise story for us and will continue to drive NIM expansion into 2023 along with very strong funding levels. You know, we're still, you know, forecasting, you know, a range of NIM expansion of 10-15 basis point next year, which is really significant to a balance sheet of our size. You'll see a good chunk of that in the first half of the year, and then we'll see where rates go from there. We're still forecasting kind of central bank rates to go up then come down. A net flat is coming. Our economics group would forecast.
In an environment of net flat, we're still gonna see NIM expansion. We're extending the duration of our portfolio to protect against any downside or limit the downside if rates do correct faster. When you listen to the narrative from the Fed or the narrative from the Bank of Canada, they're gonna have to hold rates where they are to ensure they've managed inflation within the target ranges. We don't expect to see a meaningful runoff, certainly in the near term. Rates should hold for a while. Our expansion is strong, and I think that's a really strong story driving what you just said is, you know, along with good growth, not as growth that we've seen in the mortgage portfolio, certainly in the past years.
Maybe a mid-single digit in mortgage, but strong commercial growth. Still, you're gonna see very strong NII growth from our franchise. Kind of it's a good position to be in, right? Funding, NIM expansion, capital flexibility to continue to drive the franchise and absorb our largest transaction. The earnings accretion that comes from HSBC is very, very significant for us, and overall drives a mix of, you know, very strong, consistent earnings that drive high dividend payout ability.
Is there anything that concerns you I mean, you mentioned the deposits. You mentioned that was it 75% of the deposits are still there from the surge from the pandemic?
Yes.
And, and-
Systemically in Canada.
Systemically in Canada.
Yeah.
Specific to Royal though, what I'm interested in understanding is do you see that strength perhaps really fading towards the back end of the year as people absorb higher payments, as they pay their taxes, as the normal course? I mean, the concern that we have is that this funding advantage shrinks and then rates fall. That's my worst case scenario. Can you talk us through why I shouldn't be that concerned that NIMs in 2024 could really start to fall?
Right. The mitigants to that systemic issue are one, extended duration and our balance sheet, both in the U.S....
Okay
... really important and in Canada. That acts as a mitigant to the downside, whereas we had the short duration to get the significant benefit on the upside. We're waiting for this for 5-10 years. Extend duration, you don't see the same runoff on the downside. That's really important to understand. Two, the other mitigant is growth. You know, last year we acquired 400,000 net new customers. That's before we announced the deal in Quebec with Metro, before we announced the partnership with ICICI Bank, before you'll see a number of partnerships coming forward, continuing to invest in our Ventures strategy, which is really starting to kick in, and we have, you know, great heart for that strategy as a long-term differentiated strategy.
As we think about client acquisition, it will be higher than 400,000 going forward or back to where we want it to be in our investor day when we talked about 500,000 a year. Offsetting then the systemic potential runoff of and burning of some of that cash, excess cash, is very strong organic growth through our core franchise strategy of leveraging partners, leveraging our network, growing our network, investing in technology, and creating value for customers and acquiring as a significant growth franchise. ICICI Bank alone, we expect in the first year to do 50,000 more acquisitions. That's a franchise we're gonna continue to build.
You know, Quebec, a very important market to us with the partnership, sponsorship with the Canadians, but also with Metro, we're very excited about continuing to grow in a market we're under-penetrated. We're the third largest bank in Quebec, so we have opportunity to grow there. When you think about offsetting that duration, growth, cost management, all those are abilities for us to continue to deliver strong NII growth.
Okay. I haven't seen a question show up on my Slido iPad. Maybe I'm reading it wrong. With that, maybe I always like to give the CEO the last word. Dave, maybe you can just give everybody here what you're, you know, what you think the key messages are for 2023 for your shareholders and possible investors.
Well, I think just to summarize, we covered a lot of them through your questions. You know, start with the strength of the franchise. At the balance sheet level, enormous capital strength, ability to absorb our largest acquisition ever, ability to continue to grow, ability to continue to make acquisitions. I mean, we have not diminished that flexibility going forward, and therefore you could see us be front-footed, as an organization in taking advantage of opportunities. That's a really important point, right? And through HSBC, creating an opportunity to add a billion and a half of earnings, is a very, very meaningful strategy for us. Liquidity and funding. Again, low beta deposits.
The funding we get from our core banking, our corporate cash management capabilities, the information flow that we get both for risk management and for marketing and understanding that customer and delivering them the right products and services at the right time, an enormous capability and strength from that liquidity profile. The strength of our overall and diversification of our overall franchise. Very excited about our retail Canadian banking capabilities, the addition of HSBC, as I said, but also the investment in partnerships, the investment in technology, the investment in ventures, the core organic growth across credit cards, deposits, mortgages, commercial, we feel very strongly about, and we exited the year with really good momentum and continue to build on that momentum. You know, very excited about that.
The addition of Brewin Dolphin in the U.K., and now the overall strength of a true global wealth management capability. Kinda number one in the Canadian market, number six in the U.S. market, number three in the U.K. market. Now you're starting to see the synergies of putting together a global customer franchise around wealth. That's been our objective. Brewin Dolphin was a key piece. Continue to look for opportunities to build out a true global wealth franchise. You've seen significant growth, particularly coming out of the U.S. The U.S. is gonna be a very strong contributor to our, you know, revenue and franchise growth in 2023. Rates really help, but also organic growth there and just the organic growth that I talked about in wealth. We're looking. You know, we've invested in our capital markets business. We had an off year last year.
We took the underwriting marks. It was a volatile market. We're looking for that business to bounce back. Long-term investments and more coverage, more advisory capability, but also the U.S. corporate cash management investment is a very strong strategic piece for funding, but also for ancillary revenue and cross-sell into relationships where we're already in the syndicate or they're already strong partners. We have a right to ask for the business, therefore we feel very good about the long-term perspectives and the short-term perspectives of our capital markets franchise. Diversified globally, diversified by client. We're focused. Technology's paying off, we feel really strongly with the flexibility of capital funding client franchise that partnership investments, that we are on our front foot and feeling good about the franchise, notwithstanding that there's a volatility.
That's the benefit of ROI, is that through these uncertain markets, good times and bad times, we can manage through that and absorb that and continue to deliver strong shareholder value and strong ROE.
With that's an excellent wrap-up for us. Thank you. This ends our session.
Thank you.
Thank you very much.