Earnings Call: Q1 2013

Feb 28, 2013

Good morning, ladies and gentlemen. Welcome to the RBC 2013 first quarter results conference call. I would now like to turn the meeting over to Ms. Amy Cairncross, Head of Investor Relations. Please go ahead, Ms. Cairncross. Good morning, and thank you for joining us today. I am also joined by Karen McCarthy of Investor Relations. Presenting to you this morning are Gord Nixon, our President and Chief Executive Officer, Morten Friis, our Chief Risk Officer, and Janice Fukakusa, Chief Administrative Officer and CFO. Following their comments, we will open the call for questions from analysts. The call is one hour long and will end at 10:00 A.M. To give everyone a chance to participate, please keep it to one question and then re-queue. We will be posting management's remarks on our website shortly after the call. Joining us for your questions today are George Lewis, Group Head, Wealth Management and Insurance, Doug McGregor, Chairman and Co-CEO, Capital Markets, and Co-Head of Investor and Treasury Services, Dave McKay, Group Head, Personal and Commercial Banking, Mark Standish, President and Co-CEO, Capital Markets, and Co-Head of Investor and Treasury Services, and Zabeen Hirji, Chief Human Resources Officer. As noted on slide 2, our comments may contain forward-looking statements, which involve applying assumptions and have inherent risks and uncertainties. Actual results could differ materially from these statements. I will now turn the call over to Gord Nixon. Thank you, Amy, and good morning, everyone. We appreciate you joining us today and hope that some of you can attend our annual shareholders meeting, which follows this call from Calgary. It will, of course, be broadcast. As you can see from our results on slide 3, RBC is off to a strong start in 2013. We earned over $2 billion this quarter, up 12% from last year and 8% from last quarter, and our earnings per share were $1.36, up 11% from last year. These results were driven by record earnings in personal and commercial banking and wealth management, as well as a strong quarter in capital markets. I am also pleased to report that we announced a $0.03 or 5% increase to our dividend, bringing the quarterly dividend to $0.63. This is the fourth increase in two years, representing a 26% increase since the first quarter of 2011. This quarter, we delivered a strong return on equity of 19.6%, even with the higher capital requirements of Basel III, which is now effective for all Canadian banks. Our all-in Basel III common equity Tier 1 ratio of 9.3% is well above both our internal and regulatory targets, which Janice will expand on in her remarks. Overall, our first quarter results clearly demonstrate the strength of our diversified business model and our ability to manage costs while we extend our leadership position in Canada and selectively grow outside the domestic market. Let me now turn to the performance of our businesses. Personal and Commercial Banking had a record quarter with earnings of CAD 1.1 billion, driven by continued momentum in Canadian banking due to solid volume growth, relatively stable margins, and strong cost discipline. There is no question that the Canadian banking industry is facing slightly slower growth as a result of slower mortgage demand. But notwithstanding these forces, we believe we can continue to achieve or exceed our objective of a 25% growth premium to the market for a number of reasons. First, the size and scale of our distribution network, including our strong mobile sales force, allows us to reach more clients at their convenience, and we continue to develop innovative solutions to extend our sales power. For example, our new credit card partnership with Target Canada will provide a great opportunity to broaden our client reach through their network of over 120 stores, which is scheduled to begin operating in the spring. Second, the breadth and quality of our product offerings. We have a strong commercial franchise, excellent financial planning and investment banking capabilities, and an extensive cards portfolio. With the acquisition of Ally Canada, we now have a leadership position in Canadian auto finance, an attractive industry and one that we know well. Following the close on February 1st, we combined Ally Canada's team with RBC's to form RBC Automotive Finance and have made some changes to the business, all of which we factored into our projections at the time of announcement. Third, RBC has a proven ability to cross-sell more effectively than our Canadian peers, and we see opportunities to provide additional banking products to our existing customer base as well as new ones, including customers we've gained through our Shoppers Drug Mart partnership. Finally, as seen in our results, we continue to control costs and drive efficiencies, and we have a number of initiatives underway to continue managing the trajectory of expense against revenue growth. One of these initiatives is our retail credit transformation project, which you've heard about in the past, which is close to completion. This significant project has allowed us to automate our end-to-end back-office capabilities so that we can process mortgage applications more efficiently. This has already resulted in significant cost savings, has freed up our sales staff time, and has improved the customer experience. We intend to roll this system out to a number of other consumer credit products over the coming years. Turning to the Caribbean, where we face ongoing challenges from the economic environment, we are aggressively managing the business for stronger performance in 2013 and are refining our operating model to improve efficiencies and enhance our competitiveness. Moving to wealth management, we delivered record results this quarter. Our leadership position in both Canadian wealth management and global asset management continued to deliver strong results and provide a solid foundation of growth. For example, we continue to extend our number one position in the high net worth segment in Canada, and our strength in asset management was again evident by the fact that we won the top Lipper Awards for the seventh consecutive year, and we were also named Fund Company of the Year by Morningstar. Within asset management, we are also pleased with the momentum we are seeing in BlueBay, which has increased its assets under management by 37% in 2012 to over $50 billion, an all-time high. In our U.S. Wealth Management business, we are seeing some good progress as fee-based assets reach record levels and transaction volumes finally started to increase. We remain focused on increasing advisory productivity and efficiency to capitalize on improving market conditions. Internationally, we are building on our global leadership and trust solutions to grow our high and ultra-high net worth client base, as well as positioning RBC Wealth Management for long-term growth in key markets. Moving to insurance. This business continues to make a solid contribution, and we believe our focus strategy serves to differentiate our performance. First, we have broad and diversified product offerings to meet the insurance needs of our customers. In life and health segment, we are focused on less capital-intensive products such as term life and disability. Second, our distribution strategy is premised on driving efficiency by increasing sales through our lower-cost proprietary channels and innovating it to make it easier for customers to do business with us. As one example, we recently expanded our alliance with Shoppers Drug Mart to offer exclusive co-branded travel insurance on the Shoppers website. Turning to Investor and Treasury Services. It has been six months since we have had full ownership of RBC Investor Services, and we have made solid progress towards integrating the business. As I mentioned last quarter, we are focused on strengthening the business model to adapt to the challenging operating environment, including aggressively managing costs and streamlining operations to drive efficiencies. Finally, moving to capital markets. We had a strong quarter of earnings with significant growth in corporate and investment banking and strong trading reflecting favorable market conditions this quarter. These results demonstrate the successful execution of our strategy, including a shift to more traditional corporate and investment banking activities, along with repositioning our trading businesses to focus on origination. A key to this strategy has been to strategically extend our balance sheet to deepen client relationships. Since 2010, our loan book has increased by an average of 25% each year, and we have seen a commensurate increase in lending revenue from approximately $800 million in 2010 to over $1.3 billion last year. I would also point out that pre-crisis, we took our loan book down considerably so that even today our loans outstanding are quite low on a relative basis. An expected outcome of this growth in our loan book is a moderate increase in provisions. However, I think it's important to emphasize that we are not changing our risk practices. We are satisfied with the attractive returns we're able to generate from this business, and we expect our normalized provisions to be within our target range, which Morten will discuss in his remarks. Turning to our results, our momentum is particularly strong in the U.S. The majority of our loan book growth has originated from the U.S., and we're gaining market share and actively involved in a number of high-profile mandates. For example, RBC financed KKR's acquisition of Alliant Insurance Services, the largest specialty-focused insurance brokerage firm in the United States. We also advised and financed Gulf Oil's acquisition of Houghton International, which involved close teamwork between our U.S. and European offices, as well as strong collaboration with wealth management. And more recently, we acted as financial advisor and support of the buyout of Dell, one of the largest leveraged buyouts on record. In Canada, we are maintaining our leading market share and continuing to manage major transactions for our long-term clients. For example, Encana recently entered into a joint venture with PetroChina, and RBC was the sole advisor on the transaction. Finally, in Europe, we have a focused strategy of complementing in areas where we have proven capability through the build-out of our coverage model in recent years, and we have developed strong client relationships. While activity levels in this region remain weak, we continue to be a partner of choice for clients. For example, RBC recently led an offering for the U.K.'s Debt Management Office, our sixth transaction with this client, for a total of nearly 32 billion sterling. As a testament to our success, we were ranked by Dealogic as the tenth largest global investment bank by net revenue in 2012, up two spots from 2011, and making it the first time we made the top ten list for a calendar year. To conclude, our results this quarter were very strong and demonstrate the earnings power of RBC across all of our businesses, driven by our leading market positions, the diversification of our business mix, our strong capital position, and prudent focus on managing risks and costs. Notwithstanding the industry headwinds, we are confident about our financial performance and competitive position and our ability to deliver against our objectives in 2013. With that, I'll now turn it over to Morten. Thank you, Gord. Starting with credit on slide seven. Provisions for credit losses on impaired loans were CAD 349 million this quarter, down CAD 13 million over the last quarter or two basis points to 35 basis points. This decrease was largely driven by lower provisions in Canadian banking, partially offset by higher provision in capital markets. Within our Canadian banking portfolio, provisions were CAD 213 million, down CAD 56 million over the last quarter or eight basis points to 26 basis points. This decrease reflects lower provisions in our business lending and residential mortgage portfolios. Provisions on residential mortgages of one basis point are consistent with our historic performance. Overall, provisions of 26 basis points on our Canadian banking portfolio are at a historic low, reflecting very strong credit performance across a number of products, including cards. In the Caribbean, provisions on impaired loans were 150 basis points or CAD 27 million, the same level as last quarter. While credit quality has shown some signs of stabilization, better performance of this portfolio continues to be dependent on more sustained improvements in the economic environment in the region. With respect to Capital Markets, provisions were CAD 109 million or 82 basis points, up CAD 46 million compared to the prior quarter related to a couple of accounts, including one corporate account in the U.K. While we expect loan loss provisions within our wholesale portfolio to show some degree of variability from quarter to quarter, this quarter's provisions fall at the higher end of our expected range. We managed the corporate loan book on the basis that a normal run rate of provisions for this book is in the range of 50 basis points. Overall, we remain comfortable with the quality of the wholesale loan book. Impairment levels are low, and the number of watchlist accounts and accounts with our special loan group remains near historic lows. Approximately 70% of the authorized portfolio is investment grade and is well diversified. It is also governed by a structured and disciplined underwriting process with strict limits on risk concentrations. Turning to market risk, average market risk VaR was CAD 43 million, and average stressed value at risk was CAD 78 million, with both measures remaining stable compared to last quarter. During the first quarter, we had no days with net trading losses. With that, I'll turn the presentation over to Janice. Thanks, Morton, and good morning. Turning to slide 11, we had a strong first quarter with earnings of over CAD 2 billion, up 12% from last year and up 8% from last quarter. As Gord said, we had record earnings in Personal and Commercial Banking and Wealth Management and a strong quarter in Capital Markets. Our results continue to demonstrate our ability to drive top-line growth while prudently managing expenses. I would note that expenses other than variable and stock-based compensation were up approximately 6% from last year, and our full ownership of RBC Investor Services contributed to more than half of this increase. Overall, it was a clean quarter with no items of note. First, let me briefly comment on our capital, as this is our first year under Basel III. As noted on slide 12, our all-in Basel III common equity Tier 1 ratio at the end of the quarter was 9.3%. The key difference compared to last quarter's estimated pro forma ratio of 8.4% is the lower level of risk-weighted assets due to the delayed regulatory implementation of the credit valuation adjustment, or CVA. Excluding CVA, our ratio was up approximately 30 basis points, driven primarily by strong internal capital generation and slightly offset by the final quarter of IFRS phase-in. I would also note that the capital impact of our acquisition of Ally Canada, which closed February 1st, will be reflected in the second quarter and is estimated at 40-50 basis points. Turning to the performance of our business segments on slide 13, Personal and Commercial Banking earned a record CAD 1.1 billion, up CAD 108 million or 11% from last year, driven by solid volume growth of 7% across all Canadian banking businesses, with particular strength in personal and business deposits and residential mortgages. Sequentially, earnings were up CAD 86 million or 8%, reflecting lower PCL, seasonally lower marketing and professional costs, as well as solid volume growth in Canadian banking. Looking at our Canadian banking business, margins were down only one basis point from the prior quarter. However, we expect margins will remain under pressure in 2013 given the low interest rate environment, slowing consumer lending, and the competitive pressures. We achieved positive operating leverage of 2.6% and continued to make progress on our efficiency ratio, which improved 120 basis points from the prior year to 43.7%. We believe we can continue to generate positive operating leverage and drive our efficiency ratio lower, although we do anticipate quarterly fluctuations due to the seasonality of expenses and the timing of investments. Turning to Wealth Management on slide 14, we earned a record CAD 233 million this quarter, up CAD 45 million or 24% from last year, and up CAD 26 million or 13% sequentially. Favorable capital markets conditions and market share gains drove higher average fee-based client assets, increased transaction volumes, and semiannual performance fees. Moving to Insurance on slide 15, net income of CAD 164 million was down CAD 26 million or 14% compared to last year, as last year included net investment gains and a new U.K. annuity reinsurance contract. Compared to the prior quarter, earnings were down CAD 30 million or 15%, mainly due to higher reinsurance and disability claims costs. Turning to Investor and Treasury Services on slide 16, earnings of CAD 80 million were down CAD 3 million from last year as our additional 50% ownership of RBC Investor Services and higher results in this business were offset by lower funding and liquidity revenue. Earnings were up CAD 8 million or 11% from last quarter, primarily reflecting increased foreign exchange revenue and higher custodial fees. Turning to Capital Markets on slide 17, our earnings of CAD 464 million were up CAD 93 million or 25% from last year. We had strong client growth in our U.S. lending and loan syndication businesses and higher M&A activity. Compared to last quarter, net income was up CAD 54 million or 13%, driven by higher fixed income trading, reflecting increased client activity and favorable market conditions, as well as higher advisory and loan syndication activity. Our results this quarter were negatively impacted by a higher tax rate, reflecting a greater proportion of U.S.-based earnings and higher provisions, which Morten discussed. To wrap it up, we're very pleased with our performance this quarter. As Gord noted, despite ongoing industry headwinds, we believe we are well-positioned. At this point, I'll turn the call over to the operator to begin questions and answers. Please limit yourself to one question and then re-queue so that everyone has an opportunity to participate. Operator? Thank you. Questions will now be taken from the telephone lines. If you wish to ask a question at this time, please press star one on your telephone keypad. You may also cancel your question at any time by pressing the pound sign. Please press star one at this time if you have any questions. The first question is from Steve Theriault with Bank of America Merrill Lynch. Please go ahead. Thanks very much. Can you hear me? We can hear you, yes. Okay. I wanted to ask a question on capital, a two-parter for Gord and Morton. Gord, with your Basel III Tier 1 common to 9.3, I wanted to ask about the buyback. I think the sense post Ally was that there would be some delay in getting the program underway. But given where you are today, and even with the Ally deal coming in Q2, is that still the case, or should we expect some activity in the near term? Then related to Morton, there's 60 bps of tailwind from the deferral of the CVA RWAs. Would you agree with the notion that when this is implemented in 12 months' time, the clawback could be meaningfully lower than the 60 bps given things like more central clearing or model approvals, or should we work with the 60 bps? Yeah. Firstly, I'll take a shot at both of them, and then Morton can jump in because we may have slightly different views. On the buyback program, our expectation, given our high capital levels, is that we would expect to be in a position as we move towards the end of this quarter to take a serious look at share buybacks. With respect to the 58 basis points, I think it is. It's hard to say, but one of the hopes certainly from an executive perspective, I think all the banks are very much aligned on this, and we've made the case is that a deferral of a year it just moves the issue further down. There's still a big question mark as to whether CVA capital is not going to be incorporated in the U.S. methodology, and there's a question mark with respect to Europe. Certainly our hope is that it will be more permanent in nature, or at least it will be grandfathered in terms of the existing business. But obviously that's a regulatory decision that should be asked of OSFI. I don't know, Morton, whether you want to add to that. No, I think that's a good answer. Okay. Thanks very much, guys. Thank you. The next question is from John Aiken from Barclays. Please go ahead. Good morning. In terms of the contribution of the Capital Markets in the regions, we're seeing a shift with earnings declining within Canada but growing significantly in U.S. and Europe. Can you give us a little bit of color around the dynamics that are driving those changes? I'll just repeat the question because there was noise on the line. Doug and Stan, I'll turn it over to you. Really, I think the question revolved around the dynamics between Canada versus outside of Canada growth in Capital Markets. Is that fair, John? Yes, that's right. Okay, John, it's Doug. I'll start, and I think Stan may want to add. If you look at some of the slides in the presentation, you can see that there has been considerable loan book growth, and it really is almost all in the U.S. The reason we're doing that, first of all, because you can, because there's so much opportunity in terms of corporate clients. But also we have a larger number of investment bankers there and just a bigger platform. In terms of the growth going forward, I think it'll moderate as we go through the year because you get to a point where you've got enough loans on for the size of your platform. But we are still seeing growth through the quarter and a number of new names. As long as we see credit holding up, we see the provisions in loans holding up, and as importantly, margins holding up, we'll keep doing it. But the real key is to do additional business with these customers, and we're seeing a very nice ratio of additional revenue where we are a lender. Doug, I would just add to that, if you compare that with the dynamic in Encana is basically flat. Yeah. Well, it's in the slide. The Canadian investment banking and lending books are both flat. Things are a little more quiet in the commodity sectors. We've all seen what's been going on in the mining sector, and we're not as big a lender there as we are in the energy sector, but things are not particularly robust there right now as well. So it's a little quiet in Encana. Yeah, John, it's Stan. I'd just add that with the focus that we've talked about now for a couple of years on origination, that has spread across all of the businesses that we have in the U.S. So we've got tremendous breadth now in terms of the products that we're bringing to our largest clients whereas if you go back a number of years, and we were looking at a small number of products per client. Having got to that sort of critical mass of products with individual clients, we've really started to see our positioning with those clients improve, and that's benefited not just the origination side of the business in equity or in debt or the advisory side, but it's also benefited our activity on the sales and trading side. Great. Thank you. Thank you. The next question is from Gabriel Dechaine from Credit Suisse. Please go ahead. Hi. Good morning. A couple of quick ones here. January was cited as a very strong trading quarter by some of your European peers. Was that partially why your trading numbers were so strong this quarter? On the deposits in Encana, for Dave McKay, is it appropriate to look at the 5-year bond yields as the notional investment rate for those? Can you tell me what proportion of your core deposits are still supporting some of the higher investment yields from several years ago? Gord, if you want to throw something in there on the U.S. bank holding company regulatory proposals and having to put capital down into the U.S., how you plan to address that, I'd appreciate it. Thanks. All right. Gabriel, I'll kick this off with the response to the trading question. January was certainly an extremely strong month globally for origination. In particular, very strong in the U.S. Just some general comments. We had an exceptionally strong quarter in the sales and trading side. There is some cyclicality to it. The first quarter does tend to be our strongest quarter. There are really two factors at work here. There's the strength in origination, which was extremely strong and quite frankly, looks like it's going to continue. We had very good secondary markets. The strength of activity in the secondary markets is looking to ease a little bit. We had decent volatility, primarily in fixed income and fixed income in the U.S., which really helped with the overall trading numbers. You can see in the report to shareholders on page 28 the VaR usage declined over the quarter, and also there were, as Morton mentioned, no trading day losses. That obviously helps the overall performance and really shows the sort of quarter that we enjoyed. Was there an evenly split throughout the quarter, or was January a disproportionate contributor? I wouldn't say disproportionately. A disproportionate contributor. January was definitely the strongest of the three months. I think most people would say it was an extremely strong origination month, and I think I've seen some reports that say that in some regions, it was a record issuance on the DCM side. Thanks. Thanks. Hi Gabriel. It's Dave. You should look at our deposit book as funding our loan book over various maturities. So when you see the reinvestment rate into the mortgage business, obviously would be coming off as mortgages that were put on quite a few years ago at higher rates than they are today. The NIM compression we're seeing is largely due to that effect that you're referring to. Okay. Gabriel, it's Morten. Just on your question on the foreign bank supervision issues in the U.S., this proposal is still in the review period, so we don't know what it's going to look like yet. We're studying it, and we're providing input to the extent that we can. We believe that the impact here will be manageable. Clearly, it's an increase in the overall regulatory burden, and the aspects of this that look like another example of ring-fencing and one that national jurisdiction is not helpful. But at this stage, we don't see a significant impact on the overall operations we have there. Thank you. Thank you. The next question is from Michael Goldberg, Desjardins Securities. Please go ahead. Thank you. A couple of retail-related questions here in Encana. How much erosion of the Visa product, the Visa deposit did you expect in Ally and what's actually happening? Why didn't you sell the deposit franchise if you didn't want it? Turning to your mobile sales force, are salespeople bonused for the mortgage rates they bring in, and is this a potential regulatory issue? Just referring to Ally, certainly our actions on the Ally deposit business were part of our strategy when we acquired Ally. When you look at the all-in cost of the deposits Ally were raising, they were very high because you have to add the marketing initiatives that were used to bring those in addition to the high cost of operating the deposit infrastructure. Certainly that was a big part of our decision when we acquired Ally to do that. As far as the runoffs, we have factored a significant runoff because of the coupon they're paying, and it's really not an important part of our overall business decision to acquire Ally. We really decided to acquire Ally for the asset origination side of the business. So we can fund, Michael, the Ally business much more efficiently through our existing model and don't really rely on those deposits. Now, as far as your mortgage question, the commission structure is affected by the average mortgage rate negotiated between the sales rep and the client. That has certainly been part of the structure and an important part of our business model. As far as the regulatory impact, I don't know about it. We're not aware of any regulatory impacts of that commission structure. It's been in place for a long time. Okay. I guess I'd just come back to the other question of Ally. Why didn't you try to sell the deposit franchise then? Well, given the high cost nature and the complexity of extracting this, our view of scanning the marketplace was the cost of extracting this business and selling it outweighed the cost savings of unwinding it. It was much simpler for us to unwind this business and then to sell it, as you can imagine. Very small depositor base, high-cost operation. I don't think anyone else could've done much more with this. Okay. Thank you. Thank you. The next question is from Robert Sedran with CIBC. Go ahead. Hi. Good morning. I just wanted to follow up on the issue of the CVA component of Basel III. I have a question for Mark Standish. Mark, does this have any effect on how your pricing derivatives in the marketplace, especially against the longer-dated stuff? Perhaps you can differentiate between the Canadian market, where everyone has got this holiday for a year, and the U.S. market, where you are really not competing on a similar footing. Okay. Thanks, Robert. Obviously, a delay of implementation for one year really does not affect how we are pricing anything other than extremely short-term derivatives. We are assuming CVA capital into our pricing. We are at a disadvantage and have been for some time relative to some of our global competitors. Part of that disadvantage is offset by our credit quality making us a desirable counterpart. Certainly, the pricing of derivatives, if you properly price them, including CVA, has, in the short term, put us at a small disadvantage. This has been something that we have been living with for some time now. Do you feel like in the domestic market, everyone is behaving with the same approach as you are? I really cannot comment on what other Canadian banks are doing. The disparity of pricing has narrowed in the last year. A year ago, I think there was a very different view. I think the view is converging now. There is still the odd outlier when we compete for transactions. For the most part, I think there is a convergence of the view around CVA. The silver lining, obviously, is that at some point, there will be a day of reckoning because there has to be convergence. Either the rules will be in place, and everybody will have to live by it, in which case we will have been pricing more effectively over the past year or two. Or the rules won't be, in which case we will have missed an opportunity in the short term perhaps or been at a competitive disadvantage but should have lots of capacity going forward. Thank you. Thank you. The next question is from Peter Routledge with National Bank Financial. Please go ahead. Yeah. Just to follow up on the earlier question on Capital Markets. We see on slide 25 the revenue mix by geography. I know you don't like to disclose this, but can you give us some sense of contribution on a pre-tax basis from each geography? Yeah, I can do that. So that's slide 25 you're looking at? Yes. You can see significant growth in the U.S. So we earned more money in the U.S. this quarter than we did in Encana, and that's after paying a reasonably significant amount of tax in the U.S. The tax rate's quite a lot higher. And- We would expect, at that run rate, that we would, for the first time, make more money in the U.S. this year after tax than we would in Encana. And that's sustaining. You've built your loan book up, I understand. Yeah. But there's ancillary revenue benefits from that, from better relationships, right? You're You're right. Well, you can see on slide 24 that you can get a feel for the increase in the lending revenue because we've gone from 241 to 365. So the balance of that increase year-over-year is in either sales and trading or investment banking fee revenue. And we've had quite significant growth in the fee revenue part of our business. Right. So you're a U.S. platform first now. Pardon me? You're a U.S. platform first and foremost now in your business. Well, we're a platform that thinks it's very important to be first in Encana in everything we do. Right. We're working very hard to stay in that place, but we are seeing more growth opportunities in our U.S. platform. I would describe it as a very powerful North American platform. There you go. Fair enough. Well, Steve, if you do look at slide 25, you can see that the European revenues actually, and Asia, that CAD 54 million in Asia is actually origination and fee revenue in Australia. We're starting to make some headway in some of these other offices as well, and that'll be a focus of ours going forward. Okay. Thanks for taking my question. Thank you. The next question is from Mario Mendonca with Canaccord Genuity. Please go ahead. Good morning. I want to sort of think through the NIM dynamic on a total bank basis, but specifically as it relates to the available-for-sale securities portfolio. Could you run by us what the duration of that portfolio is, how that yield has changed over time, and if rates were to stay where they are, how that would play out? What kind of an impact that would have on the margin, total bank margin, if rates just were to stay where they are, and when that impact would sort of subside? Hi, Mario. It's Janice. I'll answer parts of that question. I don't think that at the margin, the NIM on available-for-sale portfolio is a significant driver of the overall NIM. But if you look at the duration, it's anywhere from 2 to 3 years, and from time to time, we change up the portfolio. I think if you're looking at the impact of how we're positioning our structural balance sheet We are positioned, as you would imagine, for rising interest rates in the 1 to 3-year range. When you look at what will unfold over the course of time and look at our NIMs, I think that's where you may see some movement depending on what our view is on interest rates. I think that to the extent that some of that view is executed through our available-for-sale portfolio, because that's how we do our positioning, that's where you would see the impact. But insofar as available-for-sale securities portfolio, that specifically, is the suggestion it's not a particularly important item, just simply because the size of the available-for-sale securities portfolio relative to the entire book, or because the duration itself causes it not to manifest itself in any significant impact? More about the size of it compared to our book and how we're using it in terms of positioning. Okay. Thanks very much. Okay. Thank you. The next question is from John Reucassel with BMO. Please go ahead. Thank you. Question just for Mark. Mark, in the past, I've asked about the amount of fixed income trading that's tied to origination activity, and I think you've said around a third of it. Is that number higher now given all the active originations, or could you give us an update where that is? I think certainly for this quarter, it's definitely higher than that because of the strength in the amount of origination. We saw a lot of activity on the high yield side, and there tends to be a lot of secondary flow when you see a good high yield calendar. So we've enjoyed that. Markets were very active, which allowed us to really support client activity very efficiently and move product through the balance sheet very quickly. So yeah, I would say for the quarter, it's on the higher end of that sort of range, but over time, probably going back to that sort of ratio. Okay. Just a question for George Lewis. George, I'd be very interested if you give us a number on what you think the net inflows into your mutual fund business for January and so far in February. It looks like a pretty good RSP season, but I'd be interested to see what your thoughts are on that. Thanks very much for the question, John. We report our sales monthly, so you've seen November was a record November, December a record December, and January a record December. It's continued strong in terms of February, and we'll be releasing that in a couple of days. A testament to our relationship with Canadian banking. It's a big driver of our sales at this point in the year, and also our other distribution partners as well. So we would expect a very strong RSP season for others. Sorry, just not to put it's going to be a record RSP season. Could you see numbers like CAD 4 billion or CAD 5 billion, or is that too optimistic? We can't really comment. You'll have two of the months within a couple of days. Okay. I tried. Thank you. We don't want to release a month and a half early. Well, you will know by Friday, the end of tomorrow, for March. Just to build on George's comment, do not forget March 1st is part of RSP season this year, so you will have to wait for March too. I know. Okay. Thank you. Thank you. The next question is from Stefan Nedialkov with Citigroup. Your line is now open. Please go ahead. Yeah. Hi, good morning. Stefan Nedialkov from Citi. I had one question on the domestic Canadian market, and more specifically on the corporate lending side of things. Obviously, as the residential side starts to slow down, the banks naturally starting to think of ways to move into new sectors. A few of the banks have been making noises about increasing market share and presence in corporate lending specifically. Can you just give us some color on where margins are at the moment and where you would expect them to go, probably by the end of this year? Are we going to see maybe a mini pricing war for market share? Just for clarity, you're really referring to the Canadian banking business, the commercial side? That's right. Hi, Stefan. It's Dave McKay here. Certainly, we're seeing robust growth in the commercial lending side in the industry. It's nice to see balanced growth in the marketplace. It's well-balanced between commercial real estate, agriculture, manufacturing, leasing, retail. So we are seeing kind of a very strong activity across the country. As far as the competitive environment on NIMs, I would say the competition in the commercial space is more intense on the deposit side, and the deposit margins are more under pressure, and that's had an impact on, I think, on all bank NIMs over the past quarter and over the past year. So we're seeing fairly disciplined pricing. We're seeing intense competitive environment on structure, obviously. But I would say if you're looking at NIM compression specifically, the deposit side is more of a brunt of that and pricing pressure than the commercial lending side. Okay, great. Thank you. Thank you. As a reminder, you may queue up for questions by pressing *1 on your telephone keypad. The next question is a follow-up question from John Aiken with Barclays. Please go ahead. Good morning. I am surprised I actually got through a second time. Morton, in terms of the provisions on the wholesale, I know that this is lumpy, and I know that this quarter was international/U.K., and last quarter was the U.S. But I was intrigued by your commentary saying that the watchlist was essentially at historic lows. In terms of the provisions that came through on the international wholesale side, can you give us a sense to how much that actually related to the single credit, and how we can get confidence that we might actually start to see provisions easing going forward? Yeah, I guess I will try to answer that in a couple of ways. If you look at the provisions for this quarter, I think we had a total of nine accounts that had provisions or recoveries. We had five accounts that were provisions. Two of them were at the larger end, and they happened to have the one larger one in the U.K. As you said, this is by definition a portfolio where the experience ends up being somewhat lumpy. The forward-looking metrics are a little difficult to have huge reliance on. But I would note that if you look at overall impaired formations, they are actually down this quarter. As I indicated in my comments, the inventory of accounts that we have either on watch list or with our special loans workout group for the corporate book, again, are fairly small in number, and they're recent historic lows. All of that would suggest that you're likely to see quarters that if you look back over the last couple of years, you will see that the last two quarters have been at the larger end. We've had, for most of the last couple of years, either relatively nominal provisions or recoveries. That is with a pipeline of watchlist accounts and level of impairments that have been at similar or higher levels to what we've got now. With the limitations of what you can use that to tell about the future, the indications are that the performance should be more consistent with how we basically plan for the loan book economics or how we look at the recent history. We hope that this quarter is a bit of an anomaly. Given the lumpy nature of the loan book, you really have to take one quarter at a time. Thanks, Morton. Please correct me if I'm incorrect, but I believe last quarter, the U.S. credit related to a hold that I don't think you could syndicate out. Was there a similar dynamic in play here with the U.K. credit? All problem loans have a story that amount to, if it hadn't been for the fact it was bad, it would've been good. I'd rather not get into the specifics here. You are right, there was an element of this where the hold number was somewhat larger than we had planned for due to difficulty in distributing the amount. I would note that when you then look at the pipeline of watchlist and special loan situations, that is fortunately an unusual occurrence. When it happens, it often has the odds of going bad on you that are a little bigger. If I could just add to that as well. That would really revert back to situations a number of years ago. One of the good things about IFRS is that under the new accounting rules, all syndications are fully mark to market. So it not only forces, I think, a much more aggressive behavioral change, but it also ensures that things are mark to market on an ongoing basis. And that's the way, in my view at least, it should be. Great. Thanks, guys. Thank you. The next question is from Brad Smith with Stonecap Securities. Please go ahead. Thanks very much. I was just wondering if I could get some detail on your domestic mortgage originations. If you could just give me a sense for how they developed in the quarter relative to the insured and uninsured books, and then any general comments you could make about the relative margins between those two books. As we look at overall mortgage growth, we still had a very good quarter. We're seeing growth moderate across mortgages closer to the 5% range as you've seen year over year. We still haven't seen the full impact yet, I think, of the B-20 regulations as they will start to drag the pipeline. So you may see some further moderation of Canadian growth rates going forward. As far as margins between the insured and uninsured, we don't differentiate our pricing structure to our customers based on insured and uninsured. So the margins we originate in those two businesses would be the same. So there's not a variability there. Customers are certainly choosing five-year terms and four-year terms or locking in, and that's good for stability of the industry going forward in any type of rising rate environment. I think we would originate a lower proportion of insured mortgages because we don't deal with the broker channel. And when you look at the balance sheet of our peers, they have a higher base of insured. Part of that is originating through the broker channel, which tends to originate first time home buyers and a much higher proportion of insured versus uninsured mortgages. So that is really what's going on, Brad, in our mortgage book. Terrific. Just in terms of in force, could you just break down the insured versus uninsured at the end of the quarter? We're roughly at 40% insured. Okay, terrific. Thanks so much. Thank you. The next question is a follow-up question from Gabriel Dechaine with Credit Suisse. Please go ahead. Just a question on the wealth business there for George. I know you kind of backed down a bit on your 2015 target of $2 billion of earnings. You had a good quarter in wealth, don't get me wrong, but just want to I don't know if you can kind of quantify where you think that target is kind of what it would look like today if you'd had to do that presentation again. Thanks very much for the question, Gabriel, and you are right. We did have a very strong quarter, and I think we will take it quarter by quarter going forward. I would say that we do still have aggressive growth ambitions for the platform. In terms of our expectations for 2015, that has been deferred given the ongoing low interest rate environment. We do have strong momentum in our largest businesses, including global asset management, Canadian wealth management as well, where we gain share. Our U.S. business has improved significantly this quarter, and that is just coming back to Doug and Stan's comments. As we grow a large Capital Markets business in the U.S., not only has our U.S. wealth business increased its fee-based revenues this quarter, but also its transaction revenues, including new issues, and we are doing a better job of placing the new issues from Capital Markets in that jurisdiction. We continue to build out in emerging markets as well as British Isles. So we have a number of growth drivers. I am hesitant to give you a timeframe for those growth ambitions of the CAD 2 billion mark, but we will be getting there. The biggest sensitivity is interest rates. Yeah. Okay, for Dave, a couple here. Cards growth. The industry overall is flatlining or down, yet you guys, I do not know how many quarters it has been ticking up pretty consistently. What is driving that? Are you participating in any of the balance transfer promotions? I do not know, Morton or Dave, on the risk weights for mortgages, how do you determine that anyway? Because I look at yours versus some of the others, and it is on the low end, and I know it is not always easy to compare, but I know that you have got a higher proportion of uninsured mortgages, so I would expect that to be actually higher. Is there something you can kind of point to there? I'll tackle the first question on cards. Because we really haven't thought of risk-weighted assets being different than our competitors, obviously. We assume they were standard ratio. Well, for them. Let me get that question. Back to cards to start. Our cards portfolio is very, very strong. You look at the part of the business that we're investing in. We have one of the top cards in the marketplace, if not the top card in Avion. We've been investing heavily in Avion for a number of years. It's just a fantastic product that has been kind of leading the growth in our business. We've got the Shoppers Drug Mart card that we've recently acquired and invested in expanding. The WestJet credit card business is doing very well. As far as our product lineup, it's very, very strong, and it's going to get stronger with the Target launch. Right in the next couple of months. We certainly do participate, albeit in a much reduced way, in the balance transfer standard way of doing business and acquiring balances. Historically, it's proven to be a profitable business and a good ROE business. But we're much more selective in it than we have been in the past. As consumer habits change around repayments and carrying balances beyond the intro period or the discount period, that mechanism to grow your business profitably, I would say, has reduced significantly over the past two years and will continue to reduce. Yes, we use it. It's a lower impact than it has been, certainly, and I would see less use of it probably going forward. Gabriel, it's Morton. Just on the risk-weighted assets, I suggest we take that offline and we drill down on the details of that because we don't have a good answer off the top on the specific you asked. All right. I appreciate that. I'll give you my number offline. Thanks. Thank you. There are no further questions registered on the telephone lines at this time. I'd now like to turn the meeting back over to Mr. Nixon. Okay. Well, thank you very much, everyone, for joining us. We look forward to speaking with you again on our conference call next quarter, and hopefully, you'll all diligently sign on and look to our annual report or our annual meeting. Thanks again. Thank you. The conference call has now ended. Please disconnect your lines at this time. Thank you for your participation.