2019 Scotiabank Financials Summit

Sep 4, 2019

We'll move right on to our next guest, and that is going to be Mr. Dave McKay, President and Chief Executive Officer of the Royal Bank of Canada. Dave joined the bank in 1983 and assumed the role of Chief Executive in August of 2014. Morning. How are you? Good. Good to see you. Had a full morning already. They're squeezing us on time. They got this thing- That's okay. everything. We'll be focused. I think we're the last thing between this and lunch, maybe so. Yeah, you got me later this year. Listen, we'll see. Maybe we'll take a little more. Yep. Well, let's get right into it. I've kind of been starting this off. I usually don't like to talk too much macro when I have the chief executives of the companies I cover up here, but given what's going on in the world right now, there isn't a lot of choice. So the way I've kind of couched this is, your investors know the Royal Bank very well. You've been the CEO for five years now, and we have a pretty good understanding of the medium and long-term objectives, including the 7% plus earnings growth goal or EPS growth goal. How do you and your team think about that objective in the context of what's happening macro-wise right now, whether it be rates, whether it be trade wars, whether it be Brexit, a lot of stuff that touches your global footprint. Yeah. What levers, if any, do you say we've got to pull to make sure we give the market the growth that we've talked about in the context of this macro tape? Well, I think you saw from our, and the industry's Q3 results, that we have a strong macroeconomic backdrop in Canada and in the U.S. Certainly, you've got good GDP growth. You've got good employment numbers, fairly benign credit environment in general. You're seeing kind of stable to increasing margins, actually, in Q3. As a backdrop to momentum, this is not as dark as some of the conversations that seem to be happening this morning and some of the geopolitical tensions and market reactions. We're certainly looking at some headwinds as we talk about, and we're trying to gauge those headwinds. But they're different by business, and they're different by market. If we're to start to see rate cuts in Canada, and you start to see that adjustment, it depends what world. If you go into a lower rate, slower growth environment, but looks similar to the five years that preceded the growth expansion, that's not a bad place to be. GDP growth and moderate volume growth can help offset some revenue headwinds from margin compression and NIM compression. If you do end up in a more of a shock to the system in a recessionary environment where economic growth has come off, opportunity's not there, interest rates have compressed to adjust for that, then you've got multiple headwinds coming at you, and you pursue a very different strategy when you look at that. In Canada, if things start to slow at a moderate basis, you see compression looks a little bit the same thing that when we were in expansionary mode. You've got long-dated assets on mortgages that took a while to blend into rate increases, will take a while to blend out. So it's a moderate change. When you look at the U.S. markets, where your balance sheet and your assets are quite different, and they're more asset sensitive, more variable rate, then you tend to see changes faster on when rates go up and tend to see changes faster than when the rates go down. You're trying to figure out what world are you in, and how does it change? The philosophy that we're pursuing is that we feel, and we've started this process, that we have to carve out an envelope that allows us to adjust to those environments, but maintains and protects our long-term strategy. We really are seeing the traction with our long-term strategy, with our technology spend, with our Ventures, with our Ampli, with our loyalty program, all those key capabilities that we talked about in our investor day a year and a half ago. We're seeing that traction. You're seeing that in our Q3 results. You're seeing the momentum of our core retail and wealth management businesses that are doing exceptionally well. And we want to nurture that and protect that. And we're going to look to adjust in other parts of the business to those changes. But we have to figure out what world are we moving into. It doesn't mean that we're going to move into a shock to the system. That could be a lower growth, lower rate environment where you have time to adjust. So that's the philosophy, that if there's less growth opportunity, you have less deployment of sales capacity, you have less advertising. You adjust to the economic opportunity that's in front of you. We started this adjustment mechanism, in our back offices and in some of our functions a year ago. You saw the results to our expense trajectory in Q3. We started that slowing. We're still focusing on sales force growth, and we're still focusing on the economic opportunity. But if that doesn't present itself, we'll pull back. I think by protecting that long-term evolution, we're in a secular change in our industry where platforms are emerging, and new competitors are emerging. You're seeing it. We've talked about it on this stage for years, and it's come to fruition, and therefore, you have to build a different strategy to compete in the long term, and you have to find a way to protect that strategy, and that's how we're approaching it. You're right. You and I have had this conversation many times that if the bank had wanted your operating leverage in Canadian banking could have been at the very high levels of the sector. But your view that you had shared with us was, as long as the revenue is there, we've got to do what we think is the right thing long term and continue to invest in the business because there's only so much of this talent out there. I think we posted the highest revenue growth and the highest expense growth and the highest op level in the retail bank. Despite, I mean, I was- We are managing these things. We have great operating leverage. We have great revenue growth because we see the economic opportunity, we are taking share, and therefore, if that scenario changes, we will adjust. But we are operating and we are delivering on what we said we would deliver, and we are able to invest at a rate in our business that is allowing us to create differentiated long-term advantage. Your commentary, though, on now starting to slow that level of expense growth in Canada, do we view that as you feel like a lot of the infrastructure, individuals, talent has already been brought into the bank? Or is this strictly a comment on where you think revenue- We will start with Canada at first, and then we will move on to the U.S. after that. Was it more of a comment on where you think the revenue environment in Canada trends in the near term? I think it is a bit of both, honestly. We have achieved a lot. We are seeing the returns. We are letting some of that technology curate before going to the next phase and have options on the timing around the next phase because we have done a lot in the retail bank. We still have, obviously, technology spend, so we can flatten it a little bit there and watch out. It is precautionary in that you cannot change these big companies in a quarter. It takes quarters, right? We started to slow this process, and you are seeing the result of four or five or six quarters of work to slow things. I think that is somewhat precautionary and we can always put it back on again. But we are being careful. I think you are seeing that slowing along those lines. Other businesses have core infrastructure that they have to build. It's not just technology spend in the retail bank, but our technology spend in our capital markets, particularly our trading businesses, fixed income trading in particular, at highly elevated levels with fundamental review of the trading book coming. It's not just technology spend in our retail franchise, but you're also seeing it in capital markets, you're seeing it in investor services business, and you're seeing it in the U.S. wealth franchise. So it's these franchises that are strong franchises that we want to grow, that we're investing capital in. I would say the capital markets business is probably three quarters along the route. Still have some more work to do. And our retail bank, as I just talked about, we feel like we're in a really good place, but we'll continue to spend. But we have an opportunity to create operating leverage, which we will do. On the retail bank, I feel like we've spent a lot of time talking about the lending side of the balance sheet, particularly with relation to housing. Let's focus on the other side of the coin. And particularly when rates were moving up, the focus on deposit beta and core deposits was something that was key to how investors thought about the sector and I think benefited your stock on both sides of the border. How do you think about money in and how Royal Bank is trending versus peers? And that could be in either the core deposit franchise- Right or wealth management for that matter. I think you have to look at it holistically because customers move their investments into different asset classes, and you have to capture the entire wallet of the customer is our objective. So we look at it holistically, and we break it down by business. So we saw significant growth in both our core deposit business and in our wealth franchises. And we look at it in totality very well, but each in its decomposed parts, very significant. One of the benefits, when rates were low and core deposits weren't as attractive as they are today, we invested heavily in functionality and value for our customer, whether it was reciprocity formulas, loyalty formulas, and we built a core deposit book that accelerated and gained share, and that has really paid off and continues to pay off. At the same time, we've invested in our sales force and our ability to grow our GIC book. So in our money in, we're up almost CAD 20 billion year-over-year. And I would say half of that is GIC money and another kind of bit, taking it to two-thirds, would be savings accounts, and the other third would say more transactional, lower beta money. So all that's come in at the same time we've gained share and grown our long-term fund business and our money market fund business is obviously in a better roll-off. So the total money in, significant flows to both, but also on our core deposit side. And it's very important too. We have one of the better funding ratios on The Street, and that's very important. We diversify our funding sources. But it's increasingly that transaction business is not only a source of funding but a source of information and data. And all that investment we've made over the last decade and that momentum has provided us with insight into customers to be more relevant to them. And that data is the new gold. So it provides a source of profit, source of funding, source of customer, and we cross-sell off of that product better than any other product that we have. So for all those reasons, we track money in and our competitors run money in as one of our primary metrics in the business. And why we're building out all the Ventures, which we'll talk about later in the year, not today, but why we're building all these Ventures to continue to build more value and build out a core banking transaction franchise that competes in the current environment, but most importantly, competes in an open banking platform environment that we're moving to. RBC has long been the 800-pound gorilla when it comes to wealth management in Canada. One of the few areas that market share was somewhat lower was in the exchange-traded fund component of asset management, which you moved to address with the partnership with BlackRock earlier this year. Obviously two very big names in wealth management, but having been For lack of a better term, quieter on ETFs for a while. What was the trigger point that made you decide this is an area we need an outside partner to come in and assist this business rather than going it greenfield? And are you able to share with us some of the economics that this partnership brings to RBC? We're in early days. I think the overall industry trends are modest to start with. We're still seeing, particularly on the retail side, significant flow into active investment. I think that's good for people in this room and generally a positive thing. The reasons we looked at a strategic partner is it's just an evaluation of the key success factors in the ETF industry, and flow and liquidity in those products is critical. Therefore, when you start a greenfield operation and trying to sell this product either into an institution or retail marketplace, flow and liquidity are really important. If you want to get out of the gate and compete, one of the key gaps that we saw that we could fill with a partner like BlackRock, with their manufacturing capability and their size, got us to market more quickly with a more credible product. We figured that this was one of the key drivers for us to get to market. I think we looked at the overall relationship it would have with our active investing side, with our own ability to do passive, and we just thought a partnership would be the route to take that would maximize shareholder value and customer value in the long term. I would say it's early days, and I don't think it's off generally slow ETF trends that we've seen in the marketplace. Compared to active. I'm going to use this term, the profit share that you have in this structure, your view, and that hasn't historically always been the way Royal's operated. No. We like to build our own stuff and keep it close. We would've pursued it and wouldn't have signed an agreement unless we thought that profit share and that business forecast was superior to what we could've done on our own at the end of the day. We sat down, we had really smart people like Stu in the back of the room leading this, and it was great insight into the market, and we made a business call that this was the shareholder maximizing strategy. Another partnership, and we'll move off Canada after this. Another partnership you have is with WestJet in the credit card travel space. I've always appreciated your comments on the loyalty space in Canada. I know you can't say too much about the competition, but I think the industry is preparing for the relaunched Air Canada loyalty program in 2020. I want to know how the competitive response from Royal Bank in relation to whatever they come out with, where are you positioned right now as far as your travel loyalty program is concerned, and does the acquisition of WestJet have any shift in the way you're thinking about that relationship going forward? No, I think I've talked about this over the past year. I think we're incredibly excited about the WestJet partnership. I think it's enhanced by having a strong capital provider that can ensure that WestJet completes its strategic transition in a timely fashion. That strategic transition, I think, is integral to our overall loyalty strategy. For the first time ever, Canadians will have a choice between two full-fledged, integrated, short-haul, long-haul, aspirational Europe, Asia travel partners with business class, first class, lounges. The full suite of segmented offerings to the Canadian population. Historically, if you wanted aspirational travel long haul, you gravitated to the Aeroplan. Air Canada was the only domestic provider, integrated provider of that. So you collected Aeroplan points. WestJet was a very strong domestic North American short-haul player. Now, with the acquisitions of the 787s, with the lounge, with the reconfiguration, with this strategic expansion. For the first time ever, Canadians have a choice between two fully competitive short-haul, long-haul integrated and therefore, have a choice between where to put their loyalty. So WestJet has an enhanced offering, which will be more attractive to Canadians. So that will be a segment of the market that say, "I want to collect WestJet points and use the RBC WestJet card to collect points." There'll be a segment of the market that says, "I'm loyal to Air Canada. I'll use them." But there'll be a growing segment of the market that say, "Well, I've never had choice before, so I want choice. So I'm going to take the Avion card because that gives me choice." So those are the three major segments. Those are the two leading reward programs that will continue to grow and compete. Therefore, RBC has a strong foothold in two of those three segments. We have a great partnership with WestJet, and there will be a growing number of customers that want to hold WestJet, and we've got the market-leading Avion product that will compete best for all those customers that want to keep their options open and choice. Therefore, this is a first. This is a new offering in Canada, and we feel really good about the partnership. So we're extending those loyalty rewards beyond credit cards to debit cards, to other products. We're going to extend our linked loyalty capability, which Petro-Canada is our signature and has gone exceptionally well. Linked loyalty is a growing concept versus co-brand. So we feel that we are really well positioned to respond to best positioned to respond to Canadians' desire for reciprocity and loyalty through our strategic positioning. While Air Canada will relaunch their capability, we will wait and see what their tactical response is. We are holding back and saying, "When we see what your serve is, we will volley, and we will respond accordingly." So we are waiting to see what they got. Thank you for that. Let us move off Canada across the border. You referred to the U.S. as your second home for RBC. One acquisition that I think has worked extremely well for the bank has been City National. Timing was very good. Timing was good. January 2015. Yeah. I want to start a little bigger picture, then we'll go into some Yeah of the numbers. First off, since we were here a year ago, you do have new leadership Yep in this business. You recruited Kelly Coffey from JPMorgan to come in and run the business. I was hoping you could tell us a little bit about what is going to be right now is the biggest capital deployment move of your tenure, so obviously it's going to be something we care about a lot. What does Kelly bring to the role, and what is the primary mandate you've given her? Secondly, if there was one area that this business had been somewhat slower on for a little while, it was deposit growth. That changed this quarter. We saw some pretty outsized deposit growth. You've talked in the past about some of the strategies in place. What was the trigger point, if you will, that seemed to get those deposits Yeah going in a big way this quarter? We're incredibly excited to have attracted Kelly Coffey, who was a star at JPMorgan and ran the private bank, to City National. Her background, having dealt in and grown private banking networks in the U.S. and done it exceptionally well, is the focus that we've asked her to lead. We're a very strong commercial bank in the U.S. We have a strong private bank, but we want to accentuate the growth of the private bank, and the assets around mortgages, which is really starting to take off for us and grow our deposits. Kelly brings that strong knowledge across the core markets that we operate in and want to grow in from New York to Washington to California. Even though it's based in New York, spent a lot of her time in California because JPM had a good franchise there. Strong knowledge of the markets that we want to grow in, strong knowledge of building and operating a world-class private banking wealth management platform on top of what is already a very strong kind of commercial wealth manager with a niche focus. Kelly will accelerate our growth in New York and Washington and Nashville and in California, which is our core markets, and we're very excited about what she can do for the organization. That is our core focus, is to organically build out on top of this great platform. We have the ability. You've seen the 15% growth continuously on the asset side as we continue. We're still very small in California. We're tiny in New York. They're huge markets. We've got a great product offering. We've got incredible customer satisfaction and loyalty, and we're just. For us, it's about talent and recruiting the right talent, and that's what Kelly did for decades plus at JPMorgan. We're very excited about the skill set that she brings to the organization and the energy and the focus and build on all the great work that Russell and his father did in founding the bank and leading the bank over the last 40 years. We're in a really good place. The deposit momentum, well, you look at deposits in the U.S., it is one of the most price elastic markets in the world. If you want deposits, you can buy them and pay up for them. The key is to run a low beta, mid-beta deposit strategy, and City National has been exceptionally strong at low beta, low cost deposits through their core banking and core cash management ability. The reason they're good at it is they've built technology like DataFashion that links their cash management system into the systems of their core segments, particularly in the entertainment sector. We added Exactuals to that, and then we just purchased FilmTrack. FilmTrack contains the IP of the entertainment industry. Who owes who what. When the rights of it, when a movie production is done or a TV production, and there's the talent, there's the director, the producer, the distributor, based on the performance of the film, who owes who what. All that cash management information and that cash flow is contained in the IP of FilmTrack. When you layer on our own proprietary capabilities on top of that and our own cash management system, it allows us to attract more deposits, serve more customers, and build a stickiness into our cash management capability that we're trying to do in all markets we compete. Our success has been in continuing to build out low beta deposits, but some of the short-term success, honestly, is competing for that mid-beta money that we're paying up a little bit more. Having said that, we still saw margin expansion where many of our competitors saw margin contraction. I think the business can grow more deposits by paying up, but they're doing a really good job of looking at funding needs and trying to attract low beta and mid-beta money smartly at the right time without overbuilding high beta money. Getting ahead of that curve is really a big part of the strategy and why we made the investments in cash management capability in firms like FilmTrack. That's the key to maintaining margins and growing margins is competing through value for that core customer. I think you look at the cost of deposits at City National, how low we're trying to keep it low, and the success we've had is some of it tactical on price, honestly, but most of it has been from the core capability that we're investing in. That's why I get excited when you see the FilmTrack type of acquisitions, and you'll probably see more of those types of acquisitions from us that build out core customer capability around our franchise than a need to take on a traditional acquisition. And- We can grow organically and continue to build value and compete very well in the U.S. and create really strong shareholder returns doing that. You announced this acquisition in January 2015. I think bank stock valuations were lower on energy concerns. The Fed hike cycle hadn't started yet. So a lot of things worked, including your commentary at the time that this is a bank that has good leverage to higher interest rates. Yeah. I got to think that goes the other way. It does. And we have seen margins come down. We have seen earnings growth pull back, and you had communicated some objectives. Yeah for 2020. This is me talking. I think those look like they are going to be difficult to reach. What does the earnings growth trajectory look like for City National in a Fed cutting rates environment? Can they still grow earnings next year? I think you have already answered it. It seems like even with value, if there is one good side to lower interest rates, it is that valuations for potential targets have come down. You have been pretty consistent. It does not sound like growth for CNB via M&A is something that is very high on your priority list right now. Yeah, I will start with the second one and go to the first one. Firms are available for sale because they have strategic gaps. You have to make sure you have to be really confident that whatever strategic gap that bank has, you are going to close it, and you are going to compete, and you are going to drive shareholder value. For us, given that we have an organic platform that we can invest in, we do not have to do an acquisition for strategic positioning. It would be for scale. It would be for entering a new market. All those have to come with a reasonable return to shareholders over a time frame. You are looking at uncertain rate environment, but you are also looking at a potential economic cycle that has a credit cycle to it. What is the timing around that? What are the strategic gaps you are going to close? If you listen to the calls of most CEOs in mid-size to small size banks, they talk about technology issues. They talk about funding strategies. They talk about competing for higher beta money with direct-to-consumer offerings. You have to solve all of that and solve your own problems. Or you can focus on your core strengths and grow organically and not distract your management team. All those weigh on our perspective of do we want to distract management? Do we need this acquisition? What does it really give us? Do we drive shareholder value with that capital? Or are we better off growing organically and continuing to build out with the FilmTrack of the world and then plug something in once you have got a franchise that looks different than everybody else. I think that is more of our strategy to continue to build out a differentiated bank and then maybe plug something into it. To buy a bank that looks like your bank just because it looks like your bank and try to integrate the technology and take on the strategic challenges, I think is a tough shareholder value proposition, even with the lower prices and the lower expectation around margins. Sorry, around- Target, yeah. Back to kind of our trajectory. On CNB standalone, but you have to look at it wealth holistically. We gave two targets, a billion for CNB standalone, $1.3 billion to $1.5 billion holistically, and we book benefits back and forth on a more integrated basis. On a holistic basis, and I will do CNB standalone, where are we in the 1.3 to 1.5? Sorry, that's U.S. wealth. U.S. pre-tax. Yeah. U.S. wealth pre-tax. We look at City National, and we've allocated about $100 million of overhead that sat in other parts of the business. If you add that back, we're somewhere between $750 million and $800 million on a pre-tax U.S. basis in U.S. So we're 80% towards our target with rates at their current levels. With that, where we're off is we've spent $300 million more on an annual run rate basis in that business than we had planned to when we first articulated. We spent that money for a couple of reasons. One, we accelerated growth in New York. We accelerated growth, we call it organic plus in Washington, other markets. We saw market opportunity. We decided to spend more with the rate tailwinds that we had. We liked the way we were competing. So we've overspent our targets. If I just kept to the trajectory, we would have been probably just about at those goals on a pre-tax basis. We could have cut $100 million, $150 million of that gross spend. We'd be $900 million, $950 million. But we saw the opportunity. We wanted to take it now. So we've overspent a little bit on the infrastructure. Where we missed a bit, honestly, is that we underestimated the efficiency we get from the back-office ratio to front office. So we're kind of ahead of our growth target in front office, but the back-office scaling costs were higher than we thought. Therefore, part of that $300 million are higher back office and some regulatory costs than we planned. So at a combined level, so that's City National, $800 million plus or minus could have been closer to $1 billion, but that would have maybe sacrificed growth three to four years from now. So we're trying to balance the two. We can scale that back and get close. So we're not far off, 80% to maybe 90% that total. But remember, we doubled the business. This is like a great success for us. Holistically, though, if you look at all of wealth management, as we have benefits going back and forth, you add another $450 million of pre-tax profit to that $750 million, $800 million. We're now at $1.2 billion on a $1.3 billion to $1.4 billion commitment. We're about $100 million, $150 million off with another year to go, 90% of our target. I think we feel pretty good. Now rates are going to challenge us. This is an asset sensitive business. It went up quickly. Then you saw 35% growth and 30% growth for a couple of years with taxes and rates and organic volumes at 15%. Some of that will come off. Therefore, if the market opportunity is there, we're going to watch our cost base and we're going to manage the situation. But unlike Canada, where it took a while to blend in and a while to blend out, you're seeing from the regional U.S. banks and the large banks that you don't have a mortgage on the balance sheet that reprices less frequently, that you have more variable rates, commercial and retail product, unless you have a large cards portfolio. Therefore, if your bank balance sheet looks like that, then some of your interest rate sensitivity will come off a bit quicker. We're getting short on time. I'm going to leave some of the investor and treasury shorter-term stuff. I think that's more, let's call it, market-driven than anything else. I'd rather in the last few minutes maybe focus on something else. Yeah, it is market driven. We've kind of hit a wall there. We're going to reposition the business. We've got a new leader, and we'll take a different tact, and we'll take out some cost and get that business back on the right track. And- I'm not going to say a lot more. Small part of the business. I feel like we only talk about that business when it's- It is bad. Something has gone wrong, right? It has got a good source of funding for us, strong on deposits and Let us leave that Good ROE. Let's leave that alone. Let's go a little bit bigger picture. Yeah. I think for as long as I've known you, going back to when you were running resi real estate for the bank many moons ago, you've been one of the early voices in this sector talking about technology. There's been at least, from a noise perspective, some higher profile cybersecurity issue in Canada, Desjardins, in the U.S., Capital One, which certainly weighed on the stock pretty significantly. When you think about the efforts you've communicated to the market for a long time, and Ventures is part of it, in terms of the approaches you're taking to interact with your customer base. How do you balance that with potential risks, reputationally, that open up for RBC as you're involved in areas outside of your traditional banking bailiwick that could have some reputational blowback to the bank? It's a great question, and it's very much front and center of everything we do. Our security teams are very much embedded with all our new products, and we go through extensive processes and testing to make sure that we're cyber ready. You're right. When you have the number one brand in the country and one of the top financial brands in the world, reputational risk is something, as a CEO, I worry about all the time. Cyber defense is a risk to our economy, it's a risk to our idiosyncratic franchises and our industries, and we spend a lot of time. We spend time as an industry collectively working together to defend and building safe harbors and sharing information around fraud and cyber. We work idiosyncratically, independently in our own institutions, making sure that cyber and security are paramount. I take it back to a conversation we probably had three or four years ago on how we approach digital, and we approached it from a cyber suspected on a mobile phone. We patented a product that we still use today where we don't store customer information on a phone, but point it to a private cloud where other banks store it on the phone. From the first step we took in building digital and building out phones and how we build data and how we share data, we have taken kind of a cyber approach to everything and have many patents on the things we do. I'm quite proud of the organization and how forward-looking the technology group has been and our innovation teams in starting with the right platform before we build the product, whether it's on the phone or even when you talk about Ventures and you talk about Ampli and data aggregation. We have a product called Virtual Clean Room that we patented in the U.S. that we're embedding in technology companies and other cloud products that protects data and secures data. So when we approach these new products, we started with technology and security and data security first, and then put the application, the customer interface on top. We could go on and on. Everybody, every CEO in every industry will get up here and say, "It's my number one concern. It keeps me up at night." It does. We all spare no expense to make sure we're doing everything we possibly can to test our franchises, to test new products, to build defensive perimeters, to build reactionary insight, to say, "Something's happened. Do we have to react, and how do we react?" We're all doing that, and I think you try to take the risk down to zero, but it's hard for anybody to get up here and say it's an absolute zero risk. That's why I think the evolution is how do you respond, is where a lot of thought goes into it. Something has happened, hypothetically. Therefore, you have to prepare for your reaction. A lot of the industry, all industries, work with government, work with each other on response times. I mean, the U.S. industry, we have to move faster in Canada. The U.S. has built something called Safe Harbor, where if something were to happen systematically to one bank, other banks could step in and run their operational systems for a period of time to make sure there's liquidity for their commercial and retail customers with risks being managed and shared. So, we're talking about defense and how we play that, but we're also talking about how we respond to various hostile events against our systems. So it's about preparation, about planning. I tell you with the size of spend that we have, that our teams are very sophisticated. We just launched another cybersecurity initiative with Ryerson and Brampton. We're just short. I mean, I just seen in the newspaper, we're short over 200,000, we think, potential cybersecurity experts in the future. We've partnered with Ryerson to increase the training programs and increase educational capability to develop those for RBC and for the market. I think from that perspective, every CEO puts it in their top three things that keep them up at night, and I would be one of them. I can tell you, reputational risk, when you have the number one brand in the country and the franchise we do, is something I worry about every day, and we're not going to cut corners to get a couple hundred thousand venture synapses. You mentioned that you're going to give us some more disclosure on- Yeah how Ventures is performing. Yeah. Just what are you thinking in this regard and- I'm thinking we're keeping it for the RBC Capital Markets conference. Well, listen. Excuse me. Listen, we're here. You can give us a little bit of a sneak preview as to how is it basically you've talked about converting 10% of- Yeah these- I guess my response comes out, my first response, we're going to carve out other spend to protect this because we really believe that we're onto something. When you talk about having to interact, building the best digital version of who you are today could be meaningless unless you're plugged into the moment of truth in a digital world where the client is transacting in commerce, entertainment, work. Whatever that platform is, you have to plug into the moment of truth, and you have to see the moment of truth to protect your economics and your opportunity to serve that customer. When you see the Ventures ecosystems that we've built and how we're doing that, you'll see why it's so important to be relevant to customers and non-customers in Canada, that we have to create these venture synapses, we have to be relevant to them. We have to meet their needs in a very different place and build a bank that it's very exciting. Therefore, we're making the room where we'll cut other places to protect this. We've launched Ampli. It's a big part of the loyalty scheme that we talked about. It's off the ground. It was a lot of work. We'll give you greater insight starting Q4, and then into January, we'll start to lay out where we are, what's working, what the conversions look like, and where we are on our targets. The biggest signal is this is not an insignificant expense. It's not a huge expense, but this is something that we're spending time and money on and that we're going hard at it. Real hard. Yeah. Nothing tastes better than home cooking. I get that. Sorry. The last one- Great question. We will wrap it up here. You did mention something else that was interesting to me. Yeah. We have had this discussion. RBC Capital Markets, obviously by far the most global revenue base of any of the Canadian bank wholesale platforms. I think it is about 75% of the revenue comes from outside of Canada. As a result, your top-line performance has been better than most, but operating leverage has been consistently negative. You have talked about the investments that have been required there. I believe you stated earlier, and this will be the last one. Yeah. You are about 75% of the way through. Roughly, yeah. It's a big spend. It's on the trading side. It's on the fixed side. Fundamental review of the trading book. We lagged our investment there a bit. So some of it's catch-up investment. So it's two things. One, it's a heavy technology spend that we've been undergoing for a couple of years, but we've also invested significantly expanding our investment banking capability in the U.S. So hiring bankers, guaranteeing bonuses and compensation until production comes can lag sometimes. So we're seeing a bit of that lag. So when you look at the technology and the banker growth investment, it's led to some negative operating leverage in a market where the fee pools are down, and particularly in Canada and Europe, but even in the U.S. I would say lower fee pools, but slower and maybe disappointing performance in some of our trading businesses in the last quarter. But they can bounce right back again, and we feel the pipeline's good. So the investment creep was there. The operating leverage wasn't as good as we wanted because of some of that investment creep and the slower fee pools. But as you heard Doug say on the Q3 call, pipeline's strong on both the M&A and ECM, DCM side, and we're feeling better about things, and it's a strong franchise. Still made CAD 650 million roughly, and that's not insignificant. It wasn't that long ago that we thought that Royal would have to buy BB&T or SunTrust to build out your Southeast regional banking franchise. Instead five, 10 years later, you're the advisor on their purchase so- Yeah, we're quite proud of that. shows you how far things have come. Yeah. Vinnie and the team did a fantastic job. I was talking to the CEOs, and it is a bold move and a game changer in the U.S. for those two firms. I think the change for you guys is what you were in the U.S. 10 years ago relative to what the franchise is now. You look at our Capital Markets operation and the U.S. wealth franchise that we just talked about, and we have a multi-billion dollar P&L now in the U.S., well-diversified across industry and customer franchise. Diversifying the balance sheet through City National has been really important, not only geographically but also into mortgages, into different commercial products. This is an exciting balanced business in the U.S. with great growth opportunities, and that is where we are putting a lot of our marginal capital organically. I've kept you too long, but I always enjoy the conversation. Thanks Appreciate the time. Yeah. Great conference. Thanks.