Royal Bank of Canada Q1 FY2025 earnings call

• Dave McKay mentioned RBC donated $3 million to support victims of Southern California fires. Reported first quarter earnings of $5.1 billion, adjusted earnings $5.3 billion up 29% y/y. Return on equity 16.8%, common equity tier 1 ratio 13.2%.
• Strong revenue growth from net interest income (up 26%) and fee-based revenue. Achieved operating leverage of 13% on adjusted basis, expects full cost synergies of $740 million by early 2026.
• Acquisition of HSBC Canada generated cumulative adjusted pre-provision pre-tax earnings over $950 million standalone. Personal Banking saw 18% deposit growth, Commercial Banking loans and acceptances up 35% y/y, Wealth Management assets under administration in US Wealth Management increased to nearly US$700 billion, Capital Markets reported record results.
• Focus on digital capabilities, e.g., streamlined mortgage renewal in RBC mobile app, RBC Direct Investing offers online international trading.

Personal Banking: Earnings of $1.7 billion. Canada net income up 19% year-over-year excluding $91 million from HSBC Canada, with organic net interest income up 15% and organic non-interest income up 7%. Commercial Banking: NIAT of $777 million rose 20% year-over-year, pre-provision pretax earnings up 32% excluding HSBC Canada, loan and deposit growth solid at 10% and 8% respectively. Wealth Management: NIAT of $980 million rose 48% year-over-year, added over $20 billion in net new assets across North American Wealth Advisory and Global Asset Management. Capital Markets: Record net income of $1.4 billion increased 24% year-over-year, pre-tax pre-provision earnings surpassed $1.7 billion, up 31% year-over-year.

• Increased 2025 all-bank net interest income growth guidance to high-single-digit to low-double-digit ex trading revenue, up from mid- to high-single-digit range.
• Expect all-bank core expense growth at upper end of mid-single-digit range for 2025, remain diligent in managing cost base.
• Continue to be opportunistic in share buybacks while maintaining strong CET1 ratio above 12.5%.

• Uncertainty around trade policy, geopolitics, and immigration restrictions moderating client activity in Canadian economy.
• Canadian housing activity remains modest.
• Rising uncertainty around tariffs may lead to recessionary conditions, though within pessimistic scenarios considered.
• $45 million provision related to California wildfires, credit exposure from wildfires mitigated but residual uncertainty remains.

Q: John Aiken asked about City National's performance and ongoing operational improvement.

A: Dave McKay said they're making good progress, working on re-platforming, cross-selling, and launching platforms for Wealth Management.

Q: Mario Mendonca inquired about the large impairment in the utility sector.

A: Graeme Hepworth explained it was a long-standing client with headwinds, downgraded over time, and progressed to impaired status. Derek Neldner added context on the client's historical relationship.

Q: Mario Mendonca asked about US margin.

A: Katherine Gibson said City National is asset sensitive, impacted by Fed rate reduction, but expect stability and slight increase in margin going forward.

Q: Ebrahim Poonawala asked about managing the business amid tariffs.

A: Dave McKay said they're balanced, helping clients grow where possible, and hopeful for better solutions to avoid severe economic damage.

Q: Meny Grauman compared tariffs to COVID.

A: Dave McKay said managing uncertainty is similar, but tariffs are more targeted and less likely to shut down the economy like COVID.

Q: Gabriel Dechaine asked about performing provision and economic scenarios.

A: Graeme Hepworth explained Stage 2 releases related to the utility account, and that pessimistic economic scenarios are already factored into IFRS 9 provisioning with a potential 30% increase in performing ACL in worst-case tariff scenarios.

Q: Paul Holden followed up on impaired PCL guidance.

A: Graeme Hepworth said impaired PCL guidance remains, with retail consistent and wholesale at elevated levels, expecting peak towards end of year.

Q: Lemar Persaud asked about confidence in NII guidance increase.

A: Katherine Gibson said it's due to strong Q1 results in spreads, product mix, FX, and non-maturity deposits, with HSBC included in guidance.