Royal Bank Of Canada · TSX:RY
Royal Bank Of Canada — Q2 2020 Earnings Presentation
41 slides from Royal Bank Of Canada's earnings presentation, May 27, 2020
Slide 1: Royal Bank of Canada Second Quarter Results
Royal Bank of Canada Second Quarter Results May 27, 2020 All amounts are in Canadian dollars unless otherwise indicated and are based on financial statements prepared in compliance with International Accounting Standard 34 Interim Financial Reporting, unless otherwise noted. Our Q2 2020 Report to Sh
Slide 2: Caution regarding forward-looking statements
Caution regarding forward-looking statements From time to time, we make written or oral forward-looking statements within the meaning of certain securities laws, including the “safe harbour” provisions of the United States Private Securities Litigation Reform Act of 1995 and any applicable Canadian
Slide 3: Overview
Overview Dave McKay President and Chief Executive Officer
Slide 4: COVID-19 response: Supporting employees, clients and communities
COVID-19 response: Supporting employees, clients and communities Employees Clients Communities Health and safety of Consumers Businesses Supporting COVID-19 employees is our top community response efforts in 60% of our ~1,300 branch Helped ~115K commercial priority Canada, the U.S. and globa
Slide 5: Strong balance sheet and diversified business mix underpinned earnings
Strong balance sheet and diversified business mix underpinned earnings Revenue Net Income CET1 Ratio $10.3 $1.5 11.7% Billion +2% YoY(1) Billion (30 bps) (10%) YoY net of Insurance (54%) YoY QoQ fair value change Revenue Earnings Growth Robust Capital Strong revenue growth YoY in Diluted EPS of
Slide 6: Well-positioned for the downturn
Well-positioned for the downturn Diversified Business Model(1)(2) Strong capital (CET1 ratio) Earnings by Business Segments Revenue by Geography 11.7% Insurance Investor & 7% Treasury 2.7% Buffer $15BN Services 5% surplus over International 16% 1.0% DSB 9% CET1 requirement 1.0% D-SIB Capital Persona
Slide 7: Changing client activity amidst a challenging macro backdrop
Changing client activity amidst a challenging macro backdrop Total loan and deposit growth Canadian retail AUM net sales(1) Debit and credit card volumes(2) (YoY change, $ billions) ($ millions) (YoY change, %) 250 2,000 MoM Δ Feb Mar Apr Loans 100% 200 Loans 1% 6% 0% Deposits 1,000 50% Deposits 2%
Slide 8: Financial Review
Financial Review Rod Bolger Chief Financial Officer
Slide 9: Earnings impacted by unprecedented market conditions and prudent reserve build
Earnings impacted by unprecedented market conditions and prudent reserve build Reported Earnings ($ millions, except for EPS and ROE) Q2/2020 Q2/2020 net income of $1.5 billion, down 54% YoY; diluted YoY QoQ Revenue $10,333 (10)% (19)% earnings per share (EPS) of $1.00, down 55% YoY Revenue Net of
Slide 10: Strong capital ratios comfortably above regulatory requirements
Strong capital ratios comfortably above regulatory requirements CET1 Movement 41 bps (19) bps CET1 ratio of 11.7%, down 30 bps (15) bps (41) bps QoQ, mainly reflecting: 6 bps (19) bps 11 bps Higher drawdowns on credit facilities and net credit downgrades Unrealized mark-to-market losses on 12.
Slide 11: Increased corporate draws and credit downgrades drove RWA inflation
Increased corporate draws and credit downgrades drove RWA inflation Retail credit risk exposures (IRB) by PD range(1) ($ billions) 500 15.7% Strong underlying retail credit 4.3% 4.3% 400 10.9% 10.6% (-14 bps QoQ) quality with 85% of loans considered 6.0% 6.0% lower risk (PD < 0.50) 300 12.9% 12.5%
Slide 12: Strong volume growth offset by higher PCL in Personal & Commercial Banking
Strong volume growth offset by higher PCL in Personal & Commercial Banking Net Income ($ millions) Q2/2020 Highlights (66%) Canadian Banking (68%) Net income down 56% YoY Strong volume growth more than offset by higher PCL, lower fee-based revenue and lower NIM Revenue growth of 2% YoY Stron
Slide 13: Wealth Management results impacted by higher PCL and market volatility
Wealth Management results impacted by higher PCL and market volatility Net Income ($ millions) Q2/2020 Highlights Net income down 28% YoY (28%) Higher PCL and staff-related costs, as well as unfavourable impact from market volatility driving (32%) mark-to-market losses, partially offset by highe
Slide 14: Solid earnings growth YoY in Insurance
Solid earnings growth YoY in Insurance Net Income ($ millions) Q2/2020 Highlights 17% Net income up 17% YoY Higher favourable investment-related experience and (1%) new longevity reinsurance contracts Partially offset by the impact of actuarial adjustments and lower benefits from favourable re
Slide 15: Strong results in Investor & Treasury Services
Strong results in Investor & Treasury Services Net Income ($ millions) Q2/2020 Highlights 50% Net income up 50% YoY 58% Higher funding and liquidity and asset services revenue, combined with continued expense control 226 Revenue up 21% YoY Higher funding and liquidity revenue, primarily driv
Slide 16: Capital Markets impacted by challenging market conditions and higher PCL
Capital Markets impacted by challenging market conditions and higher PCL Net Income ($ millions) Q2/2020 Highlights Net income down 86% YoY (86%) Higher PCL and lower revenue in Corporate and (88%) Investment Banking, partially offset by higher revenue in Global Markets and lower taxes 882 Rev
Slide 17: Risk Review
Risk Review Graeme Hepworth Chief Risk Officer
Slide 18: Elevated provisioning to withstand uncertain macroeconomic environment
Elevated provisioning to withstand uncertain macroeconomic environment Movement in Allowance for Credit Losses on Loans ($ billions) Our approach 0.84% Top-down model driven analysis ACL to L&A ($0.3) Bottom-up analysis by client and $0.6 sector Forward looking assumptions 0.53% $2.1 Includes
Slide 19: Capital Markets the main contributor to higher PCL on impaired loans (Stage 3)
Capital Markets the main contributor to higher PCL on impaired loans (Stage 3) Total RBC ($ millions, bps) Wealth Management ($ millions, bps) 750 37 150 40 29 25 27 40 21 21 30 650 130 30 12 11 8 20 $613 550 110 20 450 10 90 (1) 10 - 350 $435 $399 $434 0 70 (10) $338 -10 250 50 (20) -20 $15 150 30
Slide 20: Weakness in oil & gas and consumer discretionary sectors led to higher GIL
Weakness in oil & gas and consumer discretionary sectors led to higher GIL Gross Impaired Loans (GIL) ($ millions, bps) Key Drivers of GIL 4000 49 47 46 51 Total GIL increased $593 million (6 bps) QoQ 45 50 3500 Personal & Commercial Banking 3,529 Canadian Banking: Lower impairments in the comme
Slide 21: Exposure to wholesale sectors most vulnerable to COVID-19 impacts
Exposure to wholesale sectors most vulnerable to COVID-19 impacts RBC’s Total Loans & Acceptances As of Q2/2020 Vulnerable exposure Consumer Other Wholesale Discretionary 2.4% Other 31% Retail 10% Commercial Real Vulnerable Exposure Estate (Retail) 1.6% Wholesale 7% Oil & Gas 1.3% Residential Mortga
Slide 22: Limited oil & gas exposure and robust risk management
Limited oil & gas exposure and robust risk management Oil & Gas Exposure ($ billions; % of total loans and acceptances outstanding) 2.0% Portfolio Characteristics 14.0 12.0 12% exposure to drilling & services; nearly all secured 1.3% 1.3% 1.5% (equipment or guarantees) 10.0 1.0% 1.0% 1.0% 73% of
Slide 23: Overview of wholesale sectors most vulnerable to COVID-19
Overview of wholesale sectors most vulnerable to COVID-19 Commercial Real Estate Consumer Discretionary (Loans & acceptances outstanding as of Q2/2020) (Loans & acceptances outstanding as of Q2/2020) Vulnerable exposure Vulnerable exposure Other Recreation Industrial & 10% 11% Warehouse Multi 25% Ho
Slide 24: Overview of wholesale sectors most vulnerable to COVID-19
Overview of wholesale sectors most vulnerable to COVID-19 Transportation Telecommunication & Media Loans & acceptances outstanding as of Q2/2020 Loans & acceptances outstanding as of Q2/2020 Vulnerable exposure Vulnerable exposure Air 55% Media Rail 30% 3% Marine $8.5BN $7.5BN 10% Telecom & Cable Pu
Slide 25: Strong underlying credit quality in Canadian Banking
Strong underlying credit quality in Canadian Banking Canadian Banking Outstanding Lending Exposure(1) Canadian Banking FICO Score Distribution – Retail (Average balances as of Q2/2020; $ billions) (As of Q2/2020) Q2/2020 Q1/2020 <620 4% Residential 276 Mortgages 272 620-680 HELOCs 38 9% 38 681-720 P
Slide 26: Canadian residential portfolio has strong underlying credit quality
Canadian residential portfolio has strong underlying credit quality Canadian Banking Residential Lending Portfolio(2) Q2/2020 Highlights As at Q2/2020 Strong underlying quality of uninsured residential mortgage Total ($312BN) Uninsured ($234BN) portfolio(2) Mortgage $274.0BN $196.2BN 49% of unin
Slide 27: Client relief programs: Supporting our clients through the pandemic
Client relief programs: Supporting our clients through the pandemic Since the onset of the pandemic, RBC has approved over 492,500 clients globally to participate in its various payment deferral programs Providing up to six months payment deferrals in Canada, with more than 60% of deferment reques
Slide 28: Market risk trading revenue and VaR
Market risk trading revenue and VaR ($ millions) 150 100 50 0 -50 -100 -150 -200 -250 Trading Revenue (1) Market Risk VaR During the quarter, there were 13 days with net trading losses, 4 of which exceeded VaR, due to the significant market volatility Average market risk VaR increased from the p
Slide 29: Appendices
Appendices
Slide 30: Canada's balance sheet is well positioned to provide support
Canada’s balance sheet is well positioned to provide support COVID-19 government support (1) G7 Government Debt (% of GDP) (% of GDP) 50% 250% 237% 46.1% 45% 40% 200% 35% 30% 150% 26.6% 135% 25% 109% 20% 18.5% (2) 100% 99% 17.6% 17.0% 89% 85% 15% 14.2% 14.1% 10.8% 60% 10% 50% 5% 0% 0% Italy Germany
Slide 31: IFRS 9 range of macroeconomic scenario assumptions (as of April 30)
IFRS 9 range of macroeconomic scenario assumptions (as of April 30) Canada Real GDP ($ Trillions)(1) Canada Unemployment Rate (%)(3) 18 2.4 16 2.3 14 2.2 12 2.1 10 8 2.0 6 1.9 4 1.8 (2) 2 1.7 Range of alternative scenarios (April 30, 2020) Range of alternative scenarios (April 30, 2020) Base case (A
Slide 32: Allocation of ACL by product type: Mortgages a large part of our balance sheet
Allocation of ACL by product type: Mortgages a large part of our balance sheet Q1 / 2020 Q2 / 2020 % of Loans & Acceptances % of Loans & Acceptances Product Stage 1 & 2 Stage 3 Total Stage 1 & 2 Stage 3 Total Residential mortgages (1) 0.1% 22.1% 0.12% 0.1% 21.9% 0.15% Other Retail 1.5% 46.1% 1.61% 2
Slide 33: Canadian Banking net interest income: Strong volume growth offset lower NIM
Canadian Banking net interest income: Strong volume growth offset lower NIM Average Gross Loans & Acceptances(1) ($ billions) Average Deposits(1) ($ billions) 7% 11% 1% 4% 459 370 396 410 464 435 20 19 183 19 176 88 90 161 84 80 79 80 210 220 227 253 272 276 Q2/2019 Q1/2020 Q2/2020 Q2/2019 Q1/2020 Q
Slide 34: Our 13MM+ Canadian Banking clients are increasingly using our digital channels
Our 13MM+ Canadian Banking clients are increasingly using our digital channels Active Digital Users(1) Digital Adoption Rate(2) Active Mobile Users(1) 7% 190 bps 16% 7,544 4,819 7,354 53.9% 4,619 7,030 52.0% 52.5% 4,144 Q2/19 Q1/20 Q2/20 Q2/19 Q1/20 Q2/20 Q2/19 Q1/20 Q2/20 Mobile Sessions(3) Self-Se
Slide 35: Growing our leading market share in Canadian retail assets under management
Growing our leading market share in Canadian retail assets under management Assets Under Management ($ billions) Net Sales ($ billions) All-in Market Share(1) All-in Market Share(1) 15.5% 15.8% 16.1% 44.1% 44.9% n.m.(2) 260 240 258.1 220 237.1 232.5 200 180 160 140 2.9 2.6 120 100 80 60 40 20 0.6 0
Slide 36: U.S. operations impacted by elevated PCL
U.S. operations impacted by elevated PCL Net Income (US$ millions) U.S. Operations Revenue (US$ millions)(1) Last 12 months ended Q2/2020 (89%) (92%) RBC WM RBC CM Total U.S. 536 4.7 3.3 $8.1 billion 426 45 Other(2) Q2/2019 Q1/2020 Q2/2020 Q2/2020 Highlights US$ millions (unless otherwise stated) Q2
Slide 37: Strong double-digit volume growth in U.S. Wealth Management (incl. CNB)
Strong double-digit volume growth in U.S. Wealth Management (incl. CNB) Net Income (US$ millions) Q2/2020 Highlights (US$) (63%) Net income down 63% YoY (65%) Higher PCL and margin pressure amidst challenging environment, partly offset by strong business 191 fundamentals 178 Revenue down 13% Y
Slide 38: Capital Markets revenue breakdown by business
Capital Markets revenue breakdown by business Corporate and Investment Banking Revenue Breakdown by Business ($ millions) (25%) YoY: (37%) Lower revenue due to loan underwriting markdowns of $229MM, primarily in the U.S. and Europe 1,141 (1) Lower M&A fees, primarily in the U.S. and Europe 969
Slide 39: Capital Markets revenue and loan breakdown by geography
Capital Markets revenue and loan breakdown by geography Capital Markets Revenue Breakdown by Geography ($ millions) Canada: Up YoY driven by higher fixed income trading and 2,548 2,313 higher debt origination, partially offset by lower equity trading 2,169 132 116 377 166 U.S.: Down YoY driven b
Slide 40: Other items impacting results
Other items impacting results F2020 Other Items ($ millions, except for EPS) Segments Before-Tax After-Tax Diluted EPS Q2/2020 No significant items of note Q1/2020 No significant items of note F2019 Other Items ($ millions, except for EPS) Segments Before-Tax After-Tax Diluted EPS Q4/2019 Gain on th
Slide 41: Note to users
Note to users We use a variety of financial measures to evaluate our performance. In addition to generally accepted accounting principles (GAAP) prescribed measures, we use certain key performance and non-GAAP measures we believe provide useful information to investors regarding our financial condit