Gabriel Dechaine: Okay. Just a quick one here. I just want to confirm. You’re reiterating the accretion guidance on Bank of the West, so 7% accretive to 2024. And if you can just state that and then maybe the comment on the revenue outlook for the business you had talked about, I think $300 million or so of revenue accretion, not in that 7%, but the timing of that execution would be an interesting response.
Darryl White: Yeah. Gabe, maybe I could help you with that. So the answer is yes, we are reconfirming the 7% accretion target that we talked to you about earlier this year. Secondly, I think a way to frame the second part of your question is around the $2 billion of PPPT that we had also held up to you all over the course of our discussion of this acquisition. There we’re also sticking with that number. Now, you might ask, if your synergy number is higher, why isn’t the $2 billion also higher? And there I would say confidence level has gone up. I think, you know, it’s been our practice to estimate conservatively and then update the Street when objects become closer in the windshield. So at this point, I would say the $2 billion that we put out to all of you includes, number one, the baseline contribution from their core business, number two, the cost synergies which have gone up and our confidence level is virtually 100% on those.
And then on the revenue synergies, if we get more confident as time goes on, we’ll update you there as well. But this just goes to show you that we’ve got quite a bit of room to hit that $2 billion number that we’ve talked about in the past by the first half of 2026.
Gabriel Dechaine: Okay, great. Well, December 1st, Merry Christmas, if we don’t talk to you before year-end.
Darryl White: Well, while we’re celebrating, I understand belated birthday wishes are in order as well. So happy birthday to you.
Gabriel Dechaine: Thank you, sir.
Operator: Thank you. Our following question is from Doug Young from Desjardins Capital Markets. Please go ahead.
Doug Young: I’m not going to wish him happy birthday again, so. Maybe the first question, 25 basis point impact in Q1 from a combination of items. Just want to confirm what’s in the 25 basis points, that’s the FDIC, that’s the FRTB, that’s the CBA, and that’s including the negative amortized mortgage impact. All of that is included in there. Is that correct?
Tayfun Tuzun: Yes. And the last one that I will add to that is the IFRS 17 transition as well. So everything is included in that number.
Doug Young: Okay. So then if I think of 12.5% this quarter, you take out 25 basis points and assume organic [25, you’re around 12.25%] (ph) call it. Is that the range at which you’re comfortable running at? Or I don’t think you’ve talked about a kind of an operating target range for your CET1 ratio, but can you spell out what you’re comfortable with?
Tayfun Tuzun: Yeah. I think with the comments that we made in the past is that we would be looking for a 50-plus basis point type of cushion to regulatory guidance. So in that sense, I suppose next week, we will get some more clarification from OSFI as to what they are thinking about in terms of the remaining 50 basis points of buffer left. But our overall management approach to it is to operate with, in that 50-plus basis point range depending upon what the regulatory guidance may end up being.
Doug Young: Okay. And just lastly, on the gross impaired loan formations, and I get all the explanations that have come through, I’m hoping maybe you can kind of do a bit of a quicker and deeper dive. And you obviously had the formations, you didn’t have a big PCL build. You talk about terms and conditions and collateral giving you confidence. Can you give a sense or a numeric sense or an example of that term or the collateral that’s backing this? Like we can see loan to values for mortgages, but we don’t have a good sense of that to the commercial side. I don’t know if there is anything you can give concrete to give a little more confidence around that.
Piyush Agrawal: Yeah, sure. So I think it broadly goes back to a risk culture and early problem recognition. And so when you recognize the problem early, you get a workout in a SAMU special team working with our bankers, helping rehabilitate clients. So the embedded formation itself, it’s a data point. But I think your question is a good one, which is then how does that — how do you think about what’s next? Because of the collateral or the structure, I’ll give you an example, when you have bankruptcies that are growing both in the US and Canada, you automatically, the client, you mark the client and the exposure into a formation or into impairment, but then you look at your facility, our credit exposure — and in many of these cases, we have a fantastic team that does asset-backed lending.
And so when you think of a large retail client that goes into bankruptcy, but we’ve got a very scientific way of looking at lending across a borrowing base, even though it’s in bankruptcy, your losses are zero. So it might be a large number in the formation. It’s close to zero when it comes to the impairment, which is why the confidence and the same thing goes across many of our secured portfolios. We’ve seen that even in our commercial real estate book in some cases where NIM goes in, but you don’t need any provisions only because there’s plenty of value in that. So I hope that helps in why the confidence around the formations versus impaired losses.
Doug Young: Yeah. No, it does. I probably want to dig a little deeper at another time, but I appreciate the color. Thank you.
Operator: Thank you. Our following question is from Darko Mihelic from RBC Capital Markets. Please go ahead.
Darko Mihelic: Hi. Thank you. Good morning. Just a couple of questions for some clarification, please. Piyush, with respect to the mortgage payment shock that’s in your slide deck here on Slide 28, what is the renewal rate that you’re assuming for these payments in 2023?
Piyush Agrawal: So the one on — which you see here on Slide 28, that’s just the absolute amount that’s maturing in that year. We’ve told you that the renewal rate for ’23, which was about 6%, showed an increase of about 21% in payments. We haven’t given that detail on this slide. I’ll tell you if I look forward and we have all sorts of sensitivities, if rates didn’t come down, they stayed constant, that 21% is in the same 20% to 25% next year and probably a little higher in the year ’25, the bulk of, as you see the maturity is coming due in ’26. And then if I were to back that out, just to give you more perspective, we’ve looked at no income change of our borrowers and this higher payment and that equates to about a 5% increase of the total income at the time of origination.
So we can provide you more details, Darko. But at the end, what you see here is just the contractual maturity, and we’ve done a lot of work around what it would look like at different payment rates. Ernie, would you add something?
