Mario Mendonca: So, I want to go back to U.S. commercial real estate. There’s no doubt you can look at your supplement, look back a few years that the bank grew U.S. commercial loans, commercial real estate, in particular. There was some robust growth there for a period. So while I think it’s fair to say U.S. commercial real estate losses might be messy quarter-to-quarter, that’s going to impact the bank’s capital in a meaningful way. So what matters more to me now is, does this change CIBC’s strategy in the U.S. now that you’ve seen sort of the uncomfortable side of all that growth, does this sort of have you revisit your growth strategy in the U.S.?
Shawn Beber: Mario, it’s Shawn. Thanks very much for the question. So, I’ll come back to that question specifically, but just stepping back for a minute for some context. Other than the office portfolio, our U.S. business continues to demonstrate strength and solid performance. Notwithstanding the current environment, we generated strong quality loan growth. We’re pleased with our deposit performance, as Hratch talked about seeing that stabilizing with the rate environment stabilizing. We had NIM improvement year-over-year, and our outlook for NIMs are stable. And while we continue to invest in our business, as you’ve seen, the rate of growth in our expenses has moderated significantly. And that combined with realizing on the investments we’ve been making over the last couple of years and staying really focused on the connectivity and bringing all of our businesses and our capabilities across capital markets, wealth management and commercial to our clients, generated double-digit pretax pre-provision earnings.
What we are seeing and credit, as a general matter is performing well. So, where we are seeing the issues is in commercial real estate and in particular, in the institutional office space. It’s a part of the business we’re deemphasizing. And as that transition continues, you’ll see CRE wind up being a smaller percentage of the overall U.S. portfolio as our commercial and industrial and our wealth businesses continue to grow.
Victor Dodig: And Mario, just to build on those comments from Shawn, we absolutely feel good about the strategic investment thesis that we laid out years ago about investing in the United States. Our investment has been a very good investment. On top of that commercial banking investment, we’ve built a really strong wealth management business that we’re going to continue to grow now, especially when our technology gets implemented this fall. Our capital markets business, as you see in some of the slides that Harry’s business has are growing. And Harry, it might be worthwhile commenting on the capital markets business in the U.S. We’ve grown our U.S. earnings, pretax, pre-provision from what was 2% many years ago to over 20% today, and we plan to continue to grow that because we think it’s a good diversifier for our bank and it’s a well-diversified well-managed portfolio aside from the noise of the U.S. commercial office real estate piece, which we will work through.
Harry, maybe you want to build on that?
Harry Culham: Yes. I’d just add that the U.S. part of our capital markets business is really well connected to Shawn’s world and commercial and wealth, like it is in Canada to John’s world and commercial and wealth and our retail franchise. And so we’re really focused on delivering for clients in the U.S., and that’s working really well. We’re very, very well diversified. We’re specific in the industries we operate in. We’re very focused on the new economy. We’ve got a great team in the U.S., and we’re delivering outsized returns. And you see the numbers year-on-year. So we’re very pleased with the results, a very highly connected franchise, a really differentiated platform and it’s working well.
Mario Mendonca: I appreciate all those comments. They certainly resonate with me, but I want to go back to this for a moment. So even if these credit losses on U.S. commercial real estate, other than causing some lumpy quarters, and assuming they don’t affect capital, which I strongly suspect they won’t. There’s still an implication here. What I’m getting at is Commercial real estate and construction lending in the U.S. is the single largest category of loan in the U.S. business and government loans. And if you’re deemphasizing that and maybe this is going to Shawn, if you’re deemphasizing that Doesn’t that necessarily point to slower growth in the U.S. over the next couple of years as you deemphasize that business?
Shawn Beber: Yes, I think it’s fair to say relative to the rate of growth that we saw over the last couple of years. Part of that is environment and part of that is going to be strategic choices. And as that portfolio transitions that will mute growth certainly on the CRE side, but we are still looking at — our outlook is still for single — mid-single-digit loan growth in the business, and it’s going to be driven primarily through our C&I business and our Wealth Management business.
Victor Dodig: Businesses that I think if you look at the mix out five years, there’ll be more capital light in nature. They’re more ROE enhancing in nature. And part of our business model is connectivity concept that Harry touched on, that drives a better ROE. So while that may — that aspect, the real estate aspect may slow down, I think the team has got a good handle on how we can grow the rest of the business.
Mario Mendonca: Just maybe something quick on U.S. margin. I feel like — like I watched these Canadian banks carefully. I watch the U.S. banks carefully I think CIBC might be the only bank where U.S. margins were actually up in Q3. It’s a surprise given what played out for anybody else. Now I also observed that the deposits are down. So what I’m kind of wondering is, if there’s going to be a quarter where CIBC decides it needs to protect this deposits there. And we actually see the margins come under pressure like we’re seeing for virtually every other bank. So what it appears to me is that CIBC is protecting the margin, but willing to give up some deposit share. Am I reading the tea leaves correctly in that?
Shawn Beber: So what I’d say is our noninterest-bearing deposits held pretty steady this quarter. And you’re right, on an average basis quarter-on-quarter, deposits were down. But frankly, on a spot basis, they’re actually up somewhat. And so we’ve had our deposit betas on our interest-bearing are higher than they’ve been through the cycle. So we’ve been paying for deposits with our, but it’s a very client-focused strategy, and we’re working with our clients to price those deposits. We’re also making investments in our deposit franchise in terms of additional capabilities and new products. So we’ll be launching those just to enhance our overall deposit franchise. But it’s not been ceding deposits, like ceding share for margin.
Our margins have held in. On the asset side, spreads have been a help offsetting some of the cost of funds pressure. And on the deposit margin side, we’ve had the benefit of both the rising rate environment, but also the impact of the hedging program that Hratch spoke about earlier. So that combined to that couple of basis points, as Hratch mentioned, there was a bit of noise in the quarter, you take a couple to a few basis points off of that increment. But the 2 basis points is not one-time. It’s a function of all those elements that I just went through.
Operator: Thank you. Our next question is from Nigel D’Souza with Veritas Investment Research. Please go ahead.
Nigel D’Souza: I wanted to follow up with Frank, on the debt service ratio. And should we read into the impact that CIBC has a more interest rate sensitive borrower. And then in terms of the outlook, when I look at your forecast for the debt service ratio, the next 12 months, you expect it to run materially above where it was that in 2019 and kind of remain at the 2019 level for the rest of your forecast period. And you’re also forecasting unemployment to roughly be at 2019 levels, maybe a little bit higher. So given that context, wouldn’t it be reasonable to expect that your credit losses next year or the next 12 months would run above the losses we saw in 2019?
