Graeme Hepworth : Yes, the credit quality this quarter, City National continues to perform very strongly. We increased the Stage 1 and 2 allowances for City National this quarter. I would say that reflects kind of three parts for City National, one of the strong growth that was referenced there. So the Stage 1 and 2 reserves will go with that. Two is a weaker economic forecast that contributed to that. And thirdly, there were some downgrades there that pushed. Both will have an impact just in terms of the quality side of it as well as the staging side of it. But I would say it was a mix between those three. But overall, the credit performance of City National continues to be very, very strong.
Doug Young : And if I could just sneak in a quick numbers one on HSBC, which should be quick. But just Nadine, yesterday, you talked about the gross credit mark of $400 million pre-tax, but you didn’t mention a day 2 allowance that you plan to set up. I assume there is a day 2 allowance that you would be setting up. Can you quantify that?
Nadine Ahn : In terms of what we shared with you in the back of the deck, I think, in terms of the purchase accounting accretion mark. So there’s — you’ve got the gross credit mark and then you also have the interest rate mark. And I don’t think we separated — I can get to those numbers to you. I think maybe we’ll take it offline.
Operator: The next question is from Paul Holden from CIBC.
Paul Holden : I want to go back to the guidance on NIM, Nadine, because you provided some very detailed outlook on the segmented basis, which is helpful. But I just want to go back to the all-bank basis to make sure I understand correctly. So it sounds like you’re expecting more NIM expansion in Q1, mostly coming from Canadian P&C, maybe sort of flat-lining possibly declining marginally for the rest of 2023. Is that a correct interpretation?
Nadine Ahn : No. So I said my guidance was the 10 basis points to 15 basis points. Most of that will be coming in the first half, but we will continue to see NIM expansion through the full year.
Paul Holden : Despite the increase in hedging, okay, okay, got it.
Nadine Ahn : Yes.
Paul Holden : And then — because that was a quick one. Just a second question then, looking at expense growth, and I guess, I mean, part of it is the investments you’re making in the business, which are more discretionary. Just want to get a better flavor of sort of how inflationary in forces are sort of impacting expense growth and are becoming harder to manage expenses, maybe with inflation peaking, maybe it’s getting a little bit easier in the labor market, slackening a little bit. Just want to get a sense of that?
Nadine Ahn : Yes, so salary costs were the big driver of the NIE growth. I would say if I was to break that down, it was roughly half and half between FTE growth. As we commented earlier, a lot of investment in not only our sales capacity, but also investment in the business overall. So that was about half of it. And then to your earlier point, another half of it relates to the inflationary pressures. So that’s going to continue to persist into 2023, just given the salary increases that we’ve had. I think though from the opportunity that we’re seeing to continue to be front-footed on investing in the business in terms of that FTE add, that’s how we’re looking to manage it going forward as we continue to see the strength of our revenue growth as we continue to grow the business.
But the inflationary has kind of been a bit of a step-up if you saw the big increase as it related to salaries. But that’s about half of it. The large driver also is just our FTE growth, which we obviously manage as we start to see how the economic environment is playing out. Another portion of that, though, just to give you some context, was also related to just volume-driven growth. So about 2% of the increase as it relates to the non-stock-based comp growth was just around volume growth type of expenses. So that is something that will scale back as well depending upon our future outlook. But a large portion of it also was just continuing to invest in the business around our application development, our technology costs and providing for our clients.
So that’s another area where we continue to scale. So structurally, I would say of the total growth in salaries, about half of that would have related to inflationary type components. The rest of it is really driven off of growth and scaling the business.
Operator: Next question is from Mario Mendonca from TD Securities.
Mario Mendonca : So can we go to Slide 14, looking at margins again? And I kind of like the way you presented this, especially the one on the bottom and middle. You can kind of back into a deposit beta based on this disclosure. This is specifically for personal checking and savings. It looks like roughly about a 30% beta, 33% beta just based on the change in the blended Bank of Canada and U.S. fund rate and the increase in the deposit yields so — or deposit rates. What I’m interested in understanding is what you feel that, that cumulative deposit beta will end up being over time once rates stop rising. Would you expect something in the 50% to 60% range the way we’ve seen in some of the U.S. banks or something a little different?
Nadine Ahn : No, it would be probably closer to the 40% range, Mario, historical rate once we expect rates to peak out.
Mario Mendonca : So that — is that just sort of based on some — this is based on your own experience over time, that the personal checking and savings accounts round out to about 40%?
Nadine Ahn : Yes, yes, I can — maybe Neil may want to jump in as well.
