Neil McLaughlin : Sure. Thanks for the question, Gabriel. Yes. I mean, maybe start in reverse order on the credit card book. So maybe you made a comment, we’re close to back to where we were in total balances pre-COVID. We started to see the acceleration I would say in the last sort of about four months in terms of revolver balances finally starting to move. So quarter-over-quarter on the credit card book, that’s where disproportionately we’ve seen the growth is in the revolver balances. You’re going to get a step up in the yield coming out of the almost $20 billion in the credit card book. That’s been a long time coming. Maybe just in terms of it little bit of context on the GIC question. Yes, I mean, we have seen a very, very strong shift out of both the core deposit accounts, savings accounts, but also retail investors coming out of mutual funds, just given market uncertainty into GIC.
So it has been kind of that safe haven for the retail investor. And we would say, over time compared to where we were a year ago and definitely two years ago, margins in the GIC book are quite favorable.
Nadine Ahn : Yes. So just in terms of what we’ve included in that, some of that would be, to Neil’s comment, a bit of a mix shift benefit. But when we — the offset of some of the deposits moving from a demand into a GIC, but we also have the positive benefit of coming in from mutual funds, which is where we’ve seen Neil’s comments on some of the growth as well. So that’s not only is it a low cost of funding relative to wholesale funding for us. But in addition, as I commented in my speech, but in addition, we get the benefit of the fact, particularly given our connectivity across our client base, we’re seeing a lot of the balances come in from mutual funds and coming into GICs, which enhances our NIM overall.
Neil McLaughlin : Just a bit of quantum, and I should have added this, we’ve seen the GIC book grow $25 billion in the last two quarters. And so just the scale of moving into the product is probably something to call out.
Operator: The next question is from Sohrab Movahedi from BMO Capital Markets.
Sohrab Movahedi : Two quick questions. You didn’t disclose the comp-to-revenue ratio in the Capital Markets segment this quarter. Is there a reason for that?
Nadine Ahn : I’ll answer that, Sohrab. Just in terms of disclosure, we benchmark consistently across our peer group when we look at our disclosures. And so we determine that we’re the only Canadian bank to be disclosing comp ratios. So we thought there’s consistency when we look at our peer benchmarking. I would also just comment that it is a bit of a challenge to actually comparative because there’s differences around deferrals, et cetera. So while it’s just a straight math calculation that you see, it doesn’t necessarily always lead for comparability against even U.S. banks.
Sohrab Movahedi : Just so that we can compare it to your own history, what was it this quarter, Nadine?
Nadine Ahn : I’ll get back to you on that, Sohrab. It’s not a number that — it’s a mathematical. It’s not how we maybe looked and managed it internally.
Sohrab Movahedi : I’ll follow up with you on that separately. Neil. I mean lots of questions on the NIM and on the funding side. Can I just talk maybe a little bit on the asset yield side, maybe specific to the mortgages where you guys are obviously a sizable clear? What’s happening with mortgage spreads? What sort of kind of competitive dynamics do you see with you taking out HSBC I suppose as a competitor? And just how that’s impacting the NIM dynamics of your business segment in particular.
Neil McLaughlin : This is, I think, very consistent with what we spoke about yesterday. The mortgage market is exceptionally — what I’d say is exceptionally efficient. We track all of — through mystery shopping, all the competitor prices to make sure we stay in market. And we mentioned there’s different ways to go to market, but the actual end client rate is very, very similar across the industry. Overall — and you heard Nadine talk a little bit about on the variable side. Between prime BA spreads, there is some compression on that product that will reset as rates move up. And on the fixed rate side, it is just a very, very competitive market. So it’s tough. But we look at it as an important product. It’s a relationship product, it’s a moment of truth in the clients’ relationship with us. And we just put a lot of importance around mortgages and retaining that relationship with the client.
Sohrab Movahedi : Just to put maybe some historical bearings on it, would you say the mortgage spreads are as tight as you’ve ever seen them, let’s say, compared to the last 5 years? How would you quantify it? How would you kind of contextualize it, I guess? A – Neil McLaughlin – Senior Key Executive Yes. I mean mortgage spreads, the spreads are definitely a lot tighter than we’ve seen over the last five years. That would be fair to say.
Sohrab Movahedi : Are they negative?
Neil McLaughlin : No.
Operator: The next question is from Meny Grauman from Scotiabank.
Meny Grauman : I just wanted to ask on the discounted DRIP. When you provided the 11.5% guidance target on your capital ratio for the deal close of HSBC Canada, would you factor in this DRIP?
Nadine Ahn : Not for the 11.5% number, Meny, but as when I commented, should be above. So we expect the DRIP to add about $2 billion in capital, just to give us some further cushion.
Meny Grauman : And then I’m trying to understand the sort of the caution around capital that, that announcement, sort of signals. I mean, Dave, you talked about a brief and moderate recession. So I don’t think it has to do so much with your macro outlook. I’m wondering how much of it is related to just where you see the regulatory environment going. I’m curious your risk that minimum capital ratios will climb in Canada. It would seem that — this is a reflection of a view that, that might actually happen. We know in other jurisdictions, we’re seeing capital ratios move higher from regulators. I’m wondering if you could comment on that.
Dave McKay: I would look at it from our perspective, and I can’t comment on regulatory intent. But I would look at it that you heard of the expansion in NIE expense expansion, we’re being front-footed as far as our expectation to your point, of a relatively mild recession. We’re adding frontline customer-facing employees. We’re growing our portfolio, but you still face a fairly significant geopolitical instability and uncertainty of the ongoing war in Russia and Ukraine. You’ve got enormous uncertainty still around manufacturing. There’s the uncertainty of using such aggressive monetary policy at the end of the day. So while we have a mean expectation and we’re growing towards that, there’s a higher level of uncertainty, and therefore, you kind of have higher tail risk right now.
It could be low probability but still higher tail risk. So from that perspective, it’s consistent with how we’ve managed the bank. Over the long term, we’re being conservative. And therefore, we’re building a little bit of a capital buffer for uncertainty. Capital has no half-life. It can only be used which we’re very proud of how we’ve used it over the last 24 hours. But we’re just being conservative in building a buffer against the uncertainty out there that we all face, and we all acknowledge that we have mean expectations, but there’s greater volatility around that.
