Graeme Hepworth : Well, I’m just suggesting, the range we gave the range I guided to is 30 basis points to 35 basis points on Stage 3. Stage 2 is hard to guide on because we’re effectively trying to give a best estimate of what our future expectations are — but just given the forward trajectory and our view that Stage 3 probably doesn’t start to really kind of peak out toward the end of next year and into 2025, we do expect that we’ll continue to build Stage 1 and 2 through the first 2 or 3 quarters as well.
Mario Mendonca : Is that like — are you talking the normal course, the 5 to, I don’t know, maybe 4 basis points to 8 basis points, are you applying something more than that?
Graeme Hepworth : No, I mean, I don’t think we can certain amount at this point, Mario. But right now, I think we’ve been building in a range for the last few quarters. And I would say that kind of is a reasonable expectation right now, but subject to all the kind of different considerations around house prices and interest rates and unemployment, et cetera.
Mario Mendonca : Probably for Dave, next the — you’ve seen some of your peers take meaningful restructuring charges this quarter. And clearly, Royal is doing what it does to manage expenses, but we’re not seeing any sort of large restructuring initiatives, at least in Canada. That’s my impression. So let me ask the question this way. Have there been any meaningful headcount reductions in Canada buried in these severance charges? Or is Canada been left out of the mix for now?
David McKay : No. We — I think Nadine referenced it in her comments that we are just under 2% reduction in Canada. You see Nel’s is down. That’s where the focus was. That’s where the overhiring was, as we talked about last year, we had a couple of thousand frontline people when attrition slowed down. So yes, that’s where the run — a big part of the run rate is coming out. of Canada, the $200-plus million. I think $240 million the run rate coming out of Canada. In addition to a fair bit of heavy lifting in City National as well as 5% of of that workforce around 300 people there as well. So I think between the two, though, but Canada is definitely down and will continue to be fit for the future. As is our practice, we absorb those into our overall run rate — and we will continue to manage our platform in conjunction with the macro environment and revenues and target that operating leverage.
So we don’t call it out as specifically as our peers do, but we the cost of doing business and you should hold them to that end of the day. And therefore, that’s how we operate.
Mario Mendonca : Just a quick follow-up on HSBC. It’s become somewhat policed mean that’s sort of unfortunate. But the nature of the question I want to ask is this, is there — and I know you can’t take us into the boardroom and relay your discussions with the people that matter here. But is this just a matter of Royal now having to make some kind of concessions around people and processes for 2024 to get this over the finish line?
David McKay : I can’t give you that type of detail. We — this transaction has enormous benefits for Canada. And I would say all parties in the approval process understand the benefits to the country of tax revenue increases of dividend increases of investment in Canada and incremental investment in Canada, the benefits to employees and to clients. Everybody understands that. Everybody understands that HSBC is leaving has made a choice to leave, and it would look horrible on Canada if you didn’t allow the free flow of capital, everybody understands that. And that gives us confidence overall that the benefits of this structure is the diligence that the Competition Bureau put into this, and they put enormous diligence through an extended process with tens of thousands of documents.
We have to respect the process. And therefore, I remain confident given that everybody at all levels, understand the benefits and why this is good for Canada and why not doing it is very bad for Canada.
Operator: The next question is from Lemar Persaud from Cormark Securities
Lemar Persaud : I just want to continue along that line of questioning, but I want to approach it a little bit differently. So would it be fair to suggest that based on where you sit today, the accretion and synergies estimates associated with the HSBC deal, should expect — we should expect that to hold. So there aren’t any additional concessions that could impact the economics of the deal together over the finish line. Is that a fair statement?
David McKay : We love this transaction. We love this bank. We’re confident in our cost takeout. We’re working through, and we’ll talk to you about where we see revenue synergies going forward post close. And therefore, yes, we are very excited about this because it’s good for Canada. It’s good for RBC and its shareholders, and we don’t expect any material delay in the realization of the benefits with the protracted approval process.
Lemar Persaud : I appreciate that. That’s very clear. And then just on the outlook for Canadian Banking margins. I hear — I understand that you guys are expecting that to move higher. This quarter, it was really driven by mix because competition really offset the benefits of rates. Is this similar dynamic expected to play out moving forward that is mix is going to be the real driver for higher Canadian Banking margins? Is that fair?
Nadine Ahn : I would say that there is the latent benefit associated really with the strong deposit franchise. That’s where interest rate sensitivity comes from. That’s what’s driving a lot of the margin expansion. I would position it a bit differently. So the question really is, is the competition around certain products and the mix associated with where our balance sheet is trending, going to be offsetting that. I think the baked in structural advantage is what we’re thinking is going to create the lift.
Operator: Thank you. The next question is from Nigel DeSouza from Veritas Investment Research.
Nigel D’Souza : I wanted to follow up on City National, but more so on your strategic outlook long term. You put — purchased that bank for $5 billion to put more capital in and even with the measures taken at the profitability is going to fall sort of what you initially expected with that business. So how has that changed your appetite if there is another opportunity to purchase the U.S. Retail or Commercial Banking franchise? Would you still allocate capital to? Or would you prefer focusing the capital domestically or with your Capital Markets and Wealth Management business.
David McKay : Thank you for that question. Our second home market continues to be the U.S. We continue to look to deploy capital into United States organically and — or inorganically over time. I think the first thing that’s required is a stabilization of all the rules and all the policies and all the regulatory environment in the United States and understand liquidity rules and capital rules that are under debate right now. And therefore, you’ll have to work through that. You have to move into a different interest rate environment because you’ve got accounting marks on everybody’s balance sheet that makes it very problematic to do M&A right now. So all of that has to kind of clear the way. And then we have to complete our integration of our technology build so that if we were to bring another bank onto our platform, we could do cost takeout from that, and we’re not at that point yet.
