The next $2 billion results from – when you see credit migration, which impacts the ARB RWA and standardized, as we all know, is risk insensitive. The floor add-on reduces as you see, slightly higher credit migration, which we saw this quarter. And the third one is the split of the allowances, the expected credit losses and the expected losses, which is used for Basel that will move between ARB and standardized, and that moved in a direction that helped with the floor add on this quarter of another $2 billion. So it’s not got to do with the mortgages question, but I’ll let Dan answer the business question that you had.
Dan Rees: Thanks, Raj. Dave, we’re just being more disciplined with regards to customer selection at the time of origination. I think this is a good time to drive that standard higher here because it’s a softer, slower housing market. I mean that is a definite fact affecting the Street. We are also being more efficient with regards to our use of capital and using customer deselection at renewal as part of that conversation. We like the mortgage business, okay? We’re very pleased with the pilot we put in place. Sequentially, spreads expanded as we expected in the mortgage business. New spreads are good. And the deepening that we’ve done of the mortgages in the last 3, 4 quarters has been really encouraging. I think it slowed a little bit faster than maybe we might have expected a couple of quarters ago, but customers are behaving well on the VRM side, as Phil mentioned, the shift into fixed rate mortgages has been prominent through the course of this calendar year as expected.
And so we just – we know Basel changes are coming. We’re focused on liquidity and focused on customers and client primacy.
Gabriel Dechaine: Okay. Great. And just a quick one on capital, like your CET1 ratio is getting down close to 13%. I’m wondering what does it take to turn off the discount on the DRIP and then ultimately, maybe implement the buyback because you’re obviously in a good position here.
Raj Viswanathan: Thanks, Gabe. It’s Raj. Yes, it is 12.7%, as you pointed out, good growth this quarter. We know it will grow again in Q4 game. I think we’ll be closer to 13% from what I can tell. But there’s two things we need to think about from Scotia’s perspective, at least. The floor is going to go up by 2.5%. So that is going to impact. So we’re building for that, definitely. And at this time, the fundamental review of the trading book will be, we know it will be something, right? We don’t know the exact number as this moves around with how trading positions move and how our CVA risk changes and so on. So we’re preparing ourselves for those two not to suggest it will be anywhere close to the 100 basis points, you know, to go from 13, we want to round about 12%.
And then we also have to wait and see what [indiscernible] does in December. So a lot of it to build our balance sheet so that when we are able to talk about our strategic refresh that we have enough capital balance sheet strength to execute on it from day one.
Gabriel Dechaine: Thank you.
Operator: Thank you. Our next question is from Mario Mendonca with TD Securities. Please go ahead.
Mario Mendonca: Raj, I just want to follow up on what you just referred to because that reference to getting to 13% surprises me a little bit that Scotia would target 13%. Beyond the DSB floors, is there something else that’s driving this pursuit of a higher capital ratio? Are you sensitive to what’s the deterioration in Latin America, for example, is there anything else that I could be missing?
Raj Viswanathan: No. I think we want to stay about 12%, right, 12% above. That hasn’t changed at all. I just said, it will go up to 13%. DRIP is going to give us another 10, 11 basis points. We know next quarter, Mario. So it’s simply 1,270 to 1,280. We know our RWA growth has been fairly modest in this whole year. I think that will continue in Q4. It’s not the pursuit of 13%, how I describe it. It is more about we will get to 13%, which puts us in a fantastic position as we think about our strategic refresh and where we want to grow going forward, apart from the two factors I called out.
Mario Mendonca: Does the strategic refresh require the bank to have a starting point of 13%? Is there something about the strategic refresh that necessitates a higher capital ratio?
Raj Viswanathan: No, it does not, Mario. It absolutely does not. The 13% is just an outcome of how we manage capital through 2023. It puts us in a great position where capital will not be a constraint for all the growth we want to have.
Mario Mendonca: You referred to the risk transfer as your inaugural was transferred. I took that to mean there’s more to come. Did I interpret that correctly?
Raj Viswanathan: No, I meant inaugural simply as the first one we have done. It doesn’t mean we will do more. But what it does is it gives us another tool in the toolkit as we manage capital. And basically, we have tested out the plumbing [ph] so to speak, and we know that if necessary, we will have the ability to do it operationally, that’s all I meant to say.
Mario Mendonca: Is there any way to size the – what I’m trying to figure out here is for every 10 basis point lift you get in your capital ratio as a result of a risk transfer. It implies a certain percentage decline in your EPS or pennies. I mean, your EPS. Is there anything you can give me to help me understand that dynamic.
Raj Viswanathan: I can speak to you offline on that, Mario. I think the Synthetic risk transfer will have a small cost attached to it. The way we think about it is what is the cost of equity of the bank and the cost of the equity of the bank, you can take weighted average cost of capital, call it, 11% as long as it’s significantly south of that, we feel like it’s accretive to the EPS, which just means that we’ve got to manage capital through other levers if we continue to do Synthetic risk transfer.
