Paul Holden: Okay, got it. Second question then is going back to the performing ACLs. So, just want to understand a little bit better the mechanics in terms of what drove the increase. Is it changes in model inputs? Is it some additional management overlay? Is it a bit of both? Maybe you can kind of just walk us through the specifics in terms of why the ACLs went up this quarter.
Phil Thomas: Yeah, there’s probably three things to look at there, Paul. Number one, changes to models from a higher for longer perspective, some changes as it relates to more pessimistic scenarios, but there was a significant amount of expert credit judgment that we leveraged in the quarter. Just given our thoughtfulness around where the economy is headed, the uncertainty around interest rates, and then looking forward in terms of how fixed-rate mortgage customers are going to start to reprice in the Canadian environment over the next year or two years.
Paul Holden: Okay. I’ll leave it there. Thanks for your time.
Raj Viswanathan: Okay. Thanks, Paul.
Operator: Thank you. The following question is from Doug Young from Desjardins Capital Markets. Please go ahead.
Doug Young: Hi, good morning. Maybe Phil, just sticking with you, and I get your explanation around the Canadian performing allowance build. I guess the question is, like, maybe you can talk a bit about why we shouldn’t expect something similar on the international book. Is there various items that give you more confidence that you’ve already taken the build — appropriate builds on the International Banking book? Or maybe you can kind of just delve into why we shouldn’t be expecting something similar here?
Phil Thomas: Yeah, thanks, [Paul] (ph). Great question. We have been building ACL and performing ACL particularly in international over the last six quarters, it’s around $200 million. We have been thoughtful. We started building in Peru, for example, performing ACL about three quarters ago as we looked forward to El Nino. If I look at the different markets, we’re starting to see some green shoots in Chile, 225 basis point reduction in interest rates over the last few quarters, and strong performance there. Chile remains a bit of a conversation point for us, but we’re well provisioned there. We’re very happy with how things are going in Mexico. I’m very bullish about that market from a risk perspective. And so, overall — and I would also add, I think, the shift in strategy that Francisco has brought focusing on primary — acquisition of primary customers gives me a lot of great confidence from a risk perspective that we’re moving the right way as we look at building that franchise.
Doug Young: Okay. And then just thinking about the — looking at your stats on your macro assumptions for the Canadian book on Slide 31, and I’m just really going to simplify this and you can tell me if I’m way off base or it’s a fair assumption. But in your current ACL for Canada for the performing loan side, can we just assume that the unemployment rate is about 7% to 8%, is that essentially within the probability weighting for the different scenarios? And then, can you talk a bit about — I think unemployment is one of the bigger drivers of this. Is it 40% of the variables that caused the change here or is it 50%-plus? I’m not sure if there’s a way you can kind of quantify that.
Phil Thomas: Yeah, I mean, unemployment rate has a significant impact on our models, but I would also look at the interest rate impact and that’s the result of higher for longer, particularly on some of the retail models. But again, I mean, if you step back and look at the overall build, like a good chunk of it or majority of it, frankly, was in the ECJ section. So, a lot of this is our management decision to create just on our thoughtfulness rather on the macro and how we’re moving forward in 2024.
Doug Young: Can you quantify the expert credit judgment, or is that something that you’d be willing to give?
Phil Thomas: It’s about — if I were to look, it’s about 50-50 model and ECJ. And the ECJ will be more weighted towards the business banking side.
Doug Young: And just a clarification. So, my assumption that the unemployment rate built in here is that if I look at it and eyeball it 7% to 8%, is that a reasonable?
Phil Thomas: Yes, it is.
Doug Young: Okay. Thank you very much.
Operator: Thank you. The following question is from Darko Mihelic from RBC Capital Markets. Please go ahead.
Darko Mihelic: Hi, thank you. Good morning. I have some credit quality questions, but before I go there, I just want to clarify one thing. You mentioned in your remarks that you’re planning to operate around 12.5% common equity Tier 1 ratio for 2024. What is your assumption there with respect to the regulatory environment, whether or not there’s any pressure for higher capital?
Raj Viswanathan: Darko, it’s Raj. I think we know the domestic stability buffer can be raised up to a maximum of 50 basis points. That’s what’s left in the framework. So that takes the minimum to 12% from a regulatory perspective and that’s why the 12.5%. I obviously have no insight into what will happen on December 8th or beyond in 2024, but it’s a prudent way to manage it. More importantly for us, right, you’ll hear more about it at the Investor Day, how we want to thoughtfully reallocate capital, which means we have to start the efforts well in advance of that so that the strategy can be implemented in the timelines that we want to do it.
Darko Mihelic: So, just to be clear, Raj, then what you’re suggesting is, even if the DSB were raised, 50 basis points is considered to be an adequate buffer, even with the uncertainty in the environment?
Raj Viswanathan: Yeah, from our perspective, we think it’s reasonable. Obviously, if we see signs that we need to run a higher capital ratio, we will, Darko, but at this time, we think that’s appropriate.
Darko Mihelic: Okay. Thank you. Just a couple of quick questions for Phil on the credit. When we look at the increase in delinquencies in mortgages, can you maybe give us an idea, is this predominantly coming from the ARM portfolio? And when we think about characteristics, are there any defining characteristics or trends that you could point out? I mean, I suppose it could be random, but my suspicion is there are some things that, or there are some characteristics, and I wonder if you could just share those with us. And as I think about the fixed rate mortgage portfolio renewing in 2024, what we can sort of think about extrapolating from what we’re seeing in the ARM portfolio into the fixed rate? I mean, any help on that would be very helpful. Thank you.
Phil Thomas: Sure. And you’re spot on, Darko, because this is how we’ve been looking at things too, so happy to share. I mean, we have been seeing 91-plus on the variable rate mortgage portfolio increasing year-over-year, and we’ve been monitoring that portfolio very closely. Maybe just a few little titbits of information there, we still despite the fact that we’ve seen customer — consumer deposits decreasing or savings buffers decreasing, there’s still a 2 times savings — 2 times payment buffer on the VRM portfolio today. But — and as I said in my prepared remarks, we’re also seeing for those customers with VRM, their total spend is actually also down 11% year-over-year. So, what we’re seeing is those customers are feeling the pinch now and they’re making trade-offs.
