The Toronto-Dominion Bank (NYSE:TD) Q4 2023 Earnings Call Transcript

The Toronto-Dominion Bank (NYSE:TD) Q4 2023 Earnings Call Transcript November 30, 2023

Operator: Good afternoon, everyone. Welcome to the TD Bank Group Q4 2023 Earnings Conference Call. I would like to turn the meeting over to Ms. Brooke Hales. Please. Go ahead, Ms. Hales.

Brooke Hales: Thank you, operator. Good afternoon and welcome to TD Bank Group’s fourth quarter 2023 investor presentation. Many of us are joining today’s meeting from lands across North America. North America is known as Turtle Island by many indigenous communities. I am currently situated in Toronto. As such, I would like to begin today’s meeting by acknowledging that I am on the traditional territory of many nations, including The Mississaugas of the Credit, the Anishnabeg, the Chippewa, the Haudenosaunee, and the Wendat Peoples, and is now home to many diverse nations, Metis, and Inuit Peoples. We also acknowledge that Toronto is covered by Treaty 13 signed with The Mississaugas of the Credit and the Williams Treaties signed with multiple Mississaugas and Chippewa bands We will begin today’s presentation with remarks from Bharat Masrani, the Bank’s CEO, after which Kelvin Tran, the Bank’s CFO, will present our fourth quarter operating results.

Ajai Bambawale, Chief Risk Officer will then offer comments on credit quality, after which we will invite questions from pre-qualified analysts and investors on the phone. Also present today to answer your questions are Michael Rhodes, Group Head, Canadian Personal Banking; Barbara Hooper, Group Head, Canadian Business Banking; Raymond Chun, Group Head, Wealth management and Insurance; Leo Salom, President and CEO, TD Bank, America’s Most Convenient Bank; and Riaz Ahmed, Group Head, Wholesale Banking. Please turn to slide two. At this time, I would like to caution our listeners that this presentation contains forward-looking statements, that there are risks, that actual results could differ materially from what is discussed, and that certain material factors or assumptions were applied in making these forward-looking statements.

Any forward-looking statements contained in this presentation represent the views of management and are presented for the purpose of assisting the Bank’s shareholders and analysts in understanding the Bank’s financial position, objectives and priorities, and anticipated financial performance. Forward-looking statements may not be appropriate for other purposes. I would also like to remind listeners that the Bank uses non-GAAP financial measures, such as adjusted results, to assess each of its businesses and to measure overall Bank’s performance. The Bank believes that adjusted results provide readers with a better understanding of how management views the Bank’s performance. Bharat will be referring to adjusted results in his remarks. Additional information on items of note, the Bank’s use of non-GAAP and other financial measures, the Bank’s reported results, and factors and assumptions related to forward-looking information are all available in our 2023 Annual Report.

With that, let me turn the presentation over to Bharat.

Bharat Masrani: Thank you, Brooke, and thank you, everyone, for joining us today. Before I begin, I want to say how saddened we are about recent events in the world and close to home. TD has contributed CAD1 million to support urgent humanitarian aid in Israel and Gaza, as well as to local organizations in North America that combat the rise of racism and hate. At TD, we stand against anti-Semitism and Islamophobia. Over the past several days, it has been encouraging to see the release of some hostages and pause in the fighting. As this situation evolves and with the war in Ukraine, now well into the second year, we hope and pray for peace. I also want to acknowledge our colleagues, customers, and neighbors impacted by the Lewiston shooting in Maine last month.

TD contributed CAD200,000 to help those affected. We are the largest bank in the state. We know that Mainers are resilient and the bank will continue to support the community to overcome those painful events. Let’s now turn to our fourth-quarter earnings. Q4 was a mixed quarter for TD. While expenses were elevated and we saw weaker results in our Wholesale Banking segment, fundamentals remained strong across our retail businesses. Earnings were CAD3.5 billion and EPS was CAD1.83. Revenue grew 8% year-over-year, reflecting margin expansion and loan volume growth. The contribution from TD Cowen and the strength of our diversified business model. PCLs were higher as credit continued to normalize as expected. This quarter expenses increased, driven by variable compensation and the inclusion of TD Cowen.

More generally, we recognize that the bank’s cost base is higher than it should be. We’re undertaking a broad-based restructuring program to deliver, efficiencies and drive profitability across the enterprise. As Kelvin will describe in more detail, the program includes real estate optimization, asset impairments as we accelerate transitions to new platforms, and a 3% reduction in FTE through attrition and targeted actions to create capacity to invest for future growth and limit the impact on our people. While we are focused on expenses, we are pursuing meaningful revenue opportunities across our businesses. We outlined our strategies to accelerate growth in our Canadian retail businesses at our recent Investor Day and the acquisition of TD Cowen provides additional capabilities for TD to grow its investment bank.

In U.S. Retail, our brand footprint and deep customer relationships provide a robust foundation for continued growth. As you’ll hear from my colleagues, we are already executing on those — on these opportunities across the bank. The bank’s CET1 ratio was 14.4%, reflecting organic capital generation and the impact of almost 38 million common shares bought back during the quarter. With heightened uncertainty in the economy and the markets, TD is in a position of strength. We have the capacity to return capital to shareholders, while continuing to invest to drive growth across our businesses. We remain confident in the earnings power of our franchise, and today declared a CAD0.06 dividend increase, bringing our dividend to CAD1.02 per share. And last month, we introduced TD Invent, the bank’s enterprise approach to innovation.

This will build on our track record of innovation, including the recently redesigned TD mobile app, which first launched in the U.S. and then in Canada this quarter. TD’s Digital Strength continues to receive recognition, with Global Finance recently naming the bank, the best consumer digital bank in North America for the third year in a row. We are also leveraging advanced technologies including AI, and have been granted 55 patents relating to AI inventions since 2018. This quarter, our in-house AI team Layer 6, won the Annual ACM RecSys Challenge for the third time. Let me now turn to each of our businesses and review some highlights from Q4. In our Canadian Personal and Commercial Banking segment, earnings were CAD1.7 billion, down 1% year-over-year, and PTPP was CAD2.7 billion, up 7% year-over-year.

In a challenging environment, we saw strong momentum across our businesses, with loans and deposits up 2% and 1% quarter-over-quarter, respectively, and NIM expansion of 4 basis points. In the Personal Bank, Everyday Banking delivered a record quarter for New to Canada accounts, as TD continued to make progress towards our medium-term target of 50% growth in New to Canada acquisition outlined at our recent Investor Day. In credit cards, we delivered strong volumes in Q4 and record spend for the year. And Rewards Canada Readers recognized TD with more rewards in 2023 than all other card issuers combined, with the bank taking first place in four of seven categories. In Real Estate Secured Lending, the bank continued to deliver market share gains and to help Canadians invest tax-free for a down payment on their first home.

This quarter, TD launched the First Home Savings Account. The Business Bank grew loans by 9% year-over-year. In small business banking, we are focused on helping clients refinance their CEBA loans in advance of the upcoming partial forgiveness deadline. And the bank continued to execute on its One TD strategy, more than doubling the number of senior private bankers co-located in our commercial banking centers over the last two quarters. Turning to the U.S. U.S. Retail Bank earnings were $800 million, down 17% year-over-year, and PTPP was $1.1 billion, down 13% year-over-year. Expenses increased 6% year-over-year, reflecting higher legal and regulatory cost and continued investments in our franchise and credit continued to normalize. However, we saw operating momentum with net interest income up 1% quarter-over-quarter, reflecting volume growth across loans and deposits excluding sweeps and a 7 basis point increase in NIM.

With the contribution from our investment in Schwab of $146 million, segment earnings were $946 million. TD Bank, America’s Most Convenient Bank is adding customers and deepening relationships, delivering peer-leading personal and business loan growth of 12% and 9% year-over-year respectively. In Commercial banking, middle market and specialty lending grew 22% and 12% year-over-year, respectively. In our us Bank Card business, new accounts were up 45% year-over-year, as our product suite continued to resonate with customers. And for the seventh year in a row, the bank ranked number one in Small Business Administration Lending in its Maine to Florida footprint, and ranked number two in SBA loans nationally. TD continued to demonstrate resilience in deposits in a competitive environment with balances excluding sweeps up 1% quarter-over-quarter.

The wealth management and insurance segment earned $501 million this quarter, down 3% year-over-year. Revenue growth of 9%, reflecting the strength of our diversified business model was offset by increased claims due to inflation, auto thefts, and more severe weather-related events. In Private Investment Advice, TD gained market share year-over-year and ranked number one among Canadian banks in net new asset growth, as the bank makes progress towards our investor day targets. In TD Direct Investing, we launched TD Active Trader this quarter, the Bank’s completely redesigned platform for sophisticated active traders, offering leading capabilities unmatched in the marketplace. And TD Direct Investing was recently named the best Canadian Brokerage by Benzinga, a leading financial media company.

Finally, in Insurance, we continue to increase market share amongst Canadian personal lines insurers year-over-year. It was a challenging quarter for the Wholesale Banking segment. Net income was CAD178 million, down 35% year-over-year, as higher revenues from equity commissions and underwriting and advisory fees were more than offset by investments to grow TD Cowen and our U.S. Business. This quarter we expanded our credit trading team and financial institutions group in the U.S. We also achieved a significant milestone in the integration of TD Securities and TD Cowen with the combination of our U.S. institutional equities and convertible businesses to deliver even better outcomes for our clients and strengthen our brand in U.S. equity markets.

We are pleased with our integration to-date and continue to pursue strategies to ensure our combined businesses and cost structure, allows us to serve our clients optimally and drive profitability. For fiscal 2024, it will be challenging to meet our medium-term adjusted EPS growth and ROE objectives, as the bank navigates a complex macroeconomic environment, expected further normalization in PCLs, and elevated expenses, including investments to enhance the Bank’s risk and control infrastructure and accelerate growth. Despite these headwinds, the bank continues to deliver on its purpose to enrich the lives of our customers, communities, and colleagues. This quarter, we released the TD and Indigenous Communities in Canada 2023 Report, which highlights the Bank’s collaborations with First Nation, Metis, and Inuit Peoples and communities.

We also opened a new branch in the Province of Alberta, on the lands of the Tsuut’ina Nation, staffed entirely by indigenous peoples. In addition, the bank continued to focus on energy transition. Earlier this month, TD announced an agreement with 1PointFive to purchase carbon dioxide removal credits from the Direct Air Capture Plan, subject to it becoming operational. This transaction will help drive innovative, technology-based solutions to advance decarbonization goals for TD and our clients. I want to end by thanking all our TD bankers around the globe, who live our purpose every day. Thank you for your many contributions in 2023, and I look forward to what we will achieve together in 2024. With that, I’ll turn things over to Kelvin.

Kelvin Tran: Thank you, Bharat. Good afternoon, everyone. Please turn to slide 10. For 2023, the bank reported earnings of CAD10.8 billion and EPS of CAD5.60, down 38% and 41%, respectively. Adjusted earnings were CAD15.1 billion and adjusted EPS was CAD7.99, down 2% and 4%, respectively. Reported revenue increased 3%, reflecting the impact of the terminated First Horizon acquisition-related capital hedging strategy and gain in the prior period on sale of Schwab shares, and margin growth in the Personal and Commercial Banking businesses. Adjusted revenue increased 12%. Reported expenses increased 25%, reflecting higher employee-related expenses including TD Cowen, the Stanford litigation settlement, and higher acquisition in integration-related charges, including charges related to the terminated First Horizon acquisition.

Adjusted expenses increased 13%. Reported total bank PTPP was down 19.1% year-over-year. Consistent with prior quarters, slide 28 shows how we calculate adjusted total bank PTPP and operating leverage, removing the impact of the U.S. strategic card portfolio along with the impact of foreign currency translation and the insurance fair value charge. Adjusted total bank PTPP was up 7.2% after these modifications. Please turn to slide 11. TD’s restructuring program has been enabled by the bank’s consistent investments in technology and digital capabilities. This quarter, we undertook certain measures to reduce the bank’s cost base and achieve greater efficiency, resulting in a restructuring charge of CAD363 million pre-tax. We expect to incur additional restructuring charges of a similar magnitude in the first-half of calendar 2024.

The restructuring program is expected to generate approximately CAD400 million pre-tax in savings in fiscal 2024 and an annual run rate savings of approximately CAD600 million pre-tax. Cost savings will be driven by 3% FTE reduction, real estate optimization and asset impairments as we accelerate transitions to new platforms. Our goal of delivering positive operating leverage over the medium term remains unchanged. In the current environment, we expect one-run rate expenses, inclusive of the savings generated by the restructuring program and investments to accelerate future growth to increase by approximately 2% per year. For fiscal 2024, we expect higher expense growth, reflecting investments in our risk and control infrastructure and the impact of TD Cowen.

As a result, for fiscal 2024, we expect adjusted expense growth in the mid-single digits. Please turn to slide 12. For Q4, the bank reported earnings of CAD2.9 billion and EPS of CAD1.49, down 57% and 59%, respectively. Adjusted earnings were CAD3.5 billion and adjusted EPS was CAD1.83, down 14% and 16%, respectively. Reported revenue decreased 16%, reflecting the gain from the impact of the terminated First Horizon acquisition-related capital hedging strategy and the gain on sale of Schwab shares in the prior period, partially offset by margin growth in the Personal and Commercial Banking businesses. Adjusted revenue increased 8%. Reported expenses increased 20% and include restructuring charges and acquisition and integrated related charges, related to the Cowen acquisition.

Adjusted expenses increased 13%, reflecting higher employee-related expenses and variable compensation. Reported total bank PTPP was down 41.9% year-over-year. Adjusted total bank PTPP was up 1.8% after removing the impact of the U.S. strategic card portfolio along with the impact of foreign currency translation and the insurance fair value charge. Please turn to slide 13, Canadian Personal and Commercial Banking net income for the quarter was CAD1.7 billion, down 1% year-over-year. Revenue increased 7% year-over-year, reflecting volume growth and higher margins. Average loan volumes rose 6%, reflecting 6% growth in personal volumes and 9% growth in business volumes. Average deposits rose 2%, reflecting 5% growth in personal deposits, partially offset by a 3% decline in business deposits.

Net interest margin was 2.78%, up 4 basis point quarter-over-quarter. This quarter, we saw higher deposit margins, reflecting tractor maturities, partially offset by loan margin compression from a highly competitive market. As we look forward to Q1, while many factors can impact margins, including tractors, on and off rates, and balance sheet mix, we expect net interest margin to remain relatively stable. Non-interest expenses increased 6% year-over-year, reflecting higher technology spend supporting business growth. Please turn to slide 14. U.S. Retail segment reported an adjusted net income for the quarter was $946 million, down 19% and 21% year-over-year. U.S. Retail Bank reported an adjusted net income was $800 million, down 14% and 17% respectively, reflecting higher non-interest expenses, higher PCL and lower revenue.

Reported net income in the fourth quarter last year included acquisition and integration related charges for the terminated First Horizon transaction. Revenue decreased 3% year-over-year, reflecting lower deposit volume, loan margins, and overdraft fees, partially offset by higher deposit margins, loan volumes, and fee income from increased customer activity. Average loan volumes increased 10% year-over-year. Personal loans increased 12%, reflecting good originations and slower payment rates across portfolios. Business loans increased 9%, reflecting good originations from new customer growth, higher commercial line utilization and slower payment rates. Average deposit volumes excluding sweep deposits were down 4% year-over-year, personal deposits were down 4%, business deposits declined 5%, and sweep deposits decreased 25%.

Net interest margin was 3.07%, up 7 basis points this quarter — quarter-over-quarter, I mean, as higher investment returns from mature tractors and positive balance sheet mix with lower borrowings were partially offset by migration to term deposits and high yield savings, as well as modestly lower loan margins. As we look forward to Q1, while many factors can impact margins, including competitive deposit market dynamics in the U.S. Tractor on and off rates, and balance sheet mix, we expect net interest margin to be relatively stable in the near term, influenced by similar drivers as those we saw this quarter. Reported expenses increased 3%, reflecting higher legal expenses, regulatory expenses, and investments, employee-related expenses, and FDIC assessment fees, partially offset by acquisition and integration-related charges for the terminated First Horizon transaction in the fourth quarter last year, adjusted expenses increased 6%.

Please turn to slide 15. Wealth Management and Insurance net income for the quarter was CAD501 million, down 3% year-over-year, reflecting higher insurance claims and related expenses, partially offset by higher non-interest income. Revenue increased 9% year-over-year. Non-interest income increased 10%, reflecting higher insurance premiums, an increase in the fair value investments supporting claim liability, which resulted in a similar increase in insurance claims, and higher fee-based revenue, partially offset by lower transaction revenue in the Wealth Management Business. Net interest income decreased 4% year-over-year, primarily reflecting lower deposit volume. Insurance claims increased 39% year-over-year, reflecting increased claim severity, more severe weather-related events, and the impact of changes in the discount rate, which resulted in a similar increase in the fair value of investments supporting claims liabilities, reported in non-interest income.

Non-interest expenses were down 1% year-over-year, reflecting continued efforts to drive productivity savings. Assets under management increased 2% year-over-year, reflecting market appreciation, partially offset by mutual fund redemptions and assets under administration increased 3% year-over-year, reflecting market appreciation and net asset growth. Please turn to slide 16. Wholesale Banking reported net income includes acquisition and integration-related charges for TD Cowen. Reported and adjusted net income for the quarter were CAD17 million CAD178 million, respectively, reflecting higher non-interest expenses, offset by higher revenues. Revenue including TD Cowen was CAD1.5 billion, up 28% year-over-year, primarily reflecting higher equity commissions, advisory and equity underwriting fees and loan underwriting commitment marked down in the prior year.

Reported expenses increased 80% and includes acquisition and integration-related charges for TD Cowen. Adjusted expenses increased 59%, reflecting investments to grow TD Cowen and our US business. Please turn to slide 17. The Corporate segment reported a net loss of CAD591 million in the quarter, compared with net income of CAD2.661 million in the fourth quarter last year, sorry CAD2,661 million in the fourth quarter last year. The year-over-year decrease primarily reflects gains in the prior year from the impact of the terminated First Horizon acquisition-related capital hedging strategy and the sale of Schwab shares and restructuring charges in the current quarter. Other items decreased CAD83 million, primarily reflecting the favorable tax impact of earnings mixed, and the recognition of unused tax losses in the prior year, partially offset by higher revenue from treasury and balance sheet management activities this quarter.

The adjusted net loss for the quarter was CAD133 million compared with an adjusted net loss of CAD10 million in the fourth quarter last year. We have said in the past that our run rate expectation for adjusted net losses in the corporate segment is approximately CAD100 million to CAD125 million per quarter. For fiscal 2024, although it may bounce around, we expect adjusted net losses to increase to CAD200 million to CAD250 million per quarter, driven by investments in our Risk and Control Infrastructure. These investments, which may extend beyond fiscal 2024, will be reflected in the corporate segment as they are expected to yield benefits enterprise wide, run rate expenses will be reflected in the business segments. Please turn to slide 18.

The Common Equity Tier 1 ratio ended the quarter at 14.4%, down 81 basis points sequentially. Internal capital generation added 27 basis points to CET1 this quarter. This was more than offset by an increase in RWA, excluding the impact of FX, which decreased CET1 by 33 basis points. We repurchased almost 38 million common shares under our previous 30 million share buyback program and current 90 million share back — buyback program combined this quarter, which reduced CET1 by 62 basis points, 57 basis points from the share buyback itself, and 5 basis points from the impact of lower capital base has on the portion of our Schwab investment that exceeds the regulatory threshold for non-significant investments. Our restructuring program decreased CET1 by 5 basis points this quarter.

The second phase of the Basel III reforms will become effective in Q1 ’24. We currently expect a negative impact of approximately 15 basis points to CET1, so that’s 15, driven by the implementation of the fundamental review of the trading book and the adoption of the standardized approach for market risk and counterparty credit risk. RWA including the impact of FX increased 4.8% quarter-over-quarter, reflecting higher credit risk due to volume growth in credit conditions, including some credit migration. The leverage ratio was 4.4% this quarter and the LCR ratio was 130%, both well above published regulatory minimums. And with that, Ajai, over to you.

Ajai Bambawale: Thank you, Kelvin, and good afternoon, everyone. Please turn to Slide 19. Gross impaired loan formations were 18 basis points, stable quarter-over-quarter as increases in the US Commercial and Canadian and US Consumer Lending portfolios were partially offset by reductions in Canadian Commercial and Wholesale Banking. Please turn to slide 20. Gross impaired loans increased CAD319 million quarter-over-quarter to CAD3.3 billion, or 36 basis points, driven by the impact of foreign exchange and the US Retail and Canadian Personal and Commercial Banking segments. Please turn to slide 21. Recall that our presentation reports PCL ratios, both gross and net of the partner share of the US strategic card PCLs. We remind you that U.S. card PCLs recorded in the corporate segment are fully absorbed by our partners and do not impact the Bank’s net income.

The Bank’s provision for credit losses increased 4 basis points quarter-over-quarter to 39 basis points. The increase is largely recorded in the Canadian and U.S. Consumer Lending portfolios and Wholesale Banking. For 2023, the Bank’s full-year PCL rate was 34 basis points, up 20 basis points from the prior year as credit performance continues to normalize. Please turn to slide 22. The Bank’s impaired PCL was CAD719 million, an increase of CAD56 million quarter-over-quarter, largely related to further normalization of credit performance in the Canadian and U.S. Consumer Lending portfolios. Performing PCL was CAD159 million, with a quarter-over-quarter increase of CAD56 million, driven by Wholesale Banking and the Canadian Commercial Lending portfolios.

Please turn to slide 23. The allowance for credit losses increased by CAD415 million quarter-over-quarter to CAD8.2 billion or 89 basis points, due to a CAD214 million impact of foreign exchange. Current credit conditions, including some credit migration across the lending portfolios and volume growth. The Bank’s allowance coverage remains elevated to account for ongoing uncertainty relating to the economic trajectory and credit performance. Now, let me briefly summarize the year. Despite ongoing normalization of credit performance and heightened economic risks, including prolonged elevated interest rates, geopolitical tensions, and the potential for recession, the bank has exhibited strong credit performance throughout 2023. Looking forward, while results may vary by quarter, and are subject to changes to the economic trajectory, I expect PCLs in fiscal 2024 to be in a normalized range of 40 to 50 basis points.

To conclude, TD remains well positioned, given we are adequately provisioned. We have a strong capital position, and we have a business that is broadly diversified across products and geographies. With that operator, we are now ready to begin the Q&A session.

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Q&A Session

Operator: Thank you. [Operator Instructions] Thank you for your patience. And the first question is from Gabriel Dechaine from National Bank Financial. Please go ahead.

Gabriel Dechaine: Hi, good afternoon. Can I clarify some of these expense comments you’ve been making? I heard something about 2% increase and I didn’t quite follow what that was tied to, but what was clearer to me, and thank you for quantifying that, but the additional investments will be increasing your loss in corporate from, you know, previous guidance of CAD100 million to CAD125 million to CAD200 million to CAD250 million per quarter, I believe, and that could actually persist into 2025, correct?

Kelvin Tran: Yes. Hi, this is Kelvin. That’s correct. And when I said the 2%, that’s kind of — in terms of normal run rate that we expect after restructuring savings, and then — but the total bank expected expense growth would be in the mid-single-digits.

Gabriel Dechaine: Okay. So after restructuring, if nothing else is going on, you would expect 2% expense growth in ’24. But then these additional costs, you’re in the mid-single-digits?

Kelvin Tran: Correct? That and Cowen. Remember, we still have four months of TD Cowen.

Gabriel Dechaine: Yes, yes, yes. Okay, I understand. Quickly, you just have to explain slowly sometimes. The — one thing I want to ask about is the, you know, I asked one of your competitors today about NSF fees because the government is taking a look at these fees in Canada, and, you know, your bank has been through that experience in the U.S. Is the — my word, dependence or reliance on overdraft fees in your Canadian bank as material as it was in your U.S. Bank? Yes, there you go.

Michael Rhodes: Let me take this question. And this is Michael. The — with respect to the, you know, what the impact would be, you probably might be surprised. I’ll say lots we don’t know now. So it’ll be premature for us to comment about the potential impact at this time. And then in terms of relative dependence, I’m looking at Kelvin or Leo on that. I’m not sure I’ve got a point of view on the relative dependence.

Gabriel Dechaine: All right, my word, not yours, but in the U.S., there was around 5% or 6% of your other income or total revenues in the U.S. at some point? And I’m wondering if it’s anything close?

Michael Rhodes: It’ll be lower. It’ll be lower. But, you know, look, honestly at this point, I know you probably want to figure out a number to put in your forward view. It’s very hard for us to give you any guidance on that right now.

Gabriel Dechaine: Okay. Yes, I’ve got a blank in my note that I just wanted to fill out that note, but I’ll just reword it. And then on the AML issue, I know you don’t want to talk too much about or at all about the — what’s going on between you and the, you know, the regulator or whatever, and I understand that completely. But when I look at the disclosure on reasonable probable loss at Q3, it was — so for, particularly outstanding litigation or regulatory matters, last quarter was zero to CAD1.26 billion, and this quarter zero to CAD1.44 billion, bit of an increase. I’m wondering, is that at all reflected in that RPL figure? Is this issue for you?

Bharat Masrani: Gabe, this is Bharat. I don’t think we disclose specific cases. I don’t think that’d be reasonable. And if I’m mistaken, then we’ll clarify that after this call with you, but my understanding is we don’t disclose specific cases.

Gabriel Dechaine: Okay. And the last one, sorry, it’s a few questions. It’s my birthday, so I feel entitled.

Bharat Masrani: Go for it, Gabe. Go for it.

Gabriel Dechaine: Yes, the FDIC assessment that few of your peers have quantified, I don’t recall if you have?

Kelvin Tran: Gabriel, hi. First of all, did I hear that it’s your birthday?

Gabriel Dechaine: Yes. I’m so lucky to have three banks reporting, and I going out with my wife’s friend tonight, so it’s great.

Kelvin Tran: So a very happy birthday. I imagine you’d probably be in — you would like to be doing something else right now. But listen — let me just answer the question quickly. On the FDIC assessment we’re estimating that the impact will be approximately CAD300 million. Our intent is to reflect that in the first quarter of next year and take it as a lump sum item and that’s our approach at this point. That number you would have seen, the total FDIC cost of recovery that the FDIC announced was CAD16.3 billion, was up a little bit from their original estimate. So that’s how we get to our number of CAD300 million.

Gabriel Dechaine: Perfect. And that’s U.S. pre-tax?

Kelvin Tran: Yes, that is.

Gabriel Dechaine: Thank you and enjoy the rest of the week.

Kelvin Tran: Happy Birthday again.

Operator: Thank you. The next question is from Doug Young from Desjardins Capital Markets. Please go ahead.

Doug Young: Hi, good afternoon, and, Happy Birthday, Gabriel. Just on the CET1 ration, the reduction — part of the reduction, it looks like came from credit quality, and I assume that’s migration, but my rough calculation gives me about an 18 basis point reduction in the CET1 ratio. Can you talk a bit about that? And I guess that’s kind of embedded in the risk-weighted asset — credit risk-weighted asset growth impact, just hoping to get a little bit more color there?