Royal Bank of Canada Q4 FY2025 earnings call

• Reported record fourth quarter earnings of $5.4 billion and adjusted earnings over $5.5 billion, closing a record year. - Increased dividend by $0.10 or 6% and returned $1 billion via share buybacks. - Reviewed medium-term objectives, increasing return on equity target to 17% plus. - Discussed segment performances including strong results in Personal Banking, Commercial Banking, Wealth Management, Capital Markets. - Highlighted AI investments and their potential impact on enterprise value, with RBC Assist launched to 30,000 employees. - Progress on HSBC Bank Canada integration, aiming for $740 million in annualized cost synergies.

Personal Banking: This quarter, Personal Banking reported earnings of $1.9 billion. In Canada, net income was up 20% from last year, with strong operating leverage of 9% and an efficiency ratio of 38.4%. Net interest income was up 13%, loans grew 3% (driven by mortgages and cards), deposits grew 1% (with demand deposits up 8% offsetting a 4% decline in GICs), and noninterest income was up 7%. Commercial Banking: Net income was $810 million, up 5% from last year. Pre-provision pretax earnings were up 9%, loans were up 5%, and deposits were up 3%, but affected by slower growth in tariff-impacted sectors. Wealth Management: Net income rose 33% to $1.3 billion, underpinned by record revenue. Assets under management in RBC Global Asset Management increased 17% to $794 billion. Net interest income was up 13%. Capital Markets: Net income increased 45% to $1.4 billion, with record fourth quarter revenue of $3.6 billion. Global Markets and Corporate and Investment Banking saw growth. Insurance: Net income was $98 million, down 40% due to actuarial assumptions and reinsurance adjustments.

• Expect positive all-bank operating leverage in 2026, including 1%-2% for Canadian Banking. - Mid-single-digit net interest income growth excluding trading, driven by product mix, structural hedging, and volume growth. - Mid-single-digit expense growth, with seasonally higher costs in Q1 2026. - Adjusted non-TEB effective tax rate expected in 21%-23% range. - AI investments expected to contribute to outperforming ROE targets.

• Geopolitical and economic uncertainty, including unresolved U.S. and Canada trade issues. - K-shaped economy leading to polarization between affluent and less affluent consumers. - Credit quality risks, with ongoing monitoring of portfolios, especially in retail and commercial segments due to unemployment and mortgage renewals.

Q: Regarding ROE, is the bank overearning on ROE in any part of the business and if the ROE potential exceeds 18%?

A: Dave McKay states ROE is already differentiated, targeting 17% plus, balancing growth and ROE, with uncertainty around CUSMA and economy.

Q: What's the credit outlook if CUSMA isn't extended?

A: Graeme Hepworth says CUSMA uncertainty is reflected in reserves, with potential for reserve releases, prefunding of losses, or continued reserves depending on CUSMA outcome.

Q: On Capital Markets revenue outlook for 2026?

A: Derek Neldner says Capital Markets has a constructive outlook with strong activity in trading, investment banking, and lending, expecting continued growth.

Q: On efficiency ratio, can it go lower than 53%?

A: Katherine Gibson says there's opportunity to improve efficiency, with 53% as the target for 2027 but looking to go further.

Q: On deposit mix in Canada and NIM impact?

A: Erica Nielsen and Katherine Gibson discuss deposit rotations from GICs to markets, expecting positive momentum in NIM from deposit mix shift.

Q: On M&A appetite in U.S. due to CUSMA?

A: David McKay says CUSMA isn't the main driver, timing is more important, with organic growth and capital return as priorities.

Q: On capital markets PPPT guidance?

A: Derek Neldner says they exceeded previous guidance, with high single-digit annual growth target from 2024 base.