Royal Bank of Canada 3Q16 Earnings Call Notes

Royal Bank of Canada’s (RY) CEO David McKay on Q3 2016 Results

Regulatory bodies are responding to the combination of rising house prices and record levels of consumer leverage

“On housing, we continue to closely monitor the greater Vancouver and Toronto areas. A short supply of single family homes in both cities, coupled with strong demand fueled by household formation including net immigration has driven strong price [appreciation] (Ph). We have prudent underwriting practices in place with the necessary technology to closely monitor these markets and quickly react as situations may materialize. Regulatory bodies are also responding to the combination of rising house prices and record levels of consumer leverage. We support the Canadian federal government’s recent action to form a working group to study the housing market and develop appropriate recommendations.”

Mark Hughes

Moderate increase in oil prices provided some relief to clients

“With the moderate increase in oil prices over the last quarter, now in the high 40s has provided some relief to our clients. It remains well below 2014 level and continues to challenge the profitability of the sector. A number of our clients took proactive measures to strengthen their financial position. This included selling assets, reducing expenses, accessing capital markets to raise additional funds and refreshing hedges at higher oil prices. In particular, we saw an increase in asset sales in the drilling and services sector.”

Sustained low oil prices impacting retail portfolio in oil exposed provinces

“The sustained low oil prices and higher unemployment rates continue to impact our retail portfolio in oil exposed provinces and we have seen an increase in provisions in delinquencies in these regions. However, it has been more than offset by improvements in economic conditions in other regions such as Ontario and BC as reflected by reduced delinquencies on a national basis, which demonstrates the benefit of our diversified portfolio.”

We remain comfortable with our exposure to Canadian housing market

” Greater Vancouver and Toronto markets are being closely monitored due to alleviated house prices. However, we consistently have the highest customer credit scores in these markets. We also continue to closely monitor our mortgage portfolios in oil exposed regions. Overall, we remain comfortable with our exposure to the Canadian housing market for the following reasons. We did not participate in the second lien market and do not originate sub-prime mortgages. We utilized proprietary channels for mortgage origination allowing for a centralized credit adjudicating process and enhanced monitoring. We are diligent in income verification, which is a key component of our mortgage approval process.”

Alberta does see continued softness but Ontario and BC are strong

“I would say on the Canadian banking side, it’s a matter of two halves a little bit, we have Alberta, which does see continued softness. The unemployment rate in Alberta is certainly higher, but in the rest of Canada particularly Ontario and BC, we continue to see very strong growth and that is performing well.”

Vancouver has cooled off a bit in recent weeks

” Certainly from our view of Vancouver and/or Toronto is the same, obviously with the house price deprecation that we have seen over the previous quarters. We are monitoring it quite close, Vancouver has actually cooled off a little bit in recent weeks. But I think in our case, it’s just really about continuing to maintain our discipline and risk posture as to how we approve loans and the type of origination that we put on.”

Unlikely that the price of oil goes above 100 any time soon

“The chances of getting back to a 100 in the foreseeable future I think would be fairly slim unless there is a change in some of the producers globally and in their attempts to maintain their production levels. So 40 to 60 level I would have thought would be the range we would expect to see if it goes below 40, it’s a tougher environment, if it goes above 60, it’s maybe a bit more of a positive environment.”

Toronto Dominion 2Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

So much uncertainty

“As I look ahead, I am struck by how much uncertainty we still face. Recent political events are creating headwinds for banks all over the world, interest rates are dropped back down, and expectations for our normalization in rates have been pushed further into the future, and along with them the revenue upside we will reap as a result of our deposit-rich balance sheet”

Good management teams leading sound business models adapt

“One of the most enduring lessons of my career has been that good management teams leading sound business models adapt.”

Management change

“As you know, I am here until the end of the fiscal year. This is my last quarterly call. So I’m going to take this opportunity to say my own thank yous.”

Some positive signs in mortgages

“On mortgages, it’s tough. It feels like fits and starts. The growth has improved a bit but originations are up 15% versus last quarter but they are down 70% versus last year. So that gives you a sense. My sense on mortgages is that there are some positive signs emerging, you’re seeing pending home sales up, applications are up, the percentage of people who say they want to purchase a home is up. And if you look at the estimates from Fannie and Freddie and the Mortgage Bankers Association, they are up quite strongly, sort of 13% to 25% for purchase volumes, but they are quite pessimistic on refis.”