Good morning, ladies and gentlemen. Welcome to the RBC 2014 First Quarter Results Conference Call. Please be advised that this call is being recorded. I would like to turn the meeting over to Ms. Karen McCarthy, Director, Investor Relations.

Good morning, and thank you for joining us. Presenting to you this morning are Gord Nixon, Chief Executive Officer; Mark Hughes, Chief Risk Officer; and Janice Fukakusa, Chief Administrative Officer and CFO. Following their comments, we will open the call for questions from analysts. The call will be approximately 1 hour long and will end at 8:30 a.m. [Operator Instructions] We will be posting management's remarks on our website shortly after the call. Joining us on the call are Dave McKay, President; George Lewis, Group Head, Wealth Management and Insurance; Doug McGregor, Group Head, Capital Markets and Investor & Treasury Services; Zabeen Hirji, Chief Human Resources Officer; and Bruce Ross, Group Head, Technology and Operations. As noted on Slide 2, our comments may contain forward-looking statements which involve applying assumptions and have inherent risks and uncertainties. Actual results could differ materially from these statements. I will now turn the call over to Gord Nixon.

Thank you, Karen, and good morning, everyone. We appreciate you joining us today on this call. And hopefully, after it, you'll be able to join us for our annual shareholders meeting. As you can see from our results, we had a solid start to the year. Earnings were $2.1 billion or $2.2 billion, up 7% from last year, when you exclude the loss on sale of our Jamaican bank and the provisions incurred in our Caribbean operations. And our return on equity was just under 19% on the same basis. Revenue was up 8% from last year, and our results reflect continued strength in Canadian Banking and higher earnings in Capital Markets, Investor & Treasury Services and Wealth Management. Our ability to continue to deliver solid results is a testament to the strength of our leadership position in Canada and our disciplined global growth strategy. As well, our ongoing focus on managing costs and risk and our commitment to maintaining a strong capital position remained clear, competitive advantages in today's environment. Our all-in, Common Equity Tier 1 ratio remained strong at 9.7%, up 10 basis points from last quarter, even with the new credit valuation charge and pension accounting adjustments. We continue to take a measured approach to capital deployment and strive for the optimal balance between investing in our businesses for long-term growth, returning capital to our shareholders through dividends and buybacks, and pursuing select acquisitions. This morning, we announced a $0.04 or 6% increase to our dividend, bringing the quarterly dividend to $0.71 a share. Our dividend increase reflects the strength of our core earnings and the confidence we have in our ability to continue to generate solid earnings growth and select -- successfully execute on our disciplined growth strategy. Before moving on to the performance per segment,…

Thanks, Gord. Good morning, everyone. Turning to Slide 7, our credit quality improved overall compared to the prior quarter. Provisions for credit losses on impaired loans were $292 million, down $42 million from last quarter, or down 5 basis points to 27 basis points. This decrease was driven by lower provisions in our Wealth Management, Capital Markets and Caribbean portfolios, partially offset by increased provisions in Canadian Banking. Our overall credit quality has remained relatively stable since the beginning of 2013, with provisions this quarter continuing to reflect the low end of our historical range. Let's look at our credit performance in some more detail. We incurred incremental provisions of $19 million in Wealth Management this quarter, related to the same accounts that were impacted in the fourth quarter of 2013. These accounts are now fully provisioned, and there were no new impairments this quarter. As was mentioned on last quarter's call, growing the credit book forms part of Wealth Management's long-term growth strategy. And while we do anticipate incurring some provisions from time to time, as this portfolio continues to grow, we remain comfortable with its overall credit quality. With respect to Capital Markets, this quarter we had recoveries on a few accounts totaling $2 million, net of impairments, or 1 basis point, compared to provisions mainly taken on a single account in the prior quarter. This represents an improvement of $13 million or 9 basis points. In the Caribbean, provisions on impaired loans were $16 million, down $10 million from the previous quarter, largely driven by lower provisions in the wholesale portfolio. As we have previously highlighted, while credit quality in our Caribbean portfolio has been stabilizing, we believe that until we see a more sustained, economic recovery, the credit environment will likely continue to be challenging. Provisions…

Thanks, Mark, and good morning. As Gord mentioned, we had first quarter earnings of over $2 billion, up $45 million or 2% from prior year, and relatively flat from last quarter. Earnings were up $137 million, or 7% from last year, excluding the specified items outlined on Slide 29, which include the previously announced $60 million loss on the sale of RBC Jamaica and after-tax provisions related to post-employment benefits and restructuring charges in the Caribbean of $32 million this quarter and $31 million last quarter. Our Common Equity Tier 1 ratio remained strong at 9.7%. As we disclosed last quarter, our ratio was negatively impacted by 32 basis points for the credit valuation adjustment and 9 basis points for the new pension accounting standard. In addition, the depreciating Canadian dollar negatively impacted the ratio by 14 basis points. These factors were more than offset by strong internal capital generation and capital repatriation from our Insurance business. Our risk-weighted assets were up 13% compared to last year and 7% compared to last quarter, largely due to the negative impact of the credit valuation adjustment charge and foreign exchange translation. I would like to highlight that this January we were the first Canadian bank to issue Basel III compliant preferred shares, which strengthens our Tier 1 capital position. Let me now turn to the quarterly performance of our business segments starting on Slide 12. Personal & Commercial Banking earned over $1 billion, down $33 million or 3% from last year and relatively flat compared to last quarter. Canadian Banking net income was over $1.1 billion, up $47 million or 4% last year, and up $50 million or 5% sequentially, reflecting strong volume growth across all businesses. Margins in Canadian Banking were up 3 basis points from last quarter, reflecting a favorable…

[Operator Instructions] And the first question is from John Aiken of Barclays.

Question is for Mark Hughes. Mark, in terms of the formations that we saw on the domestic retail, now I understand it's coming off from a low base. But can you let us know what's driving that increase, particularly within the personal line, which did see an uptick in gross impaired as well as provisions?

Yes, thank you, John. The $9 million increase in Canadian Banking, of that, $7 million was related to a methodology change as we've integrated Ally Canada into our -- RBC's methodologies.

And -- but that was in the small business, but personal loan?

No, that -- part of it would be in the personal loan side. In the small business side, that was also actually related to Ally as we've moved what is called Ally business services out of indirect lending into small lending, small business lending. That is where Ally was providing some fleet services to small businesses. So again, it's really just methodology changes with us as we're moving our portfolios and changing -- integrating Ally into our business.

I'd just emphasize that it is -- it really relates to the methodology as opposed to any -- there's been no deterioration in Ally. It's just an accounting methodology shift.

Okay. And a follow-on, if I may, in terms of the international provisioning. Now I know it's lumpy, but can you give us a sense of what the provisions were for Jamaica over the last 12 months and what we may anticipate in terms of a drop in the run rate going forward?

No. We don't know -- this is Dave, here. It's a small business for us with a very small lending book. So we were predominantly deposit-centric in Jamaica. So I don't think it would be a material change to our overall PCL profile of the Caribbean.

Your next question is from John Reucassel from BMO Capital Markets.

A question for George Lewis. George, just trying to understand the numbers in the Wealth Management. If I look at what you have, your average AUA and AUM growth is mid-teens over last year, but your pretax kind of pre-provision earnings are up 10. And it doesn't -- and even quarter-over-quarter, you don't seem to get a lot of operating leverage on the higher AUA or AUM. Could you just talk about what's going on in that business and why you're not getting more operating leverage, or if I'm looking at this the wrong way?

Sure. Thanks very much, John. It's a great question. Not surprisingly, we've looked at that as well. And then you highlighted the PCL year-over-year difference. But the other thing to keep in mind is we've been impacted by the impact of the ROI stock price on our U.S. Wealth accumulation plan. That's in Page 10 of supplementals, and that had a negative year-over-year and quarter-over-quarter impact. If you normalize for those items, our year-over-year increase in earnings is actually very much in line with our growth in client balances of 15%. In fact, a little bit higher. So we do really have strong underlying growth in the segment, and we expect that to come through in future quarters.

So George, this compensation expense has to do with the brokers down there, is that correct?

It's a stock-based comp program, John. It's Janice speaking. And basically, it's a program that's based on our [indiscernible] wide shares. So it's hedged, but we don't have hedge effectiveness because we hedged the whole program where, as you know, the expense is incurred as the people earn into it and as is best. So we have had that this volatility from time to time over the course of the years. But it's just acute this year, and you'll see the same thing, to a lesser extent, in all of our programs because of the volatility around the ROI share price.

But, Janice, just to be clear in the Wealth, this is for U.S.-based employees only, correct?

There's 2 programs that have an impact, John. The U.S. Wealth accumulation plan is for our U.S. financial advisors, and then we also have an impact from stock-based compensation for our overall employee base in Wealth and across RBC as per Janice's comments.

Okay. So just -- so we should see operating leverage at some point?

Yes, very much so. In fact, if you normalize for those items and also the impact of foreign currency translation, we actually have positive operating leverage within the segment of around 2% this quarter, year-over-year.

Your next question is from Michael Goldberg from Desjardins Securities.

Overall, you and other banks, so far, are generating strong business loan growth, while consumer-related loan growth slows as you mentioned in your opening comments. Can you give us some additional color on the business-related loan growth? And what it implies about business conditions in the Canadian and U.S. economies?

Michael, it's Dave here, and I'll certainly comment about our commercial and small business in Canada, and then, I guess, I'll hand it over to Doug to talk about the Capital Markets side. In Canada, our growth rates are still strong. But you have to remember, we're growing off twice the base than most of our competitors, with 26-plus percent market share in each of the commercial business that we compete in. Our base, to start with, is much higher. So we're happy with our loan growth. If you look at the slides in our presentation, we have gained market share in both the core categories that we focus on. That's really 0 to $5 million, and $5 million to $25 million. Where we might be losing a bit of market share is the $25 million plus category where we selectively pick our opportunities there. So we're happy that in the core of our commercial business, which is 0 to $25 million, you'll see in the slide presentation, that we're gaining share, and that growth that you're seeing is off the largest base in Canada.

Just on the loan growth in the investment bank, it's running about 8%. I think this year it will run less than 10%. It'll be high single digits. It's -- the loan book's holding up in Canada. There's bit a growth there. Most of the growth is -- has been the case in the last couple of years, is in the U.S. That mix is still in the 70% investment grade range. We have been growing some -- mostly investment-grade lending in the U.K. to support a fixed income business and, to a much smaller extent, we've been putting some money out in Australia as well.

And Michael, I would just say, from a macro comment, the environment, from a business and commercial and corporate perspective, remains pretty good. I mean, it's better than it has been, I would say, over the last couple of years, but I would say we're still experiencing moderately positive growth. It's not spectacular, but the base feels pretty strong in the United States and even in Canada.

Are you seeing evidence of increased business investment in the U.S.?

Well, most -- well, a large part of that book is in the energy business, communications and media side. So I'm just starting to see in that sector, particularly there's been significant deal flow recently. In the real estate area, it's been growing, to a lesser extent, in the communications business. So I think the deal activity is starting to heat up at a little bit. I think people are getting more confident in the U.S. And I think that will drive both lending and fee revenue.

The next question is from Sumit Malhotra from Scotiabank.

It's probably for Gord. I your comments early on, on the deployment of the capital and the measured approach the bank has taken. Obviously, you're in a very good position, the 9.7% in terms of your capital. Yet we've seen the bank be very quiet on the share repurchase activity for a number of months now. Could you maybe talk to us a little bit about what's caused that pause and whether we should read into that, that perhaps powder is being kept dry for something a little bit more exciting than just buybacks?

Yes, I wouldn't read that into it by any means. I mean, we recognize that our capital levels have been creeping higher and we've got in place a share buyback program. As you know, we just increased our dividend and our businesses are continuing to experience relatively strong growth. And I would say that the utilization of that buyback program will continue to be a factor going forward, and we'll likely increase and ramp up as we move throughout the balance of the year. I don't want to sound like over-conservative at this point in time, but in an environment like this, you just rather run with a slightly higher capital position than a bang on sort of target capital position. But we will adjust accordingly as the year goes forward.

And glad you brought that up, because one of your counterparts yesterday made reference to the fact that perhaps they would like their capital position to be higher than they had previously stated before, going or recommencing a buyback. Has there been a behind-the-scenes push from the regulator that maybe the 8% floor that was talked about, the padding that's required on top of that, is higher? That's part a. And then part b, how would you describe the acquisition environment for areas of interest for Royal in your conversations in the recent months?

The answer to the regulatory front is there hasn't been a significant change. I would say that the capital levels are fairly conservative in this country to begin with. I mean, we've got lots of padding. And I think, [indiscernible] have made it clear that we expect that moving forward. So there's not been a change behind the scenes, at least, that we're aware of. And I would say, in the acquisition front, it continues to be an okay environment. If you were to ask George, he would admit that we've looked at a tremendous amount of -- a number of opportunities in the wealth management space over last year or so, and the ability to execute is more challenging than the stated opportunities, a combination of price levels and performance levels. We're trying to be very disciplined to make sure that we do invest in -- through acquisition, that we're confident in terms of our future hurdle rates of return. And so while there are assets available, it's very difficult to make them work. But we'll continue to be selective and focused, and as I say, try to stay very disciplined. We'd love to do deals like Ally every 6 months or every year, but unfortunately, they just -- they don't come along that frequently. But we continue to explore opportunities that are very consistent with our core strengths and our sort of disciplined approach.

Your next question is from Mario Mendonca from TD Securities.

A couple of very quick questions. First in underwriting and advisory. The number there looked fairly light relative to what we've seen from some of your peers, and particularly from the U.S. investment banks. Was there anything -- was that just mostly volume, or was there a particular circumstance that would've caused it to be light this quarter?

There's no -- there is no particular circumstance. I think we had -- in the last quarter, Dell was booked in the previous quarter, so that would've helped there. And year-over-year, that first quarter of '13 was particularly strong in the leveraged finance business. So I would say, in Canada, it's been a little slower on the -- in the mining business, certainly, as you would know. And oil and gas has been a little softer as well. But it is all holding up. We have some reasonably significant M&A transactions we expect to book this quarter. So I think the run rate will be fine on that side of the business.

Okay. And then a slightly different question. In the federal budget, there was reference to captive reinsurance and the extent to which the government wants to crack down on certain practices. It would be helpful to understand the extent to which Royal uses captive reinsurance and -- might be impacted by any changes.

Mario, it's Janice speaking. We are -- you are correct that there were references to those provisions in the legislation, and we're currently studying the legislation to size what the impact is. I think that it's clear that all of the Canadian banks have reinsurance operations that swap out the risk into a lower-tax jurisdiction. So with respect to our own operations, we're looking at going forward what impact that has on our after-tax earnings base and how we'll have to improve the revenue and earnings to make up for any potential shortfall. But I would say it's early days now in going through the details of the legislation.

And right now you couldn't size it, then?

No, not at this point. Because, as you know, with tax legislation, there's a lot of really detailed factors that we have to take into consideration. I would also say that every one of the Canadian bank situation is different.

The next question is from Meny Grauman from Cormark Securities.

Yes, I have 2 capital market related questions. One is in Europe, I noticed in the commentary you talked about quarter-over-quarter increase in capital markets revenue from Europe being due to investment gains on legacy portfolios and just a little color on that would be helpful, as well as just your outlook for Europe going forward. Typically, we've seen some bearish comments about the European Union lately. And then, just secondly in Canada, as you referenced to private equity investment gains and a little more detail would also be helpful.

We have some legacy assets that we've shown, I think, in some of the financial disclosures we've made have been running off fairly vigorously. But we've had, I guess, gains and some structured credit still remains on the book. And so I think that's what was being referred to in the narrative. In terms of what's going on in Europe, I would say that some of the lending activities that we're engaged in have been really quite good, and they're promising. We're restructuring our fixed income business. We exited the -- many of the European government bond businesses that we had and we're redirecting our activities into our rates and credit business. And I think that -- I'm reasonably optimistic that we're headed in the right direction there. We took a significant fair valuation charge against a -- some securities held this quarter, about $40 million, which impacted Europe's numbers. But I would say, overall, we continue to work on that business, and I think the competitive environment is also more favorable, and it's getting more favorable as some of the competitors take assets off. And so we'll keep working at it and keep improving the business

Sorry. And then in terms of the private equity gains in Canada, was that significant this quarter?

It's Janice speaking. We have some legacy private equity portfolios that we have been running off for years. The gains are a little bit lumpy. So if you look at our -- you'll see through the disclosure in the available-for-sale securities additional disclosure. And if you look back, Meny, you'll see from time to time we have those gains. So it's not a strategic shift. It's a matter of the fact that those portfolios have very long tails, and we, obviously, opportunistically, take gains whenever we can.

The next question is from Peter Routledge from National Bank Financial.

Janice, you referenced the very successful issue of non-viability contingent Capital Tier 1 instrument this last quarter. That's part one of the resolution regime for systemically important banks. Part 2 would be -- part 2 and 3 would be Tier 2 NVCC and then bail and debt. So on bail and debt, do you have any thoughts on where we might wind up in terms of framework? And what market receptivity would be to bail and debt, and how that might impact your cost of market funding? And then part 2 would be just any thoughts on Tier 2 and market receptivity for those instruments.

Those are good questions, Peter. And I think that it was a successful issuance that we did of the preferred shares because we managed to get some clarity around the nonviable contingent capital provision. I would say that, for us, the next step is looking at sub-debt. Because as you know, we redeemed some sub-debt and we are very focused on strengthening all of our capital positions. And given what happened with the preferred shares, we're confident that we can get a pretty good position on agreement on the terms of nonviable contingent capital for sub-debt. I think that the term debt bail and provisions will come after that. So we're taking this one step at a time because it is groundbreaking for Canada and working with the regulators. So I would say expectation would be sub-debt first and then we'll work in the other bail-in -- on other bail-in provisions.

You have no insight for the how the framework for bail-in might work until we get more from the government, I guess?

Yes, we have no insight. But the whole purpose of bail-in is to promote a recovery. So if that's the framework, then I think that any of the triggers and how they are actually set have to be around viability and dilution. So I think that we're all working with that assumption as we discussed the provisions with the regulators.

The next question is from Robert Sedran from CIBC.

Just want to follow up quickly on the answer on the Wealth Management side with those U.S. accumulation plans. I seem to indicate, or at least I heard, that the impact in coming quarters will be less than it has been. Is that something we already know? Or is that stock-price dependent?

No. It is stock-price dependent. My earlier comments really related to the impact of that in this quarter. And if you adjust for the impact of the wealth accumulation plan and the stock-based compensation for other employees, we did have very strong underlying year-over-year growth. So you're quite right. That will be a variability from quarter-to-quarter. And in fact, that's why we provided the record and the supplementals that you can track that going back in time as well.

Okay. And Janice, just following up on the Investor & Treasury Services, the quarter-on-quarter increase was quite sizable. Is that -- a little bit of color on the 2 bullets, I suppose, on this slide, a little more color in terms of whether that is anything particularly noteworthy in the quarter, or if it's just business growth and good organic growth.

Yes, I think that there are 2 focuses on Investor & Treasury Services, and Doug will comment -- and I'll comment on basically the bullets in terms of the fact that you see the run rate benefits of a lot of the restructuring that was happening last year. So it's solid performance on the efficiency side. And I think, from a revenue perspective -- Doug, why don't you make some comments on pipeline there.

The 2 main businesses there, the Investor Services businesses, as Janice said, we've really been focusing on getting the cost right in that business, and so we have reduced our FTE quite considerably over the last year. And so the run rate on the expense side and the efficiency ratio has improved dramatically. In terms of the revenue in that business, it's stable. We're really focused on growing that. And I think that it is a competitive business. We do very well in our whole market here in Canada, and we're a good offshore resource for funds. And so we're focused on where we think our natural fit is. And so the selling side is something we're focused on now as we finish off taking costs out of the business. In terms of the quarter's performance, the bank's liquidity book is in that business, in Treasury Services, and is -- I think, it was mentioned in the comments, we had some tightening in spreads and certain of the assets in that business, and so we had improved results there as well.

One comment I'd add to that business is that -- and I think you hopefully remember my excitement about that business when we made the acquisition of the other 50% of RBC Dexia. And I think integration with our Treasury Services business and consolidating the sales activities and the product offerings and the ability to drive cost out of that business has been -- has made a material difference in terms of its performance, and we continue to be pretty optimistic in terms of its ability to benefit from that going forward. The team -- Harry Samuel and the team in Treasury Services have done a really good job since that acquisition.

Hey, it's fair to say that, I guess, we need higher interest rates to really get this business moving higher, is that...

It will be like our Wealth Management business as well, but Treasury & Investor Services, they've got good deposit growth. I mean, higher interest rates would be a real benefit.

We improved the securities lending side of business, the FX side of that. I mean, crossing over, as Gord said, with the investment bank and also having the RY name attached directly to the business and improve those numbers.

But higher rates would be good.

The next question is from Steve Theriault from Bank of America Merrill Lynch.

I apologize if I missed this earlier, but for Doug, I noticed on Slide 25 of the deck, a really nice lift in U.S. loans outstanding to $30 billion from $26 billion. You've been sort of on track the last few years to add roughly $5 billion a year, but you added $4 billion in Q1. I suspect that a touch of that is currency, but if you could talk a little bit specifically about the momentum you're having in U.S. corporate lending and what your expectations are for this year.

Yes, it is largely, or a good amount of that lift is currency. As we said earlier, I think that the growth in the U.S. -- it will be across the whole book. It will be high single digits this year. I mean, where we are is, we're not adding substantially to the investment banking complement in the U.S. And so what you're finding is that the loan book is starting to reflect the loan book we need to have the proper number of customers for our investment bank. And so, we'll continue to look for opportunities with the loan book in the U.S. But the large part of the build-out really came when we added significantly to the headcount of our corporate investment bankers over the last 3 years.

Okay. And then just a follow-up for Dave. Just a numbers question. The personal loan growth of 8% that you speak to this quarter, can we get that x Ally?

We'll have to -- we'll have to get back to you off-line, x Ally.

Yes, we will get back to you on that.

It will be -- a good share of that growth will come from Ally.

The next question is from Michael Goldberg from Desjardins Securities.

I'd like to follow up on the bail-in and the NVCC question. You said your next objective is sub-debt Tier 2. So really 2 questions around this. What value does sub-debt have when it's not included in set 1 or pending leverage ratios? And doesn't sub-debt just become a relatively more expensive form of funding, as opposed to deposit notes, let's say? And is there any daylight that you see for a tax-deductible form of NVCC, like an innovative Tier 1 that could be NVCC?

Thanks, Michael. I think that the reason we're focused on sub-debt because it is a tax-efficient form of capital for us. And we would like to work through the current regime in terms of recovery. With respect to any innovative Tier 1, that would be also on our roster. But I think that if you -- because we're dealing with inserting regulatory provisions into the instruments, we're trying to do this on a pretty measured and stepped basis. We know that there's receptivity in the market for sub-debt issuance for us, and that's why we're pursuing this. And we would like to actually pursue any sorts of capital instruments because, as you know, we're focused on ensuring that we have strong, solid, tax-efficient capital base to rely on in terms of supporting our future growth. So I think it's because we're stepping into new territory that we're doing things with this measured approach, and because we've heard from investors that there is demand for these sorts of instruments, particularly in Canada.

Operator, there are no more questions?

No further questions at this time.

There are not. Okay, thank you. Well, that's very good timing, because we have our annual meeting which starts in 35 minutes. So I would like to, once again, thank everybody for their participation on today's call. We look forward to our discussions next quarter, and we do hope that many of you will join our annual meeting in about 35 minutes. I know it's a busy day, but hopefully you'll be able to listen in to our annual meeting where we'll have more to say about the bank. So thank you very much, and we'll see you all soon.

Thank you. The conference has now ended, please disconnect your lines at this time, and thank you for your participation.