Please standby, your meeting is about to begin. Good morning, ladies and gentlemen. Welcome to the RBC's Conference Call for the Third Quarter 2021 financial results. Please be advised that this call is being recorded. I would like to turn the meeting over to Nadine Ahn, Head of Investor Relations. Please go ahead, Ms. Ahn.

Thank you. And good morning, everyone. Speaking today will be David McKay, President and Chief Executive Officer, Rod Bolger, Chief Financial Officer, and Graeme Hepworth, Chief Risk Officer. Also joining us today for your questions, Neil McLaughlin, Group Head Personal and Commercial Banking, Doug Guzman, Group Head Wealth Management Insurance in INTS, and Derek Neldner, Group Head, Capital Markets. As noted on Slide 1, our comments may contain forward-looking statements, which involve assumptions and have inherent risks and uncertainties. Actual results could differ materially. I would also remind listeners that the bank assesses its performance on a reported and adjusted basis and considers both to be useful in assessing underlying business performance. To give everyone a chance to ask questions, we ask that you limit your questions and then re-queue. With that, I'll turn it over to Dave.

Thanks, Nadine. And good morning, everyone. Today, we reported earnings of $4.3 billion, driven in part by strong client activity as we continued to attract new client and deepen existing relationships across our market-leading franchises. Our performance reflects disciplined execution of our strategy, strong expense control, volume growth, higher fee-based client assets, and record investment banking revenue. This was partly offset by expected normalization in global markets revenue and continued pressures from low-interest rates. We also saw improvements in our macroeconomic outlook and credit quality, resulting in significant release of reserves, which Graeme will speak to later. TCL on impaired loans and new GIL formations remain at cyclical lows. But our well-diversified portfolios continued to perform in these uncertain times, underpinned by strong underwriting and well-defined risk appetite. Our CET1 ratio increased to 80 basis points to 13.6%, net of 15 billion of RWA growth. This was to support client demand and business growth across our platform. We leveraged our franchise and Balance Sheet strength to generate strong organic growth and an ROE of 19.6% this quarter, or 19.2% year-to-date. well above our global peers. We continue to create long-term sustainable value for our shareholders and support of our 17 million clients as underscored by our 12% year-over-year growth in book value per share. And even though regulatory restrictions remain, we paid $1.5 billion in common dividends to our shareholders, majority of which are based in Canada. I will now offer some perspective on the macro environment, which we view with cautious optimism in the near-term, but see growing in strength into 2022. We, remain cognizant of the near-term challenges to global growth posed by new variant, and inconsistent global vaccine rollout, supply chain disruption, rising geopolitical risks, and continued global travel restrictions. However, we are encouraged by the economy…

Thanks, Dave, and good morning, everyone. Starting on Slide 8, we reported quarterly earnings per share, of $2.97 up 35% from 220 per share a year ago. Pre-provision, pre-tax earnings of $5 billion were up a solid 6% year-over-year with strong client-driven performance in Canadian Banking and Wealth Management, non-U.S. along with record investment banking revenue, more than offsetting a moderation and capital markets trading revenue as client activity decreased across the industry. Excluding the impact of foreign exchange and lower interest rates, pre-provision, pre-tax earnings were up a strong 10% from a year ago. These results yet again highlight the resilience of RBC's diversified business model. Moving to slide 9, our CET1 ratio of 13.6% was up 80 basis points sequentially, including the benefit for model parameter updates, net of the increase in SVaR multipliers guided through last quarter. This quarter saw a further $2 billion of net credit upgrades, lowering the cumulative net credit downgrades since the start of pandemic to $8.5 billion. And strong internal capital generation net of dividends added nearly 50 basis points of capital. This was partially offset by strong client-driven business growth across our largest segments. Going forward, we expect RWA to continue to grow given the client-driven organic opportunities Dave highlighted earlier. I also wanted to give an update on our initial analysis of the impact of the upcoming Basel changes. We expect a net impact of the reforms to be moderately favorable as the benefit from the implementation of the guidelines in 2023, are partly offset by adverse market risk impacts under the fundamental review of the trading book coming to effect in 2024. Moving on to slide 10. Net interest income was down year-over-year. Excluding trading revenue, net interest income was up 6% from last year as strong client-driven volume…

Thank you, Rod, and good morning, everyone. Starting on slide 20, allowance for credit losses on loans of 4.9 billion was down 658 million compared to last quarter. This includes a $638 million release of reserves and performing loans primarily in capital markets and the Canadian Banking cards and personal lending portfolios. The release reflects improvements in both our macroeconomic outlook, as well as the credit quality of our portfolios during the quarter. We have now released about 40% of our pandemic-related reserve gold with ACL up 0.67% of loans and acceptances down from its peak of 0.89% in Q4 of last year. Our level of allowances remains well above pre-pandemic levels, given the ongoing uncertainties associated with the COVID-19 Delta variant, and the conclusion of the significant government support that has benefited both consumers and businesses. Turning to slide 21, our gross impaired loans of 2.6 billion were down 216 million or 5 basis points during the quarter. Impaired loan balances decreased across all our major businesses, and new formations of 293 million were at 9 year low this quarter. Muted new formations in Canadian Banking are due in part to ongoing government's support programs, as noted earlier. On capital markets, clients continued to benefit from active debt and equity markets providing strong access to capital and the improving macroeconomic environment. Turning to slide 22, PCL on impaired loans of 146 million or 8 basis points was down 3 basis points from last quarter and has trended lower in each of the last 5 quarter. In the Canadian Banking retail portfolio, PCL of 136 million, was down 25 million from last quarter, with decreases across all products with exception of our residential mortgage portfolio. Our PCL was flat quarter-over-quarter and remains at its lowest level in more than 5…

Thank you. We will now take questions from the telephone lines. If you have a question and using a speakerphone, please [Indiscernible] your handset before making your selection. If you have a question, [Operator Instructions] If you wish to cancel the question, [Operator Instructions] at this time if you have a question. There will be a brief pause for participants to register. Thank you for your patience. And the first question is from Ebrahim Poonawala from Bank of America. Please go ahead.

Good morning. I was wondering if we could maybe, Dave, just your view around the housing market. As you think about it, obviously it's become a big election issue with the ban on foreign buyers being promised. Just talk to us in terms of how given just your mortgage business being very strong, how you see the housing market today? And do you see the appropriate policy responses coming through to kind of make housing affordable, especially in the metro markets?

Thanks for that question. I'll say a few comments, and Neil, who is also very close to the issue, I'll ask to make a few comments. So we look at the structural elements of the housing industry in Canada on a monthly basis. We have a lot of stats we track on supply-demand imbalances. Those obviously continue to persist where you have a shorter supply and highly stimulated demand marketplaces from all the things we talked about; low rates, consumer preference changes, and lack of general supply as I talked about, inability to fill that gap quickly. So obviously, price increases are part of this. And as an employer in the major metropolitan areas, we certainly worry about the cost of housing and the effects on our employees, and our ability to attract talent to the country and to the cities where we operate. One of the reasons why we created the Calgary hub for technology is to diversify our employee base across the country and access talent in different marketplaces. So to your question, the rising cost of housing has an impact on all employers, our cost of operating, and our ability to operate the way we want to. And therefore, we're starting to make the moves as you saw in Calgary to diversify our areas. We don't worry about the quality of our credit book. It's well adjudicated. There's a good equity position. Still, 1/3 of it is insured. Therefore, we're confident in the cash flows and the stress test, and the policies that have gone into changing those stress tests to make sure adjudication is solid. So this is more a long-term macroeconomic issue. And where I do worry, Ebrahim, to your point is the more cash flow that consumers are putting into housing stock, the less is available to drive the economy. So I think all policymakers are worried, partly as well about long-term economic drag from that much cash flow going into servicing housing. So those are all elements that lead us to think about policy for the country and policy that tries to keep everything in balance from an economic growth perspective, from a cost of living perspective, from attractiveness and quality of life perspective. We're all trying to keep those things in balance, so I think it's important that we look at policy initiatives that try to balance the needs of Canadians and the prosperity of Canadians, and the happiness of Canadians. And with that, I'll pass it to Neil.

Thanks, Dave. Ebrahim, the only other thing I would add is, I think if we focus on our mortgage business, and the underwriting in that business, I mean, I think B20 has been a positive for the industry, a lot more granularity on the different segments and transactions in the book, The stress test I think has built-in confidence that there is resiliency there. I think in terms of the supply-demand imbalance, maybe just a couple of other points to build on Dave's. I think more recently you've started to see the supply side start to get more airtime. I would say that's something that does need a lot more focus. We have a very -- I think a very strong immigration policy, but a big portion of those -- that new household formation comes from newcomers, so we see what's driving it. Beyond some of the things, I would say that are maybe more macro in nature, some of the things that could be shorter-term. We get a lot of feedback from some of Canada's largest developers that are more cooperative. A municipal set of policies could help them actually increase, bringing more supply to the market. So that may be a tactical thing that could be done, but I think the supply side is something we need to be talking more about.

Got it. Helpful color. Thank you.

Thank you. The next question is from Meny Grauman from Scotiabank. Please go ahead.

Hi. Good morning. Dave, you touched on the macro outlook in your opening remarks, but to put a finer point on it, if I think back to the call last quarter, you made a very bullish case for the recovery and for Royal's ability to really take advantage of that recovery. And I'm wondering, given the Delta variant, things have evolved, is there any change in your outlook, anything you would highlight that's different now than it was when we were speaking, I guess it was early June?

I think net, when you think of the medium-term, as I said, through 2022, we're still equally as positive about the opportunity for the economy to grow, to accelerate beyond where it was in 2019. We're seeing that economic activity progress nicely. We look at our credit card spend. We look at the activity levels that are now above 2019. We're starting to see draws on our operating working capital lines. So that was the green shoot that referred to all symbols of confidence returning. We're seeing term asset lending start to grow. We're seeing our authorized credit book increased, I think almost 10%. So you're seeing all the signs of economic confidence. What's going to happen with the Delta variant. It may pause things for a month or two as we have to work through and make sure we don't overwhelm the health system. It's a little concerning to see the numbers, but we're always starting to see in other parts of the world a little bit of a turn on the Delta variant. So we'll manage through this with 75% of vaccination rates. We don't expect we're going to have to shut down the economy the way it was last year or early in 2021. So we should have every ability to manage through this, given what we've achieved so far. And therefore, I think you're talking months of maybe slowing return to work, slowing their full reopening of some of our service sector until we deal with this, governments will make that decision, but that will not, I think upend the majority of the momentum we have. So still very positive about the continued progress on reopening the economy through the next 12 to 24 months.

Thank you.

Thank you. The next question is from Scott Chan from Canaccord Genuity. Please go ahead.

Good morning. I'm just looking at the new Canadian Banking slide that you provided on slide 6. And just on the revenue yields showing stable, the NIE offsetting the NIM pressure. So just on the NIE side on the yield, what kind of factors are kind of driving that? And is the message that the NIE is more stable or that could potentially increase over time as well?

Yeah. Thanks for that question, Scott. The NIM is obviously a factor of the -- what you're paying on deposits as you well know and what you're receiving on the loan. So the mix has been a significant driver of our overall NIM and the [Indiscernible] as you referenced. And so as we continue to grow mortgage at an elevated rate, that will naturally come down because those products, because they're secured and well underwritten, tend to have a lower rate with the client. But as the green shoots happen that Dave talked to and we start to see credit card balances come up and we start to see commercial balances come up. we would expect that to start to bottom out, and then start to increase again. And that will help NIM overall bottom out and increase again. But importantly, because the volume growth is so strong, and because the deposit growth is so strong and it's very low costing, the net interest income has bottomed out and it has been growing and will continue to grow.

And what about on the nor side, is that also forecasted or expected to increase as it has over the past year?

Got it. It's me on the block, and I'll jump in. I think what we're trying to get across there is, on the other income side, really good growth year-over-year. I think a reflection of the diversification, just what we have within terms of the retail bank, strong growth in mutual fund trailer fees. Our new client acquisition over the last couple of years is paying off in higher service charges. We're starting to see a little bit of bounce back in FX. Our direct investing business obviously benefiting from the macro trend there. So I think the message here is, there is a strong contributor in other income, and that's I think really -- it's -- while NII is up 5%, NIM s are down obviously, but between the two, I think that's -- we're just trying to decompose the overall revenue contribution.

Got it. Thank you very much.

Thank you. The next question is from Sohrab Movahedi from BMO Capital Markets, please go ahead.

Yes. Thanks. That's actually a great segue to my question. I guess Neil, there is also a slide in here that talks about beyond banking for the Canadian business. So you're not attributing any of the fee income or other income results in your segment to these initiatives over here, listed on page 5?

Yeah. I think what we're really trying to get to there, in terms of our strategy is two things we'd say really, our continual focus is the value for money we are providing clients and our distribution to be able to get in front of more clients year-over-year. What we're really kind of layout here is, we are starting to play upstream and downstream in terms of the client's value chain. And an example here with the owner that Dave talked about, we are seeing an increase in new small business accounts related to our investment and owner and really pleased with the trajectory, really pleased with our ability to turn those new business registrations into RBC customers. So there will be one example. Another example around the value play is RBC Insight Edge, you see there, this is an example where we're taking our data and we're turning that into new value in terms of being able to tell a merchant a B2C business client more about who they're consumers are, MIS that they wouldn't usually have that we can then provide them on a confidential -- sorry -- on an anonymized basis. But those are a couple of examples as you get in sort of further down the value chain there. RBC PayEdge, that was something else Dave touched on. This was a product we developed and really built out after our 2019 acquisition of a small Company called WayPay and what this does is that automates and -- it automates the accounts payable and reconciliation process, so again, taking another part of that of entrepreneurs business and really simplifying until they can save costs and drive more convenient. So those are the types of things that you start to see represented on this slide. And our confidence in terms of the strategy just continues to grow.

Neil, if I could just have a follow-up. Is it fair to say then that the benefits of these initiatives listed under the beyond banking slide, primarily -- first of all, accrue to your business, number 1, number 2, they accrue probably both in terms of top-line growth, but maybe even efficiency improvements I suppose, and operating leverage. But most importantly through increased customers which, ultimately in a kind of concentrated mature space. I guess what I'm trying to figure out is, how much of it is growing the pie? How much of it is increasing your share of the pie? And is this primarily a market share grab or benefit or gain or win in Canadian Banking, and how much bigger can you get, I suppose?

Yeah. Great question. So something like [Indiscernible] would be what we think about as top of the funnel. So that would be driving new clients. An example like Insight Edge. There is a fee revenue stream that comes off of that, as we charged those merchants. As you move down into the RBC PayEdge, the other example I used, or in PayPlan, which is another value proposition we're putting into merchants. And this is the income. And so there is, I would say a share of wallet and then -- and another income contribution from both of those. So it is really both.

This is Dave. I think that the key is both attracting more clients and new clients, as I mentioned, 20, 000 new clients on the small business side this year alone. We could also show you an ecosystem like this in home equity and everyday payments and shopping. So we gave you an example of a well-constructed ecosystem and our business and commercial side, but this is obviously a big part of the strategy we articulated at Investor Day 4 years ago, that's really coming to life to drive both client acquisition, but also an expansion of fee opportunity and new revenue streams to the bank.

Thank you, all.

Thank you. The next question is from Gabriel Dechaine, from National Bank Financial. Please go ahead.

Good morning. A couple of quick ones here, one on the expense, the outlook there for ROD up 1%, down 1% in the non-comp -- variable comp category? Is that the focus on that number? Like is that one where you're continuing to grind it down over the next year-and-a-half or whatever or do we start to see ramp up? And then on the discount brokerage size -- side, could you quantify the revenue exposure there where we're seeing some competition on the commission rates.

I'll start. And thanks, Gabriel. I'll start on the expense and then hand off to Neil for the discount, for the -- I'm sorry, for direct investing. So on the expenses, this is a continuation of the cost management program of our efficiency initiatives. We look to spend dollars where it makes sense to continue to grow market share, to continue to invest in distribution. And we think that's one of the key reasons why we're growing market share in our core businesses. And that's not only people but also technology. and we will continue to do that, but we're also going to continue to, as you refer to, grind down other costs in an effective way as we digitize and leverage that technology, we expect other cost growth to moderate. Now, is it going to be negative or 0 for 5 straight quarters after it's been negative or 0 for the last 5 straight quarters? Unlikely. It's probably going to have a little bit of uptick on that, but it's not going to grow wildly. It's not going to get up to mid-single-digits. It's going to be lower single-digits. And then the rest of the expenses will flow in accordance with variable compensation for our Financial Advisors, for our Managing Directors and whatnot, and for our employees at large. So that I think is the outlook for expenses. And I'll hand it off to Neil for direct investments.

Sure. Thanks, Gabriel. Yeah. In terms of the competition, we're seeing there. I mean, we've seen one more player go to 0 on commissions. We have another player in the market who's already there. The announcement this week was some -- was from a player who has a very, very small market share. As we look at again, the focus on value for money for our customers, we feel there is good value in the RBC Direct Investing platform in terms of the toolsets, we have there, the top-tier research. One of the few to provide free streaming quotes. So I think the value is there, I think one of the differences is also we look at the investment market on a holistic basis. So between Doug's business and ours, between the branch retail customer, a DI customer to a DS customer, or the [Indiscernible] offering. We have value propositions and every portion of that market, A large portion of our direct investing customers are also banking customers. So again, the value comes from what they're paying for trade, but a good portion of those also participate in the RBC Vantage program and they are actually receiving discounted banking fees for that. So another way that we're delivering value. So I think those are the things where we're focused on. We Will obviously watch the market, but we're committed to having a strong value proposition and every space to that market. And in terms of what that would mean for us, I mean, I wouldn't say as we look forward, this is not a material part of the retail bank's revenue line.

Sounds like you're in a rush to follow that pricing strategy. Thanks.

We'll move on to the next question. Thanks.

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

Hi. Good morning. Just on the credit card businesses, balances are up quarter-over-quarter, still down year-over-year, but I'm curious the percent of clients that are paying down balances monthly today versus pre-pandemic. And so how much of the growth is coming from the revolver side? And maybe given the higher liquidity, might the rebound on the net interest income from higher card balances lag? Is that a fair assumption? And then maybe if I can tag on something else in terms of what you're doing or what you're seeing from a buy-now-pay-later trend perspective and how -- if you feel that's a threat. I believe you've done some stuff in that marketplace. Maybe you can talk a little bit about your thoughts on that as well. Thank you.

Sure. So in terms of the card book, I think that's the appropriate split if you want to look at it in terms of the 2 large segments, the transactors. We're paying their credit card bill in full every year where the focus is really on the fee side, as well as interchange. Those transactors are driving disproportionately this increase in spending, and are also driving disproportionately the increase in what you're seeing in terms of balances. On the revolver aside, we actually have seen that mix, actually, the percentage of revolver has come down versus pre-pandemic and a direct correlation to the stimulus in the economy and the conversations we've had about the average Canadian just having more in their deposit account. So there has been a segment that used to pay us interest that no longer pays us interest. I would say the timing of when that comes back I think is obviously really hard to predict, but I would say your point on it will be expected to lag is absolutely, absolutely right. I mean, when we look at it, the encouraging sign, Dave touched on is, spending is up even versus 2019. And we talked about categories, I think last quarter that everything was up except for travel and dining. We're seeing dining get fairly close to those 2019 levels. And while travel isn't there, it's really spiked since the sorting of mid-May. So a lot of positive signs. So the effective yield on the portfolio is down, and that's part of our NIM story. In terms of buy-now-pay-later, what I would say is there are options that the clients have and it was a good article in The Globe about how this may play out differently in Canada than other markets. You're already seeing a number of credit card issuers launch capability for clients to select almost any transaction over a certain threshold and be able to turn that out. I think that would play out differently in Canada. But we do look at buy now, pay later as something that merchants have said, this is a value and they want to have it, particularly in their digital properties. And that's really what led us to launch PayPlan. So we're participating in -- on both sides of that equation, and really look at it as more so, not a real headwind for our lending business, but more so a value proposition merchants are going to expect.

Thank you.

Thank you. The next question is from Lemar Persaud from Cormark Securities. Please go ahead.

Thanks. So I have a more of a big picture question. I didn't think I'd be sitting here talking about Royal delivering a near 20% ROE, while holding 30.6% in common equity Tier One capital. But here we are, is there any reason you think that a 20% ROE wouldn't be sustainable going forward. I appreciate there's a number of big puts and takes normalizing the credit environment, but on the plus side, the potential return of capital. So I guess where I'm going at is maybe can you talk to me about where you see the ROE for Royal playing out over the longer term? Thank you.

Thanks for that question. It's obviously something that we think about as well. I can give you maybe some of the bigger drivers of positive and negative to those ROE s. And we can talk about the ranges. Obviously, ROE is well above our medium-term objectives. So some of the positives as we've talked about on the call already are higher-yielding asset growth, such as credit card revolve rates coming back, credit card spends, and with all the revenue drivers and NIM stabilization and NIM expansion being really positive for ROE, particularly in Canadian Banking, but also City National. You can't underestimate the impact. And we have inserted the interest rate sensitivities on the City National Balance Sheet of the impact on our revenues of the year-over-year rate decreases. So I think as those come back, as rates come back, those are all positive drivers for ROE's on our existing Balance Sheet and our existing capital base. So if you don't have to put more capital against a return of revenue, that's obviously ROE enhancing. Our very strong fee-based revenue generation and the mix that we have, which is market-leading is again, really positive for ROE, is the strong investment banking pipeline that we have and our goal to continue to advise clients and generate fees off our existing Balance Sheet and generate more turns to that Balance Sheet than we have in the past. All our ROE, enhancing capabilities. And obviously, as we've talked about, returning capital to shareholders and through dividend share buybacks are all ROE enhancing as we manage that base of excess capital. And knowing that if we do make any inorganic play, it will certainly be for strong growth and very conscious of any dilution. So those are how we're thinking about capital. So I would say when you net the tailwinds, headwinds, our particular franchise has a significant opportunity to enhance revenues from the existing deployment of the balance sheet and RWA. And I think that's -- we've earned through that, as I've said in almost every call up until Q3, quite nicely in those headwinds. And therefore, when those headwinds become tailwinds, are ROE enhancing. And Rod, I will hand it to you to add some more color. It's a really important question.

Yes. Thanks. Dave covered the key core business drivers. Couple of things I look at and we have it on the slide. One of the first slides, book value per share, growth of 12% year-over-year, tangible book value of 17% as part of that is showing that our organic client-driven growth, then our RWA has had an annual CAGR of 3% growth since that acquisition and our EPS has grown nearly 12%. And so as long as we can continue that velocity of growing earnings and client relationships faster than capital, we're going to continue to be [Indiscernible] to ROE. But as Dave pointed out, as you point out your question, it's not going to be at this level because we're not going to a big reversal every quarter on PCL. So you strip that out, and we should see our ROE in the high-teens and with an upward bias.

Great. Thank you.

Thank you. The next question is from Mario Mendonca from TD Securities. Please go ahead.

Good morning. Graeme, can we go back to some of the outlooks you offered earlier on where you suggested that impaired loan PCL in 2022 might be above the long-term average for Royal. I think that's how you phrased it. If I look at the long-term average for Royal impaired, you're probably talking something like 25 to 30 basis points over the very long term. And this year the impaired is only about -- might only be about 10 basis points. So we're talking about a near tripling of impaired loan PCLs in 2022 relative to 2021. So to offer that outlook, it seems to me that you are seeing something that's encouraging you to call for a near tripling in the impaired loan PCLs. Firstly, did I get my numbers right? And secondly, what might you be seeing?

Thanks for the question. Yes, I think your general numbers are about right. I comment on a few things, one is I think we talked about in past quarters. There are really 3 things we've been looking at here. Let's assess our forecasting uncertainty around those. 1 was progressing on vaccines, 2 was the subsequent reopening of the economy, and then 3 was the government support and significant levels of government support. And certainly what we've seen really great progress on those first two points. It's the third point that's still, significant and will inflect the trajectory of loan losses as we head into 2022. Part of the debate that we've seen over the last year is the degree to which that government support differs or mitigates those losses. And I think the further that government support goes and the further it goes into the economic recovery, it pushes more and more towards mitigate and not just deferring those losses. And so I think there could be a period in 2022 and certain of our portfolio that we will see our loan losses, our stage 3 loan losses get up to around our long-term averages. But as I said in the -- in my comments, we have very significant stage 1 and 2 reserves in place right now, and that we would expect that to really be offset or funded by releases in stages 1 and 2. So that that total mix, if you will, remains well within our long-term averages, as you articulated.

So if we go back then to the notion that the impaired loan losses could be higher in 2022 than the long-term average, would it be possible for you to highlight what specific product lines you would point us to? Would it be something like credit cards and personal loans? Would it be more like a commercial or is that just a little too granular at this point in time to comment on?

Yeah. I would work pointed towards where we see government support, both significant rate and so that's going to be in large part, more in our personal and commercial businesses, where we've seen significant government support, both benefiting consumers as well as businesses. We've seen that factor insignificantly along with all the actions the consumers are picking themselves, obviously to effectively suppress loan losses to very low levels that we're experiencing right now. As we've noted, we are seeing the lowest level of new formation that we've seen in a long, long time. And so those are all positive factors in the near term. But one that we don't necessarily expect to see persist over the long term. Well, recently, we've seen obviously in the wholesale side our PCL all are state 3P sale has benefited from recoveries, right? We've seen recoveries in all three businesses that have kind of, again, suppresses the near-term stage three of reserves we've put in place. So again, I think some of those will normalize, but certainly, we're really looking to see how the government support rolls off, and all that consumers transition back into the economic recovery out of low impact or loan losses. And so we do expect it will rise over 2022. Till we get to that point, as I indicated, and as I said, it will be funded in part by releases in stages 1 and 2.

Let me put another lens on it, Mario, which might help also. Because I don't know if you picked up on this in Graeme's comments, was this is we still have a significant stage 1 and 2 build front since the pandemic and we still have 60% of what we added on our Balance Sheet. And so implicit in that is that we will incur losses on those, which means higher stage 3 than what we've been seeing. So if we don't see those losses, we would expect to release some of the reserves. If we do see some of the losses, we would use the stage 1 and 2 against those. So I think those -- what Graeme is talking about is implicit in our allowance for loan losses as well.

Okay, that's helpful, thank you.

Thank you. [Operator Message] And your next question is from Ebrahim Poonawala from Bank of America. Please go ahead.

Thanks for taking my question. Just wanted to follow up, Dave, you spend a lot of time talking about RBC Ventures and new ways of client acquisition. Just talk to us, I think one of the conversations just from bit longer-term investors have centered on one, what does a structured open banking framework in Canada mean with regards to your grip on the client wallet share, like is there a risk to Royal? And then looking externally, does FinTech create M&A opportunities or partnership opportunities in the U.S. or in Europe for RBC to play a disruptor role, as you've seen with some of the U.S. big banks trying to do?

That's a great question and thanks for coming back on and asking that. I'll give a strategic perspective. Neil is, obviously, very active on the strategy and on the policy within Canada that's being discussed right now. I have to say we're anticipating a more open market. We're anticipating disruptive tech platforms that we've talked about for the last 5 years. And therefore, when you think about ventures when you think about owning when you think about these ecosystems, we feel they're all designed to compete in this type of marketplace. So when we think of open banks and the ability to, see more clients and attract them through our beyond banking ecosystems, we think we're well prepared to compete in an open banking world. We've been preparing for this. One of the reasons why create more value for customers is the rallying cry, and the core strategy is around wrapping your arms around clients, creating value, making it very hard through RBC Vantage, through our partners like DoorDash and Petro-Canada to pull a client away. So we feel really well prepared with how we've wrapped our clients and value to compete. And therefore, if we have access to other clients with all the channels we have, we think open banking can create a significant opportunity for RBC, and we don't fear it. So with that, Neil, specifically, you worked on policy, you worked on the strategy, over to you.

Yes. Thanks for the question. So in Canada, it's -- this has been a file that's been open for quite a few years now. And the advisory committee has just now submitted the report to the government. But the industry has been working I'd say very collaboratively to make this come to market faster than some may think. We've already land as an industry on what's called the FDX standard. So we have a format that we can start to put in place to exchange data in a safe and private way. I think these are some of the paramount concerns. So at the end of the day, I'd say, we are supportive of open banking and look at it as it's something that clients are asking for. It's not about being made to do it, it's about something that we see clients really having a right in terms of the portability of their data. I think it's important to sort of call out. If you look at other regions, particularly in the UK, which was one of the early movers. There wasn't in that market a really increase in churn, and there haven't been many markets where you've really seen a lot more competition. I think if that does happen if Canada were to play out differently, I think we view this as an opportunity a lot more than a risk. We look at our value propositions. Dave spoke to some of the new ones we're bringing to market, but the core retail banking value propositions of our product line or ability to reach out to customers and the way we use data now, we believe there's a real consolidation of the wallet opportunity in an open banking environment that net we come out as a winner. So I think those are probably the things to take away is that the industry is working together to try to get this to happen. And that there's a lot of safety and privacy concerns to get right. But it will enable some of the things Dave spoke about. And if there is more churn, then we're ready to get into it.

That's helpful. And just in terms of when you look at the U.S., Dave, is there an opportunity for on the consumer side given like City National is a very niche focus, is there an opportunity for oil to play the disruptor role in U.S. Retail Banking and on the consumer side?

Yes. It's a great question. It's something we've been thinking about for quite some time. I think the key strategic capability you need is a partner that gives you access to those clients. It's very straightforward to build a direct-to-consumer deposit bank, but you pay wholesale rates or plus for those deposits that make it very difficult. The key is to have an asset generator along with the deposit taker where you need a core strategic partner is the best way to go to market. We've talked to many partners. It's still on the strategic table and, I guess, it's something that I can see RBC doing in a direct-to-consumer way. As I said before, we do not see ourselves being a mass consumer branch-based bank, I'll say that again, just because I know investors want to assure that. But a direct-to-consumer with a strategic partner is a very effective way to go to market versus a funding model of direct-to-consumer, which is high-cost savings, is always accessible to us. We've held off given obviously the long deposit position we have right now. It's not worth launching that. We have it on the shelf ready to go, as we've talked about before. So that would be how I would think about direct-to-consumer strategically in the U.S.

That's helpful. Will stay tuned. Thanks, Dave.

And one more question, I think we'll take, and then we'll wrap up.

Thank you. And the final question will be from Nigel D'Souza from Veritas Investment Research. Please go ahead. Nigel D’Souza: Thank you. Good morning. I just wanted to touch on the risk-weighted assets and PCL reversals in the quarter. And should we expect those two items to move in tandem? So what I'm getting at here is, as you reassess and lower your probability of default assumptions should we expect that to drive your PCL reversals, as well as have a benefit on the RWA side through a lower risk weighting. Is that the right way to think about it?

I know. I'll go, it's Graeme. I'll start with that and if Rod wants to chip in, he can add to that. But they should be correlated, but they're not -- they don't correlate one-to-one. So the [Indiscernible] probabilities that go into RWA, are designed to meet the regulatory purposes there, and so they are really meant to be very long-term averages. And so what we do reassess those annually, they won't change dramatically from year to year. We saw obviously a significant shift this year, but that was a byproduct of a big investment on our part to kind of reevaluate our methodology there, a big investment in data to get more granular, and then kind of a onetime methodology change. IFRS 9 is meant to be more of a point-in-time estimate of defaults. And so that's more of a real-time impact that will translate through. So directionally they should correlate, but they certainly don't correlate one-to-one.

The only thing I'll add and then turn it back to Dave is, I would expect -- because that was a one-time decrease in our parameters -- wholesale parameters, I would expect RWA to have an upward bias from here as we continue to grow clients and our businesses. And I would expect the allowances to have a downward bias as we continue to work through the pandemic and the reserve build that we built since then. So with that, I'll turn it back to Dave.

Thanks, Rod. Maybe I'll just say a few wrap-up questions. Really appreciate the comments today, which thematically were centered around, how are you going to grow? How are you going to adapt to a changing world while it's a policy-changing world, deal with variants, and deliver shareholder value? And I think just to reinforce our comments around growth, whether it's in Canadian Banking from cards, revolving credit growth, well-positioned on commercials have drawn down on lines in more term lending with our existing facilities. One thing we didn't mention is 1/3 of all our mortgage volumes are now in new clients. First-time clients of the bank. And now we have a unique opportunity to cross all those clients into RBC Vantage into a number of other investment products. So very attractive client. And that's different than it was 5 to 10 years ago were potentially 80 plus percent would've been already existing clients. At City National, we've talked about our core commercial capabilities. We talked about moving into the mid-corporate area and growth in our high net worth core banking are all key abilities for us to continue in a lower risk, higher ROE, core growth that we've enjoyed now, for the last 5 years. We didn't get a chance to talk about Canadian Wealth today, but outstanding results in our asset management business and Global Asset Management and in our Canadian Wealth franchise, capturing a disproportionate share of investment growth in the country, whether it's AUA or AUM. And obviously well poised to continue to grow that, we've invested not only in their people but our technology. And we're cross-selling better off of that. So when you look at the capital markets and the investment banking pipeline, obviously, we're really well-positioned. We didn't get a chance to talk about that today, but a really strong pipeline. And obviously looking for year-over-year in our trading businesses, it was particularly in FIC was a difficult year-over-year, adjustment, but we hope some of that does come back. Really strong cost control, and I would say on the risk side, we don't see anything in the portfolio and a very strong adjudication. And our growth has been increasing at a higher ROE lower products, particularly mortgages in the U.S., mortgages in Canada, which is why we inserted that new slide to give you an idea. It's not just the NIM, but it's a NIM after risk-adjusted that you have to also be cognizant about, what ROE s are you driving for your organization. So when I think about risk, our strong ability to manage risk or a premium growth -- investment for growth. And we got some great questions on Ventures today and around the ecosystem beyond banking, which will drive not only new customers but are already starting to present new revenue streams for the organization. So thank you for a very strong series of questions today. I will see you in Q4.

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