Operator: Good morning, ladies and gentlemen. Welcome to the RBC 2013 Second Quarter Results Conference Call. Please be advised that this call is being recorded.
I'd now like to turn the meeting over to Ms. Karen McCarthy, Director of Investor Relations. Please go ahead, Ms. McCarthy.
Karen McCarthy - Director, IR: Good morning, and thank you for joining us. Presenting to you this morning are Gord Nixon, our President and CEO; Morten Friis, 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 is one hour long and will end at 9.30 am. To give everyone a chance to participate, please keep it to one question and then re-queue. We will be posting management's remarks on our website shortly after the call.
Joining us for your questions are George Lewis, Group Head Wealth Management and Insurance; Doug McGregor, Chairman and Co-CEO, Capital Markets and Co-Head of Investor & Treasury Services; Dave McKay, Group Head Personal and Commercial Banking; Mark Standish, President and Co-CEO, Capital Markets and Co-Head of Investor & Treasury Services; and Zabeen Hirji, Chief Human Resources Officer.
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.
Gordon M. Nixon - President and CEO: Thank you, Karen and good morning, everyone. I'm pleased to announce that RBC earned C$1.9 billion in the second quarter up 26% from last year. Excluding certain items pertaining to our acquisition and the integration of RBC Investor Services, which Janice will expand on in her remarks, our earnings were approximately C$2 billion, up 13% from last year and excluding amortization of intangibles earnings per share were C$1.31.
We had solid earnings growth compared to last year across all of our business segments with Canadian banking and our Corporate and Investment Banking and asset management businesses, being particularly strong, but I would emphasize that all of our businesses were up. Year-to-date RBC has earned just over C$4 billion delivering a return on equity of 19.1%.
Our all-in common Tier 1 equity remained strong at 9.1% and that's not withstanding the 45 basis point reduction as a result of Ally. That strong ratio gives us flexibility in deploying our capital as we strive for the optimal balance between investing in our businesses for longer-term growth and returning capital to our shareholders through dividend and share buybacks, which we started with this past quarter, and as well as pursuing acquisitions like Ally.
The strength and complementary nature of our diversified business continues to contribute to our earning power. Even as the Canadian banking industry is facing slower growth, we remain confident in our ability to successfully execute on our strategy, extend our leadership position, and invest for long-term growth. In fact, during the quarter, we were recognized by Bloomberg in their annual list of the world's strongest banks. RBC was ranked the fourth strongest bank in the world, up two spots from last year.
Let me now turn to our business segments. Personal and Commercial Banking had a strong quarter with earnings of C$1.1 billion. Our momentum in Canadian banking continues. Each of our businesses had solid volume growth compared to last year, as we continue to leverage our size and scale to take a disproportionate share of industry growth while profitably gaining market share. And our integration of Ally is well underway, we are seeing good progress as we have retained over 95% of commercial clients since closing this deal and our pipeline remained strong.
These results reflect our ability to meet our customer needs with a superior advice, convenient service and value for money, even as market dynamic shift. As we bring our advice and solutions to our clients, precisely when and where they need the most, we remain focused on innovation through new partnerships, online features and mobile applications.
As an example, we recently partnered with Dell, to provide secure integrated mobile payment solutions for both debit and credit transaction and with McDonald's, Moneris and BlackBerry to deliver the first Canadian mobile debit transaction, using mobile interact flash. We expect both of these applications to be rolled out more broadly by the end of the year.
I'm also pleased to note that our innovative approach to meeting our client's needs was recognized recently by Retail Banker International, as we took the top spot for the first time in the highly competitive innovative -- innovation in customer service category and for the second consecutive year, we were awarded Best Retail Bank in North America in recognition of the strength of our Canadian Banking operation including the size, scale of our distribution network and breadth and quality of our product offerings.
In Caribbean Banking, while our performance improved this quarter reflecting some signs of stabilization in credit quality, results do continue to reflect prolonged weak economic conditions in the region.
Turning to Wealth Management, we continue to see good momentum in both our Global Asset Management and Wealth Management businesses across most of our regions and we delivered another solid quarter of earnings. In Global Asset Management, we remain the leader in mutual fund sales in Canada capturing 23% of the market and net flow strengthened in Canada, the U.S. and BlueBay, which benefitted our institutional asset management business. RBC Wealth Management continued to gain market share and is the largest full-service wealth manager, asset manager and mutual fund provider in Canada, remain the clear leader. We ranked first among bank-owned brokerage firms in Canada in Investment Executive's Brokerage Report Card and were recognized in Canada for best private banking services overall by Euromoney.
In the U.S. we continue to make good progress on increasing the advisor productivity and efficiency to capitalize on improving market conditions. We were ranked the highest in investor satisfaction among all full-service brokerage firms according to JD Power and Associates. Internationally, we continue to expand our high and ultra-high net worth market share and leverage our capabilities to win more business.
Moving to Insurance; we had another solid quarter of earnings and this business continues to make consistent contribution to our diversified earning stream. In Investor & Treasury Services, we continue to make solid progress towards integrating RBC Investor Services and strengthening the business model to adapt to the changing operating environment.
While we continue to improve our efficiency and streamline our operations, we are also leveraging our reputation brand and financial strength to win new clients and business. Our commitment to delivering superior service to our clients was once again recognized by the R&M Global Custody.net Survey, where we recently one best overall custodian for the third year in a row. We also retained our title as Fund Administrator of the Year in Canada as part of the 2013 Custody Risk Americas award.
Moving to capital markets; we continue to see strengthen in our Corporate and Investment Banking business, as we remain focused on origination-led and client base lending and fee-based activities in our target sector and geographies. Our diversification is key strength and reflects what we believe is the right balance of business and geographies to derive growth while managing risk. Our U.S. business now generates significantly more revenues than our Canadian business and we continue to focus on building client relationships and increasing our market share. Our solid results in that market are helping offset the impact of the prolonged recession affecting many European countries, as well as some softness in commodity markets in Canada.
As an example of our strong momentum in the U.S. RBC acted as lead financial and technical advisors to SandRidge Energy, a U.S. based oil and gas E&P company on the sale of its assets in the Permian Basin to U.S. based shared and production partners for $2.6 billion. This transaction represented the largest single onshore conventional oil divestiture in the past 10 years. As part of this transaction, we also acted as lead arranger and joint book runner on the $1.7 billion five year senior secured revolving credit facilities used to fund shares and its acquisition of SandRidge.
Turning to global markets, while we have shifted the balance from trading to more lending and traditional investment banking and continue to realign our fixed income and global equities business to a more originated-led model results can be impacted by changing markets new regulations in slowing economies. While our second quarter results are typically lower than the seasonally adjusted strong first quarter results, trading was particularly soft in the latter part of the quarter due to persistent weakness particularly in Europe and a reduction in market volatility and some emerging regulatory reforms. But we have started to see trading volumes tick back up in May and we are seems to be off to a good start.
We remain focused on our originate and to distribute model and increasing our relevance to both issuing and investing clients to produce sustainable fee-driven income stream. We are happy with our progress thus far. We've increased our global fee market share for our debt capital markets business by 38% from last year, according to Dealogic, and we have increased the number of book run deals in North America by 23% in the last six months.
To conclude our results, this quarter demonstrates our ability to extend our leadership position by successfully executing our strategic initiatives and making focused investments that deliver long-term shareholder value. Looking ahead at the remainder of 2013, the industry will continue to face some economic and regulatory headwinds; however, we do remain confident in our ability to deliver solid results, and we are on-track to meet our financial objectives.
With that, I will turn it over to, Morten.
Morten N. Friis - Chief Risk Officer: Thank you, Gord. Starting with credit on Slide 7, overall our credit quality improved compared to the prior year and prior quarter. Provisions for credit losses and impaired loans were C$288 million this quarter, down C$61 million over last quarter, or 6 basis points, to 29 basis points. The main driver of this decrease was lower provisions in capital markets, where provisions were C$40 million, or 31 basis points, down C$69 million compared to the prior quarter.
Provisions this quarter were related to couple of accounts within the technology and media sector. Loan loss provisions within our wholesale portfolio should be expected to show some degree of variability from period-to-period, with this quarter’s provisions falling at the better end of the range. Overall, we remain comfortable with the quality of the wholesale loan book.
With respect to Canadian Banking, provisions were C$234 million, up C$21 million over last quarter, or 3 basis points, to 29 basis points. We continue to see stable performance in our retail portfolios, with provisions on residential mortgages of 2 basis points and 279 basis points for cards. Provisions in our commercial portfolio were up slightly this quarter at 33 basis points.
Overall, provisions were 29 basis points from our Canadian Banking portfolio; remain near historic lows, reflecting very strong credit performance across all products. In the Caribbean, provisions on impaired loans were C$19 million down from the prior quarter, which we believe represents sustainable level of loan losses for this portfolio.
Conditions in the Caribbean remain challenging and achieving ongoing stability in asset quality will depend on improving economic conditions in the region. With respect to gross impaired loans, new formations increased slightly over last quarter, but remained within our historical range.
Turning to market risk, value at risk was C$42 million and average stressed VaR was C$84 million, both at similar levels to last quarter. During the period, we had 3 days with net trading losses totaling C$5 million, none of which exceeded the market VaR, with the largest loss of C$2 million driven by RBC's credit spread tightening.
With that, I'll turn the presentation over to Janice.
Janice R. Fukakusa - CAO and CFO: Thanks, Morten, and good morning. Turning to Slide 10, we had a strong second quarter with earnings of approximately C$1.9 billion. Excluding the restructuring charge in the current period related to the integration of Investor Services and a loss in the prior year related to the acquisition of the remaining 50% interest in that business, earnings were close to C$2 billion, up 13% over last year.
Overall, it was the clean quarter, and as Gord mentioned, we had solid earnings growth in each of our business segments, with particular strength in Canadian Banking, as well as our Corporate and Investment Banking and Asset Management businesses.
Turning to capital; our capital discussion on Slide 11 as you know, RBC along with five other big Canadian banks was designated a domestic systemically important bank by OSFI. As a result, we're required to maintain a 100 basis points capital buffer on top of the Basel III minimum common equity Tier 1 ratio of 7% by 2016. At 9.1% our common equity Tier 1 ratio remains comfortably above the 8% combined requirement.
Our Ally acquisition, which closed February 1, negatively impacted our ratio by 45 basis points, as well we began repurchasing shares this quarter under our normal course issuer bid.
Turning to the performance of our business segments starting on Slide 12, Personal and Commercial Banking earned over C$1 billion for the fourth consecutive quarter up C$117 million or 12% from last year, reflecting 9% volume growth in Canadian Banking, with growth across all of our businesses and particular strength in personal lending. Net income decreased C$63 million or 6% sequentially largely due to the negative impact of seasonal factors including fewer days in the quarter.
Turning to our Canadian business, the margins in Canadian Banking were 5 basis points from last quarter due to lower spreads reflecting the continued low interest rate environment and competitive pressure particularly in business lending. The Ally Canada acquisition negatively impacted our margins by approximately 1 basis point, primarily due to cost associated with the unwind of the deposits.
We also experienced some accounting volatility this quarter, which negatively impacted our margins by approximately 2 basis points. Of the 5 basis points decline about half is not recurring. As I mentioned on our last quarterly call, we expect margins to remain under pressure for the remainder of 2013 given the interest rate environment, slowing consumer lending and competitive pressure.
Let me briefly comment on Ally Canada. Ally contributed earnings of C$12 million this quarter or C$24 million, when you exclude the C$12 million of integration cost and amortization of intangible. Integration of the business is proceeding well and we continue to expect that it will generate earnings of around C$120 million on a standalone basis, excluding integration activities within the first 12 months after closing.
Our reported operating leverage and efficiency ratio were 0.7% and 45%, respectively. Excluding the impact of the Ally Canada acquisition, our operating leverage was 1.8% driven by solid revenue growth and continued benefits from our cost initiative. On the same basis our efficiency ratio was 44.6% down 70 basis points from last year and we remain committed to driving the ratio down to the low 40s in the medium term.
Turning to Wealth Management on Slide 13, net income was C$225 million, up C$13 million or 6% from last year due to higher average fee-based client assets, resulting from net sales and capital appreciation and improved transaction volume. Sequentially, net income was down C$8 million or 3% as higher average fee-based client assets this quarter were more than offset by the seasonality of performance fees earned in the first quarter. As a reminder, we typically recognized performance fees in the first and third quarter.
Moving to Insurance on Slide 14; net income of C$166 million was up C$15 million or 10% over last year driven primarily by a favorable change in actuarial adjustments, investment gains and favorable life experience. Compared to the prior quarter, results were relatively flat.
Turning to Investor & Treasury Services on Slide 15; earnings were C$67 million this quarter compared to a net loss of C$121 million a year ago. Excluding the restructuring charge in the current quarter, related to the integration of Investor Services primarily in Europe and the related acquisition loss in the prior year as noted on Slide 15, earnings were C$98 million, an increase of 21% over last year and were up 23% over last quarter. Earnings grew over both periods, reflecting improved results in Investor Services as we benefited from ongoing cost management activities, higher foreign exchange revenue and higher fee-based client asset.
Our results were partially offset by lower funding and liquidity revenues. As Gord mentioned, our Investor Services integration efforts are well underway and as the majority of our integration costs occurred this quarter, we anticipate these costs to decline for the remainder of 2013.
Turning to capital markets on Slide 16; earnings of C$386 million were up C$15 million or 4% from last year, driven by strong growth in our Corporate and Investment Banking businesses, particularly in loan syndication and lending in the U.S. This strong performance was largely offset by lower fixed income trading in Europe, particularly in the latter part of the quarter, driven by challenging market condition.
Compared to last quarter net income was down C$78 million or 17% mainly due to lower fixed income trading results, driven by challenging market conditions and seasonally strong first quarter. While our Corporate and Investment Banking results were solid, they were not as strong as the robust levels we saw last quarter, when we closed a number of large M&A and loan syndication deals.
To wrap up, we're very pleased with our performance this quarter. Every business segment grew earnings compared to last year, demonstrating the continued strength of our diversified business model.
At this point, I'll turn the call over to the operator to begin Q&A. Please limit yourself to one question and then re-queue, so that everyone has an opportunity to participate. Operator?
Operator: John Aiken, Barclays Capital.
John Aiken - Barclays Capital: Janice a couple of quick questions on the personal commercial margins. Can you give us a little more context about the accounting volatility that you mentioned? In the Caribbean can you give us some flavor as to what's going on with the margin compression there it looks to be fairly significant this quarter and should we look at that in context with the improving provision for credit losses coming out of the region?
Janice R. Fukakusa - CAO and CFO: Thanks for the question, John. I'll first address the margins in Canadian Banking. The accounting volatility that we are talking about is on cash flow hedging and it's basically with respect to our mortgage book. It is basis risk that we are exposed to and going forward we don’t see that happening. So, it was a one-time adjustment that we have. When you look at the issue with respect to Ally it is about the deposits and some of the high cost deposits and the wind down of that business. So when you look at what we're looking at in terms of margin compression, we've always signaled that there would be around 2 basis points compression as we went through the year, because of what was happening with interest rate. So, I think that we are on where we thought we would be with respect to the margins.
David I. McKay - Group Head, Personal and Commercial Banking: John, it's Dave. On the Caribbean you are seeing a similar core impact on the lower rate environments in the Caribbean with the struggling economies and the interest rate environments and the rollover of our loans into lower yields in general. So, a very similar type of impact in the Caribbean right now.
John Aiken - Barclays Capital: Dave, in the Caribbean now, are you – when you are rolling over those loans, as we are seeing the provisions decline, are you moving back on the risk or is this purely just the environment in terms of low risk environment and what you actually can charge in the region.
David I. McKay - Group Head, Personal and Commercial Banking: That’s a great question. I'd say yes, we are moving back on the risk as we've cleaned up our book and taking charges over the last four to six quarter as you have seen. Certainly our risk appetite is one of caution on the commercial side, given the challenges in the economies right now.
Operator: Robert Sedran, CIBC.
Rob Sedran - CIBC: I guess it's a question for Morten. We have seen credit card loss rates at some of your competitors this quarter actually come down, albeit from higher levels, and I'm wondering if the increase in your credit card loss rate this quarter is just related to seasonality. And perhaps if you can – what your thoughts are about the direction of these loss rates overall? Are we basically at trough levels and are just going to bounce around a little bit, or is there some kind of trend still taking place?
Morten N. Friis - Chief Risk Officer: I'll start, and Dave may want to fill in. There is a seasonal feature to this, but I guess from a risk management perspective, I'd say that having the cards portfolio perform at loss rates below 300 basis points is a good place to be in this part of the cycle. And I'd say, so seeing the levels that 279 basis points, while it's up a bit from last quarter, it still reflects very strong performance, and I'd see bouncing around of those levels if the economic conditions remain where they are.
David I. McKay - Group Head, Personal and Commercial Banking: All I'd add is that we have very strong origination growth, so normally cards exhibit a little bit higher rate the first year they are on the books that first year advantage. So, a little bit of the strong acquisition trend we're on. But as Morten said, the absolute rates of the card portfolio, given the yields are in the 11% to 12% to, is a very, very profitable place to be. So, no concerns there whatsoever.
Operator: Peter Routledge, National Bank Financial.
Peter Routledge - National Bank Financial: A quick question for starters on Page 22, you give the average LTV of 47%. I'll make an assumption that that is an average LTV weighted by property value. One of your peers disclosed the LTV if it was weighted by mortgage balance, and it's quite a bit higher when you weigh by mortgage balance at least for one of your peers. Would it be 5 to 10 percentage points higher if you weighed it by a mortgage balance?
Janice R. Fukakusa - CAO and CFO: Yeah, Peter, it’s Janice speaking. We'll have to go back and confirm that, that particular metric. We'll try to get some information during the call, so why don't we get back to you on that?
Peter Routledge - National Bank Financial: No problem. Just on mortgages, there's been a lot of rhetoric about put-back risk in some corners, and the risk being there would be systemic put-backs by CMHC to the banks, and therefore you'd have higher mortgage losses than historic norms, and the trigger often cited is just faulty appraisals. Is there any reason to think that there is a systemic issue with appraisals that might redound on the banks in the form of the CMHC refusing claims, I mean, do you – how likely an outcome is that?
Gordon M. Nixon - President and CEO: One, most of the banks, including ourselves, use the emili appraisals service, which is CMHC’s own appraisal, as they would do their own due diligence with emili. So, I don't think it would be the nature of the appraisal service. I think where operational risk evolves is the representation of the fact. So, if they were to go back to the loan application and find that the facts on income or on rental versus cost, other costs are different than what was presented during the adjudication process, then I think you have technically an opportunity to negate the claim. But I don't think it's just on how you use appraisal. It's really the adjudication process that would create most of the operating risk, which is why our bank, including I'm assuming most others, are very careful about our facts that are being submitted and how we put those applications together.
David I. McKay - Group Head, Personal and Commercial Banking: I would just reiterate. I think that in summary the likelihood of that is almost non-existent.
Peter Routledge - National Bank Financial: Just to clarify the emili system, that's a technology service that CMHC generates revenue from, right?
Gordon M. Nixon - President and CEO: Right. But I would assume they use for their own appraisals. They make their own adjudication decisions themselves.
Morten N. Friis - Chief Risk Officer: Well, Peter, it’s Morten. Just in terms of the use of emili, I mean, it is one of several tools that we use, depending on the property we have full appraisal or – so emili is a supplemental tool that we use in the appraisal process. To reiterate Dave's point, the risk around refusal on the insurance all relates to the accuracy of the documentation that we provide, we have ongoing audits and reviews with CMHC and our track record with them is extremely strong. So, the point on the risk put-back here, first of all, would be completely inconsistent with our historical experience with them, and as Gord was saying, I think it's an extreme tail risk where they obviously as an insurer have some ability to dispute claims, but I think our track record on accurate documentation is pretty strong.
Operator: John Reucassel, BMO Capital Markets.
John Reucassel - BMO Capital Markets: Question for Mark, just on trading. Gord mentioned that trading has picked up since quarter end, could you just give some flavor on that, because volatility has picked up. We are missing something in client flow or client or is client flow picking up. And then just on the regulatory issues in Europe, do you expect Europe to respond to kind of how the U.S. has imposed stricter rules on foreign subs, if so what – is it prudent to expect that if not, why not and how does that impact Royal's European business there.
Mark A. Standish - Co-Group Head, Capital Markets: I'll handle the market question first, I'd refer you to Page 33 of the reported shareholders, where you can see the revenue and VaR chart and you can see that the second half of the quarter was very quiet indeed. As we mentioned Europe was extremely quiet, we basically didn't make any money there, but also the REITs business in the U.S. was also flat quite. One of the reasons for that is we have the U.S. 10-year down at 1.63% and went down that was very little secondary activity. On the positive side however, we did see very good debt capital markets, DCM activity. Corporate bond issuance in the U.S. now accounts for about 45% of our global DCM revenue two years ago, it would have been 25%. Now what’s different with that than usual is at such low rates, we were advising clients to issue fixed debt and not to swap back to floating. So, we didn't get that additional secondary – a lot of that additional secondary flow activity that we would normally see. Now coming in to May as Gord mentioned, we've had a pickup in volatility in rates. We've had a 60 basis points increase in 10-year U.S. governments. We've had a lot of volatility in other markets, Japan in particular. Now we've seen certainly a pickup in secondary flow. Other products performed quite well through the quarter foreign exchange, credit, and municipal products performed quite well and I think as Gord said, May is off to a fairly strong start. In terms of the – do you want to do the European question?
Gordon M. Nixon - President and CEO: I mean, it's hard to know which is the chicken and which is the egg. I mean, the U.K. was the first to introduce Vickers which was their form of ring-fencing and obviously now with the potential legislation with respect to FBO in the United States you're seeing some of that obviously in the U.S. I think from our perspective we would be more focused on how the U.S. is going to unfold rather than U.K. I don't think it will have much of an impact or much change with respect to the U.K. and certainly the nature of our operations in the U.K. because it's primarily capital markets and Wealth Management. So, to answer your question specifically, with respect to U.K. we don't think it will have much of an impact, but we're obviously watching the U.S. very closely in terms of how the rules may unfold with respect to subsidiary regulation in the United States and we're quite comfortable in terms of our ability to manage that as we've said in past quarters but it will obviously have an impact on structure.
Morten N. Friis - Chief Risk Officer: But John it is definitely weighing on activity levels in Europe all of this regulatory uncertainty and now you can add to that given the results in the U.K. and the strength of U.K. with respect to exiting Europe for the U.K. it has that added uncertainty in that the market has to deal with. And it’s probably not going to improve much in the short term either.
Operator: Michael Goldberg, Desjardins Securities.
Michael Goldberg - Desjardins Securities: I want to follow-up on a question I had last quarter and that related to Ally. At the end of January the personal demand and the notice deposits in ResMor, were just under C$1.6 billion and the latest number is about C$630 million. So you've lost about 60% of those deposits. My question is why didn't you just sell the deposit business? I know this isn’t as significant, these numbers aren’t significant but it will seem to me that getting something would have been better than getting nothing.
David I. McKay - Group Head, Personal and Commercial Banking: It's Dave here. The piece that you are not seeing is that we've been able to retain a significant number – amount of those deposits in our traditional business. So, while those high interest savings accounts migrated from 180 basis points to 120 we are able to migrate many of those balances over to our own high interest savings account. On the GIC side, we've been in the market with offers to our Ally clients, very attractive offers and we've retained a significant margin of those clients. So, we felt it was much more economical to retain that business in RBC product and to try to go through an extraction in sale of ResMor which we're going to extremely costly and our retention numbers bear that out.
Michael Goldberg - Desjardins Securities: So how much of that C$900 million in the first two months would have moved over to RBC?
David I. McKay - Group Head, Personal and Commercial Banking: We've retained I'd say between 70% and 75% of total HISA and GIC balances. So, as you look at those decline in balance takes 75% of the delta and they would have moved over to RBC. The additional benefit of this is, we've had really broad conversations with those deposit customers and we've been extremely successful in broadening our relationship on the investment side at the same time, as we put our best investment retirement planners in front of that client base. We've seen significant investment in cross-sell in addition to retaining over 70% of the GIC and HISA balances. And so overall think the strategy to retain that business through organic channels has been very, very good for us.
Operator: Stefan Nedialkov, Citigroup.
Stefan Nedialkov - Citigroup: I had a question on the Insurance business. It's quite a volatile P&L this quarter. It looks like investment income was quite strong. Of course, the disability benefits were much higher as well. Some of your peers are also taking charges for low interest rates. Could you just give us a sense of how the P&L was likely to evolve for over the rest of the year? Should we be expecting sort of high investment income being offset by being marched by higher benefits or is this really just a one-off type of performance?
Janice R. Fukakusa - CAO and CFO: So, Stefan, why don't I first of all take you through some of the accounting where for -- some of the like qualities that we have, of course, we increased the revenue and then the policyholder claim is the contra or offset. So, those two lines we actually look at them together and look at the net number. And George will take you through some of the business color, but there is that nuance on the Insurance business and that's why when you look at our metrics we are always saying what a metric is without that in terms of revenue growth and the policyholder benefits, claims and acquisition, some of that reflects the policies that are owned by our policyholders, where we pick up the volatilities or the marking of revenue and the claims line. So, I think that, that if you look at the net income overall, that's sort of the best way to look at the business going forward. So, George, would you like to talk about that?
M. George Lewis - Group Head, Wealth Management and Insurance: And just to build on that, what you are seeing is actually from an earnings point of view and net revenue point of view really a lack of policyholder reasons that Janice just outlined, and I think overall for the quarter, it was a fairly solid quarter, and one that I think reflects the run rate from the business. The only thing I'd point out from here going forward to the balance of the year is that, we did not benefit in the first half in insurance from any new U.K. annuity contracts, and that’s the business where we take on longevity risk as pension plans are immunized. And that is a source of upside I'd say for the second half beyond what you are seeing in the quarterly run rate in Q2.
Janice R. Fukakusa - CAO and CFO: The one thing I'd also add is with respect to interest rates, we spent a lot of time neutralizing the business over the past 7 or 8 years for the volatility of interest rates. So, of course, lower interest rates will have an impact on the valuation of the liability, but we have put a lot of rigor around asset liability management in Insurance, so you would have seen over the past few quarters where comparable insurance companies have had way more volatility than we have because of the rigor we put around managing our assets and liabilities and we started that about seven or eight years ago.
Operator: Mario Mendonca, Canaccord Genuity.
Mario Mendonca - Canaccord Genuity: One quick question on the domestic and then I want to make sure I understand what you mean by half of the deterioration and being non-recurring. Does that mean that you get – all things held constant you would get to – call it 2.5 basis point list in the NIM next quarter or you are just saying that just won't reoccur?
Janice R. Fukakusa - CAO and CFO: We are seeing that won't reoccur. So when you are measuring NIM it depends on where you are quarter-over-quarter or a year-over-year. But we are seeing that our expectation given the low interest rate environment is about a one to two basis points decline per quarter as we move to the end of the year just because of our asset portfolios of course running off and the re-pricing that’s occurred in the market and it has to do with actual run-off in duration. So we've always signaled that, that would happen over the course of the year?
Mario Mendonca - Canaccord Genuity: And just real quickly on the reference that you are making to the regulatory issues impacting your trading revenue. What message are you trying to send us that if everything were precisely the same next year as it is this year and I know that's not really possible? But everything were the same except for the changes in regulatory like how much of your business would be impacted by the change in the regulatory changes?
David I. McKay - Group Head, Personal and Commercial Banking: I think you've got to look at that Mario by geography. In terms of Canada which performed quite well in the quarter it’s steady as she goes. In terms of the U.S. while there is a lot of uncertainty, the only thing that really is looming for us is the Volcker rule and we don't have the final rule to look at it yet. So, it is still tough to comment on that. So, the question I think really comes back down to Europe which is where we struggled for some time now, given the uncertainty from a credit perspective around severance and not just corporates. I certainly think in the short-term we will see some sort of improvement there. We have seen that as we come into May as volumes are picked up. But from a headline number perspective, I think what we have talked about in the past is still good. I think you will just see more of it come from the U.S. and more of its going to be linked to activity in debt capital markets, and less of it coming from Europe. But the jury is still out in terms of what we have got to do going forward there.
Operator: Gabriel Dechaine, Credit Suisse.
Gabriel Dechaine - Credit Suisse: I also have follow-up from last quarter mortgage risk rates in Canada. So, you are the only bank that actually focuses on the mortgages, you don't lump in HELOCs in the exposure. But I estimate like it for Canada or about the Caribbean mortgages, there is about a 6% risk weighting on the Canadian uninsured mortgages. It's at odds with what Julie Dickson was saying about Canadian mortgage risk weights, uninsured mortgage risk weights in the mid-teens. I'm wondering if you can shed some light on the discrepancies between what I'm seeing in and what she is seeing perhaps. Then also in your commercial loan book in Canada, you have got C$16.8 billion of real estate related loans, the growth there has been pretty substantial like other banks. I am just wondering if you can break down what components are in that, 16.8 REITs, commercial mortgages, development, apartment buildings whatever?
Gordon M. Nixon - President and CEO: Doug, you go first.
A. Douglas McGregor - Co-Group Head, Capital Markets: Okay. So, in terms of the mortgage activity what we have been doing is we've been making some larger drawn loans against commercial real estate and there are two primarily REIT customers where we are very active. We're the market leader there and it’s all against large office buildings and shopping centers or public REITs and some of the pension funds for instance OMERS. So it’s a concerted effort really to take reasonable loan to value certainly under 70% against high quality properties, the spreads that we find attractive.
David I. McKay - Group Head, Personal and Commercial Banking: Most of our growth has been coming from REITs.
Gordon M. Nixon - President and CEO: In terms of – that's the Canadian book. In the U.S. we lend to about 50 REITs we have a fairly significant real estate practice which is ramping up quite nicely. We've got full research capability and so we have the lending again to the REITs and some of the private equity funds, two that come to mind are Lone Star and Blackstone, which we think are probably the market leaders and we’ve done significant business with both in the U.S. and Europe over the last 18 months.
Gabriel Dechaine - Credit Suisse: What's the 16.8, like REITs versus other stuff? Maybe you can get back to me on that?
David I. McKay - Group Head, Personal and Commercial Banking: It's, Gabriel, Dave. In Canada, our commercial real estate book on the P&CB side is around C$13 billion, and that is largely developer risk, high-rise condo, mid-rise condo, some single-family home. We've been doing that for decades, as you know. The growth in that portfolio was not disproportionate to the growth in the overall commercial portfolio of 9%. Some of the characteristics that we’re seeing in the commercial real estate development side are longer time to get to pre-sells. As you know, 80% pre-sell, some projects are slowing down, so a general slowing, but still relatively good demand on the developer side, but not disproportionate growth to the overall commercial portfolio.
Gabriel Dechaine - Credit Suisse: Thank you very much. Then on the mortgage risk weights?
Morten N. Friis - Chief Risk Officer: Well, the mortgage risk weights, we probably will need to get back to you on the detail. I mean, the average is 5%, which is heavily weighted by the fact that the predominant part of our book is in Canada. I mean, I can’t comment on Julie Dickson’s comments. But if you look at the loss rates in our supplemental, you will see that the loss rate suggest a risk weighting of lower than what we have on the book. But on the details we’ll have to get back to you.
Gabriel Dechaine - Credit Suisse: It’s bit unfair to single you out because of your peers were actually Lump and Heloc, which make the risk weights look higher and it's not a fair comparison. But anyway if you could get back to me on this, then that will be great. Thanks.
Operator: Sumit Malhotra, Macquarie Capital Market.
Sumit Malhotra - Macquarie Capital Market: Let's start in Canadian Banking for Dave McKay. Your credit cards growth has been amongst the best in the industry over the last year. You’ve been one of the only banks that's actually been growing it, and this quarter we saw a decent size pull back of C$400 million. Anything you can point to on that side, whether that was driven by customers or whether that was an initiative the bank is looking at given consumer debt levels in Canada?
David I. McKay - Group Head, Personal and Commercial Banking: We are very happy with the growth in our portfolio. It's a combination of the acquisition of the Shoppers Drug Mart portfolio from MBNA and good growth in that portfolio, a very strong growth in our core platform, such as Avion, a good acquisition growth overall, which I referenced in earlier comments. So, the growth is strong, the pull back is more seasonal than anything. You always see very strong growth in Q1, because purchase spend is high and then revolve rates go little bit higher in Q1, so you see a bit of seasonal pull back, but there is no change in risk strategy appetite or outlook. We are bullish on credit cards and spend, where we are leading the market in spend. We have new product in the target, co-brand coming to market, is in market now and we have high hopes for that. So, we are looking to this sector and its product to continue to drive our business, and it's the leading growth business that we have right now at 20% year-over-year. So, we are very happy with our credit card business.
Sumit Malhotra - Macquarie Capital Market: Yes, Dave you are right. As I go little bit further back in the (five year), it seems to always dip from Q1 to Q2, so thanks for that. And if I just stay with you on the same product, we were on another call an hour ago, and there was a lot of talk about the future of the travel credit card market in Canada. At least from my seat, it seems like you are pretty well positioned if the particular products would change hands. Can you talk a little bit about your competitive positioning and perhaps your competitive response as potentially one of the bigger competitors maybe changing hands?
David I. McKay - Group Head, Personal and Commercial Banking: We do believe in the Avion product. We have the best product in the market, that’s what customers are telling us. It is a very, very large portfolio. And with the WestJet co-brand product right beside it, we do believe that if there is any disruption in the marketplace, it will create customers to reevaluate their credit card and their value proposition and that point of reevaluation is a point of significant opportunity for us to present our solutions to a large number of Canadians who might not consider them otherwise. So, from that perspective with Avion, WestJet and our co-brand portfolio, disruption is good for RBC.
Sumit Malhotra - Macquarie Capital Market: And one point of clarification, I will leave it there. On your share repurchase program, you are approved for 30 million shares. This quarter you repurchased 2.1 million. Is the level of this quarter the amount you are comfortable in using as a run rate, or is there something we should expect the bank to step up given where your capital position is?
Janice R. Fukakusa - CAO and CFO: We started the program later on in the quarter, because we felt that we were at optimal capital levels. So, we will continue to execute on the program. So, it's a matter of timing last quarter, because we didn't started until the third month of the quarter.
Gordon M. Nixon - President and CEO: We felt that was important to absorb the Ally capital.
Janice R. Fukakusa - CAO and CFO: Absolutely.
Gordon M. Nixon - President and CEO: And then we've earned the bulk of that stock now.
Sumit Malhotra - Macquarie Capital Market: I don't know we are on a queue here Janice, last time for one more or should I jump back in.
Gordon M. Nixon - President and CEO: I don't think there is a queue so you better go.
Sumit Malhotra - Macquarie Capital Market: So, very quickly for George Lewis in Wealth Management. Kind of surprised to see wealth revenue flat quarter-over-quarter and what looked like a month of a quarter a very good sales in Canada and obviously a very strong market in the U.S. Particularly with your U.S. Wealth Management operations, I've always thought of those as being more transaction oriented. So, can you help us understand why revenue was basically unchanged sequentially despite what looked like some pretty good operating trend or operating backdrop?
M. George Lewis - Group Head, Wealth Management and Insurance: Sure, thanks Sumit. I think it's a couple of things to highlight. One would be it is a quarter with fewer days and so our fee-based assets are done on that basis. So Q2 over Q1 most of our Canadian Banking is always a little bit down in terms of revenue. The second thing would be we did have performance revenues which Janice highlighted. In the first quarter that through our BlueBay business and that was a significant revenue item in the first quarter that didn't recur in the second quarter. So the underlying volume trends to your point are very encouraging, I mean year-over-year our assets AUM is up 15%, our AUA is up 8%. So apart from those two factors, influencing the quarter-over-quarter we had – I was very pleased with our revenue growth and we’re setting up I think for much better year-over-year comparisons for the second half given the trends that we’re seeing in the business.
Sumit Malhotra - Macquarie Capital Market: So, those performance fees for BlueBay, I think it’s mentioned in the literature that they get booked in Q1 and Q3. Are you in a position to tell us how much that added last quarter so how much the sequential increase would have been ex of that?
M. George Lewis - Group Head, Wealth Management and Insurance: What I can say is that there were recorded in the first and third quarters, the bulk of them are recorded in the first quarter. So Q3 is not as large an impact in terms of as it were in Q1. But it was a significant impact for our Asset Management business in the first quarter. Having said that, second quarter revenue continued to increase in that business as well.
Operator: Thank you. There are no further questions at this time. I'd like to turn the meeting back to Mr. Nixon.
Gordon M. Nixon - President and CEO: Thank you very much operator. I would like to thank everyone for joining us again on this call and we look forward to presenting to you again next quarter. Have a good day.
Operator: Thank you. The conference has now ended. Please disconnect your lines at this time and we thank you for your participation.