Royal Bank of Canada (RY) Presents at 2019 RBC Capital Markets Financial Institutions Conference (Transcript)

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Royal Bank of Canada (NYSE:RY) 2019 RBC Capital Markets Financial Institutions Conference March 12, 2019 8:00 AM ET

Company Participants

Dave McKay - President and CEO

Bobby Grubert - Co-Head Global Equities, RBC Capital Markets

Gerard Cassidy - MD and Head, U.S. Bank Strategy

Conference Call Participants

Unidentified Company Representative

Please welcome to the stage Gerard Cassidy, Managing Director and Head of U.S. Bank Strategy at RBC Capital Markets.

Gerard Cassidy

Thank you and good morning everyone. On behalf of my colleagues here at RBC Capital Markets, we want to welcome everyone to our annual Financial Institutions Conference.

This year has been a record year for us in terms of the number of companies presenting and most importantly, the number of investors that are here as well. So, we thank everybody for joining us. We're going to kick it off with a fireside chat with Dave McKay, who's the President and CEO of the Royal Bank of Canada. And interviewing Dave will be Bobby Grubert, the Co-Head of our Global Equities Group in Capital Markets.

And with that, I'll turn it over to Dave and Bobby. Bobby and Dave?

Bobby Grubert

Good morning.

Dave McKay

Good morning.

Bobby Grubert

So, thanks Gerard and thanks everyone for joining us. And Dave, we’re just thrilled to have here. So, we have a lot to ask you, and we will do our best to keep some time for a couple questions from the audience.

And with that, maybe Dave you can start off with sharing your view on the U.S. and global economies.

Dave McKay

Thanks for coming to the conference this year. It’s I think a record conference for us with over 600 participants, 80 FIs and over 250 investors. So, we're really proud of how this conference has grown and plays an important part in the schedule and a great opportunity early in the year to talk about what's going on. My views on economy probably aren't a whole lot different than yours and what you read. I think, we've got solid economic momentum what we're seeing, notwithstanding some lumpy numbers. If you look at average job number, it is still pretty good over the last quarter. So, we don't get too fussed about the low number. In February, in United States, we're projecting 2.25% growth towards 2.5%, maybe a slower start to the year, obviously given some of the disruptions but a stronger finish to the year. So, we just can't see things out there though, given the strength in U.S. economy, investment we’ve seen from businesses and growth, I just can't see what the disruptive factor would be. It would have to be quite a shock around a major trade agreement disruption or major cyber event or something that would change momentum of the economy that's going well.

So, we're investing with confidence in our clients and their confidence in the economy and grow. So, it's hard to predict the cycle will. I think there’s a lot of focus on when the cycle might turn, there's a little velocity and volatility around the projections around the end of cycle. I think, if we stay focused on positives, there is a lot of good reasons to feel generally pretty good. And there’s nothing wrong with the lower growth, lower interest rate prolonged cycle. I mean, you look at it, we’ll probably look back and say this was really good.

Canada, maybe a little bit less optimistic than the United States, particularly given some of the slowdown in energy, investment in energy. We’re only predicting 1.5% growth in Canada, which is our core market. Still positive growth, strong employment numbers coming out of Canada, particularly in Central Canada and Vancouver and the West Coast. Housing is slowing down. So, there is a couple of catalysts for a little bit slower growth in Canada, but overall in North America, which is our two core markets and 90 plus -- 95 plus percent of where our economic activity resides, we're feeling good about things.

Bobby Grubert

And where do you see the biggest opportunities.

Dave McKay

For us, I would focus on again those two markets, in United States, both our wealth management franchise and organic growth ability and in our capital markets franchise we see strong opportunity with clients. We also see great opportunity in how we're reinventing kind of consumer and small business banking in Canada. You saw that at our investor day, we're very excited. We have great momentum on the transformation to a very different type of bank. And you saw in our Q1 results, you saw very strong volume growth, 50% more than our closest competitor at deposits, investments and lending, not just lending growth. So, you're starting to see the traction and the scale and the transformational investments at our Canadian flagship retail franchise really start to differentiate itself. And we're thinking, this is working, what can we export to United States in a more disruptive digital non-traditional way, as we build out the ventures, and we'll talk about that if you're interested.

We build out this new way of banking in these broader value propositions what's exportable. So, I think, very excited about the traction, the strategies getting that we articulated, very ambitious, 3x customer acquisition numbers to the market, 2.5 million net new multi-product customers over five years, 5 million new synapses customers, as I talked about overall and we're well on our way. So, it’s given us confidence to look outside of our markets for potentially disruptive play.

In the United States, the building on the City National acquisition and our wealth management momentum, we've been growing our volumes at 15 plus percent on the lending side. We’ve seen a slowdown in deposit volumes as many mid-market banks have seen. We've got a number of strategies to kind of reignite our deposit growth story to continue to be long deposits and fund that growth over a prolonged period. But, we're feeling very good about the traction that franchise is getting in new markets, like Washington or now in Boston, in the Southeast and Nashville; certainly, we're opening branches in New York City and 30 Hudson; we’ve -- we'll have premises there. So, we're really looking at taking that City National franchise much more into the East Coast, Washington, Boston, and New York as core markets for us.

And the early returns from hiring teams from competitors and bringing customers in, is we're getting great traction. And I think that was a big part of the bet that we could take largely a California centric franchise, put our balance sheet and our brand behind it, salaried investment. We've added almost 50% more employees to the City National franchise. We're seeing that great growth and we're starting to get traction with those new private bankers. We’ve brought Kelly Coffey in. She's now the CEO of City National’s from JP Morgan. We're very excited about Kelly, she's in month two. And all the ideas that we thought she had about accelerating the growth of franchise are there; so, very important next chapter. We still have Russell Goldsmith very involved as Chairman. So, the two of them are going to form this dynamic team to accelerate geographic growth on that.

On the capital markets side, we continue to grow as a franchise. As I just said on Bloomberg, it's a decade, 15-long-year journey and a 30-year journey probably at the end of the day. There's no overnight success. This is about hiring great people, building relationships with senior management teams and CEOs, creating value, putting your balance sheet out there, this is a lend to originate model, and we certainly put our balance sheet out there. And we're seeing that cross sell. We're seeing the ROEs are top quartile, not top decile in the industry. So, the franchise model is working. But, it takes time to build those relationships through generations of management teams. And I think, we saw the seminal trend -- advisory opportunity with SunTrust and BB&T as we advised Kelly King and BB&T on this very large merger of equals. It talks to building relationships that take time that result in being able to add value in key moments of truth for an organization’s history, and incredibly proud to play that role. And over time, we expect to play more roles like that as we build these relationships and increase our capability.

So, the beauty of the capital markets strategy is consistency. And I call it simplicity at the end of the day. It is around great people, using your balance sheet, creating value, advising, cross-selling, and it takes time to build up those relationships, and doing it the right way. And I think we're very proud of the trajectory of both businesses. And that's not focused in the United States. Corporate institutional, high net worth and entrepreneurs and their businesses; it’s focus on that client franchise and being really good at it through those two divisions has led us, as you see, to earn almost $2.5 billion of profit in United States, 22% of our revenue, plus 16%, 17% of our overall profit and have great growth opportunities in the marketplace through that focus.

Bobby Grubert

So, Dave, you talked about RBC growth, our client centric, client focus, and you did mention in there transformation. You started your career as a computer programmer and you've been huge as far as technological innovation and promoting that and building our franchise from the client into RBC. Can you talk more about some of our initiatives and what we'll see in the future?

Dave McKay

We have been on this whole data, intelligence, knowledge journey for quite some time. Again, it's not an overnight phenomenon for us. And we started doing it the right way. The first technologies we invested in were technologies to protect the privacy of customers. We have patented a number of technologies here in United States from putting tokens on phones to protect the flow of payment information to building and patenting a virtual clean room that allows us to merge data sets, protect client confidentiality, create value for partners through derived data, derived knowledge and application of AI. It's those foundational technologies that allow us to build value in a sustainable way that consumers and governments and regulators expect us to do. So, I think we went about it with a core foundational platform. We're not building on sand. We're building on great technology with patents that we're looking at that using in many different ways.

We started collecting data and we started building an AI capability around that data much earlier than most. And we've got a very strong AI capability. And some of the products that we're launching in the market in your area, I mean, we should let you talk about Aiden. What it's done is absolutely fantastic and the traction we're getting with customers. So, this is not hypothetical. This is around machine learning and working with data. I mean, data to knowledge to value is the secret sauce of success. And we're starting to see this knowledge to value equation start to really connect in global equities business and our consumer retail franchise; we’re doing in our wealth franchise with our asset management firms and project Apollo where we’re scanning 7,000 different publications and where we’ve correlated with a machine, those that drive markets and those that should -- that are asset managers, should be paying more attention too. So, it’s all about marrying great people with technology to create value for customers. And it’s not just -- it's from capital markets to wealth to the retail franchise. We have NOMI, which is our mini CFO to an individual with hundreds and hundreds of millions of connections to consumers every year. Those types of value creation by using data in the right way on top of a foundation of security and privacy, I think is the right way to build it and the right way to use it, and we’re really starting to see traction.

So, that investment will continue and it’s starting to differentiate our capability and the products that we’re launching and the services that we’re launching. So, we feel very, very good about our journey around data and our infrastructure around data, and the value-creation from and knowledge from that data.

The other area that I think we’ve really differentiated, and you heard us talk a lot about it in our Investor Day in June, is the concept that we have to create much greater and longer value chains for our customers, to continue to be what we’ve always been for a customer for the last 150 years -- this is our 150th year we’re celebration as a company this year -- is not going to be sustainable, I don’t think in a completely different world going forward. And as we think about where bank is going to be in 10, 20 years from now, the value we’re going to have to create through for our customer, whether it’s owning a home or owning an automobile, the world of assets and how to manage assets in a customer journey, it’s going to be completely different. I fundamentally believe we’re moving from an asset-heavy world on a balance sheet to an asset-light world. And that starts with the consumer.

You start with the consumer who just wanted to finance the mortgage, finance the home and pay it down as quickly as possible in the 60s, 70s, 80s and 90s to one where maybe I’m okay bringing the bank in through a lifetime partnership and leveraging that asset and not having as much equity, but it still is a story of value to one where we’re going to see products where the consumer has a minority of potential of equity in a home through a lifetime. And you bring in institutional partners; you bring in bank partners to do that. And leveraging assets through a lifetime is a very different mindset for consumer, not even having a car on their balance sheet, but renting those services.

We’re going through I think a transformation in how our customers think about the balance sheet from a smallest consumer to a largest corporate and therefore the roles that we play, so creating value, extending value chains through loyalty, through helping manage assets on their behalf. I think, it’s all the more critical. So, you’ve seen our small business ecosystem, you’ve seen our home ecosystem where you’ve seen our drive ecosystem -- on the drive side, it’s one of our most popular apps where you register your vehicle, you can book all your service appointments with any OEM through the app, so you don’t have to call Toyota, you don’t have to call GM, it’s like open table for auto maintenance.

We have tire butler, will come and change your tires, will put winter tires if you happen to live in the Northeast like we do and you need winter tires to get around, take them off for you. We’ll help you sell that car, will put into auction for you, so, the lifetime maintenance of that asset, will put that car in a rental pool for you, like an Airbnb for cars and manage it for you. So, managing that asset and creating value for you is our vision -- by the way, we’ll lend against it, if you like. We're doing the same thing with rental into homes, into home management, into buying, selling, maintaining your home, putting it into our rental pool. So, the elongation of the value chain and connecting with customers, much higher up in the funnel of value creation we think is mission critical. And if you just build it and wait for that moment of truth when they need financing or they need to move money, I think you're going to -- we're going to be disrupted, if we wait. We have to move up on the value chain and take control of this digital customer journey that's completely changing. And that's what we've articulated in our ventures and that's what we -- starting to differentiate us in the marketplace, and we're very excited. In addition to reciprocity and loyalty, it’s never been more important to continue to reward your clients for their business. We've invested heavily in more proprietary loyalty program in Canada and it's been a differentiator. We see opportunities to leverage that in other marketplaces. And data is becoming part of that loyalty discussion. So, I think there is three fundamental pillars to getting this data journey and privacy journey right.

Number one, you have to be completely transparent to what you're collecting and why. Two, you have to be clear with the customer of the value exchange. Where companies get into trouble is they get the value by collecting a customer’s information. The first thing you have to do is what value does the customer get in providing their information to you. And they have to see that value exchange very clearly. And three, you have to give them control to turn all of it on and off or parts of it on and off. And that interacts with the value exchange where if you give us only half your data, don't allow us to geo-location, then this is a value exchange we can give, and then will compete as industries to say who will exchange more value for a given data set from a customer or business or a corporate. I think, that's the world we're moving to, all built on a foundation of clean rooms where we can merge data sets with complete privacy and insights. So, that's our vision for the future. And that's what we're building towards. And that's why we think we're going to have a competitive advantage.

Bobby Grubert

And we hear you talk about the significant growth organically and through acquisitions. And when you spoke on the trading floor and you talked about how important the U.S. was as the second home market and in the future how prominent that will be, can you just give us a bit of a report card from where you sit as? You're very clear in saying this has not been an overnight success, but the last decade, as far as the growth in the capital markets to RBC Capital Markets, Wealth Management, the acquisition of City National, how has it gone and what could we have done better?

Dave McKay

We’re early days in City National. I don't think, it could have gone much better. We had them make a couple of best when we acquired City National. One, could we extend the brand into new markets? Would it have traction in Washington and Boston, and could we really accelerate New York growth? And I think we tested that now over three years. And we can always go faster, I think at the end of the day. You'll love to see more teams working there and you’ll love to see more acceleration in the markets. But it's competitive out there. There's a lot of good competitors. So, you can expect always to move up the pace.

We had to make a bet on interest rate curves. And boy, we fretted over interest rate curves and where they were gone because we knew the balance sheet was positioned in the short end and we we’re buying -- paying a premium for that position, repositioning into a higher rate environment. And we've largely seen the rate curves kind of work out the way we hoped. So, we got the tailwind that we paid for and a little bit more. And then, we got a little bit of -- a lot of a benefit that we never in a million years thought there would be a tax cut to the degree there was. So, that’s certainly helped.

In scaling the business, I think, our challenge and our opportunity with City National is historically this business has been a high touch, private commercial bank that scaled through people. And we’ve been scaling through people and front office and back office, hence it’s kind of the 50% growth in FTE from 3,000 to about 4,500 to attack those new markets. I sense, there’s an opportunity to scale more digitally going forward. And investing in technologies allows to be more efficient and scaling front office to back office ratios, which I don’t think are sustainable. So, we’re just scraping the surface there, and I wish we’d got at it a little sooner. But there’s significant opportunity in improving efficiency ratios as we scale the front office geographically and hiring more bankers, I think we’re going to have. And I think I am quite excited about that. And Kelly is certainly very focused on that as the new CEO in the productivity ratio and scaling in a different way. So, I think from that perspective, but from a culture perspective and from a trajectory of where we are and working with this new bank. I was with M&A lawyer yesterday, they’re using it as the template for how other banks should do M&A, and we’re working still well together. And it’s not easy, it really isn’t. So, I give huge credit to Russell and the team and to our team for getting off. So, not just talk around book up here but I’m pretty happy about where we are.

And on the capital market side, it’s been as a 15-year journey and we entered the crisis with a strong balance sheet. We didn’t have the same challenges in our balance sheet. So, we’re able to bring great bankers in, who needed balance sheet to work with clients. So, we acquired a number of great leaders who are able to support clients through challenging time. I was with one of those clients yesterday for lunch and the client reiterated as many clients have, you were with me in tough times and I’ll never forget that. So, being there in tough times with balance sheet and advice and building that relationship over decade, you get rewarded for that. So, I think loyalty has not gone from our society, and I think we continue to build on that. And it’s a journey, one customer, one banker at a time.

I think, the opportunity for us, and we continue to look at these metrics, I still think we can do a better job in cross-selling off that balance sheet. And I look at revenue per dollar of RWA in each of businesses, and I look at ROEs in every business. And sometimes those stories diverge a little bit. I think we’re very much focused on driving the optimal amount of revenue, a maximum amount of revenue for every dollar of risk that we take on in our business. And I think we’re still on a journey where we can improve on that, which is great. So, my expectation of business is with the same quantum of risk, we should be able to cross-sell more and get more business. And I think, that’s very much where the team is focused and the metrics we are focused on, which is a good new story in many ways that we don’t require consistently incremental dollars of risk to drive the next dollar of revenue.

Bobby Grubert

There’s been a lot of discussion on the role of FinTech. Where do you see them fitting into the banking system?

Dave McKay

A lot of discussion about this journey we’re on and the amount of capital that’s gone into FinTechs globally. I think, initially, I think it’s proven out, I’ve said this on the stage I think that I don’t worry so much about a FinTech that’s trying to disrupt the part of the value chain in a very traditionally way. If you’re trying to build a wealth advisory, digital, online capability and trying to pull a customer away, we’re building our entire strategy to have a multi-product, strong loyalty, broad ecosystem. So, to try to pull someone away from us on a single product initiative means you're pulling apart the entire fabric of our value proposition to customer. The key for us is not to be a monoline player in every one of our businesses but be an integrated player with multiple value checkpoints that you’re pulling on the entire system, not just on a product. And that's the secret to defending against platforms and monoline FinTechs, going forward.

So, I've never really worried too much about kind of a monocline, uni-value FinTech player, because we could either recreate the capability pretty quickly, and we saw them struggle. And it's one thing to build a simple interface and product expectation for client, it’s another to have the funding and the capital to acquire that customer and create awareness and buying those Super Bowl ads.

So, putting that whole equation together in an economic way is very difficult. So, I didn't worry too much. I do and you’ve he heard me talk about this on this stage, and I do get calls from the fans [ph] after I do these events. I do worry about the platform companies because of the deep knowledge they have about the customer because the moments of truth that they see. And they are getting between us and the moments of truth of our customers. And currently, what they do with that is they sell that insight back to us in the form of search and advertising and other perspectives, and they earn a certain amount of economic rent. But, we're increasingly seeing the amount of economic rent that they expect for seeing that moment of truth and auctioning it back to you as a provider is growing. And therefore, our entire strategy is to take control of that digital moment of truth. Building this data, building these value chains, moving higher up in the funnel of decision-making and life moments before the financing decision or before the banking decision is mission critical, and us taking control of that journey and not being beholden to somebody else's platform who's going to sell it back to you in the short-term.

In the long-term, they'll just serve the most profitable parts of that market. And you’re seeing the same thing on the supermarket shelves and drug stores where their products go to high level and they're trying to cannibalize the highest margin product with our own product. That’s -- you have to worry about banking in the same way. You have to build a strategy that allows you to compete at the moment of truth and protects your margin. And this has been a part of our lexicon and a part of our vision for five to six years now, takes a long time to build but we're ahead of this curve. And that's why we're building the ventures; that's why we're building the Ampli platform; that's why we see value chains completely; that's why we're redefining the business we’re in to have digital connectivity that we control the moment of truth, so we protect their margin that we're not bidding for that to serve that customer in real time. We're not beholden to anybody else's platform that we're in control of our destiny the way we've been for the last 150 years. If you're not thinking, that way, you're at risk of playing yesterday's game. And I think that is why we're working so hard to reposition this bank.

Bobby Grubert

And Dave, maybe before we open up to Q&A, you hold a very strong belief that in order for an organization to thrive and truly thrive for the next 5, 10, 25 years, an organization has to live its purpose and values. Can you talk to us about RBC's purpose?

Dave McKay

Your clients and your customers want to be part of something that's bigger than they are and want to connect to something that's important. I think, as we evolve as a collective country and as we evolve as collective peoples running the world, we need to connect with something larger. And having a purpose to drive something beyond the benefit of your company I think is mission critical to not just we talk about millennials coming into the workforce, but it’s important for boomers. Everybody wants to connect to something that’s bigger than they are and make a contribution to society. Therefore, having a purpose, which for us is helping clients thrive and communities prospering, we fundamentally believe and it can’t just be a bunch of words, we fundamentally believe that we are only as strong as the health of our communities and the strength of our clients. And if those aren’t there, then it doesn’t really matter how good or what the technology we talk about or all this innovation; it’s meaningless unless your community is healthy, because if your community is not healthy, we see what an unstable, social disruptive community looks like and you can’t do business in that community, you can’t invest, you can’t grow, you can’t be profitable, over the long-term. And therefore, we believe we have an active interest, an ownership in promoting and investing in the health of our communities. And we define the health of our communities very specifically as we can’t do everything, but we’ve defined the health of our communities around opportunity inclusiveness for all, because we’ve seen that particularly in Canada, being able to bring immigrants in, and include them in economy and driving growth has allowed us to outperform for a long time.

We believe in the physical health of the community, obviously we all do in different parts of air, land, water. We’ve chosen the water for the longest time to clean water and accessible drinkable water as a very important part of a healthy community. Financial literacy obviously is a healthy part. Children’s dental health is a part of the healthy community. So, we’ve picked areas. And most recently and our biggest platform is -- we’re very worried about next generation being left behind and not integrating to the workforce, not integrating to society as early as my generation was, given the opportunities. So, we have dedicated $500 million over 10 years in the future of work, to get the next generation ready to take on this very different world and lead in this different role, the skill set transformation that’s requiring our society is profound, given the technology disruption and the AI disruption. And it’s our best interest as a company to help the next generation get ready to integrate into the economy and lead the economy and therefore we’re investing. And it’s part of our overall 1% commitment that we’ve had for over a decade now, 1% of our profit. So, as investors, you don’t have to worry upon incremental dollars, it’s all part of an inflow of dollars that we’ve always had for making our communities better and we’re incredibly proud of it.

So, we can point to say we actively make a difference in our communities; we actively make a difference in helping our clients thrive. Our employees rally around that and our customers rally around that, and you have to leave it. You have to walk the talk. And we think we do a pretty good job of that.

Dave McKay

We really appreciate hearing your vision and we’d love to take some questions from the audience. Not usually too quiet a group, but it is 8 o’clock in the morning. The question right here and here.

Question-and-Answer Session

Q - Unidentified Analyst

Dave, you started off by talking about the success, particularly in deposit growth in Canada, trumping one of our nearest competitors and that we have the ability to export some of that, I guess best behavior or a differentiated behavior in Canada to the U.S. So, when you think about that disruptive opportunity in U.S. over the next five years, what would be one of the more tangible themes in terms of what’s differentiating us in terms of deposit growth in Canada?

Dave McKay

Two very different opportunities for us. So, our deposit growth in Canada starts with a foundation of having kind of lead channels in the physical world and in the digital world. So, we're number one in mobile banking and online banking, we have largest retail physical branch chain. So, when you combine that with our loyalty programs with our adventures, it’s a very powerful, omni-channel we call it, deposit-raising capability.

We also have the largest wealth franchise in the country. And we've been earning 30% of the flow into asset management from the retail side. So, we're seeing significant flow. So, when money moves out of funds or out of the market into deposits, we capture that and vice versa. So, that is a very different world than what we're looking at in United States. But, the capabilities that we need to think, we -- that is the JPMorgan franchise, that is the Bank of America franchise in United States. We don't even pretend that we're -- we'd even start that journey. We actually sold the bank that was supposed to start that journey four or five years ago after a 10-year unsuccessful journey to build a retail bank. What we would envision is taking some of the ventures capabilities and some of the patents that we filed and bundling it into more of a disruptive segment, niche perspectives that would create a broader value chain for a segment of the U.S. population that we could serve digital -- we have a license to do business in all 50 states that are digital bank, we’ve built on our digital franchise out of Raleigh, North Carolina. And we could put these capabilities on top of that franchise that we already have, we've had for six or seven years now, and we go into the market.

And the key is to go after medium beta to lower beta money. Anyone can build a high interest savings, high beta, digital franchise and compete with your wholesale funding activities. And that has value to in itself and a lot of us are actually doing that or thinking of doing it. The key is to go down to the medium to lower beta and create ancillary value to the customer that you can get into more of the transaction business and the flow of the transaction business through these products. And that's how we're thinking that we're going to try to disrupt that area and the segment niche, geographic niche but probably more customer segment niche basis by exporting some of these successful ventures to the United States. So, that's how the model would look in the United States.

Unidentified Analyst

You just mentioned that New York City, Boston and Washington are some of the core markets. On the earnings call, you talked about possible acquisition. Can you talk a little bit about that what you see who would be good partner for RBC?

Dave McKay

It has to have a cultural fit. We've learned from the success of City National and all the time Russell and I spent in making sure the cultures fit over two years before the announcement. We saw this the lack of success we had with our first foray into the southeast where we didn't have a cultural fit, we weren't aligned on what we were trying to do and we destroyed value. So, we've learned a lot about cultural fit, has to be there. We're really looking for geographic expansion into new marketplaces to accelerate our organic platform capability. We're not missing any core product capabilities. We have strong private banking, we have really strong commercial banking, we could have better cash management. And I think that would be an area that would be somewhat of interest. But we're investing in that organically ourselves in the absence of any product here. But largely, this is a customer franchise and a new market capability that has to have cultural alignment.

But, because we already have an organic platform that's going to meet our medium-term growth objectives, any acquisition has to provide a shorter shareholder value equation than we would have seen on the City National, even though we accelerated City National to 2.5 years, part of that was tax cut. Now, we're very conscious of creating shareholder value and using capital wisely. And the transactions right now, when the majority of the interest rate increases or behind us, we don’t forecast an interest rate increase in next year, the best of the tax cuts are behind us and we’re not sure what the Democrats might do if they ever got power. And we’re going to hit a credit cycle at some point.

So, if you sit here today and you say you’ve got all that built into the current P&L, things look pretty good. And if you’re going to acquire that here, what does your cash flow look like over the next 5 to 10 years. You have to assume there’s going to be a bit of credit, you’re probably going to have an interest rate decrease or not increasing rates. So, your P&L and your cash flows even on an economic basis are a little bit harder to predict. And then, you got to put a disruptively layer over that to say well, what’s the competitive landscape, what are the big players doing, what are the disruptive non-traditional players. So, predicting your cash flow gets a little bit harder and the prices are high.

And therefore, when you look at the return on invested capital, the numbers just don’t get there, and we’re better off buying back shares right now, way the current numbers look. So, we’re being incredibly -- we don’t need to do it, we’re not going to buy growth for growth stake, we’d rather return that capital to shareholders. And so, we’re -- we see it, some good companies, but we can’t get the numbers to work right now. And it’s becoming more and more greater disruption out there, makes it harder to get confidence on cash flows, you’re taking more risk. So, we’re sticking with our organic growth strategy, we continue to think and talk internally, not externally but internally. And we’re going to kind of wait it out a little bit, it’s hard. And that’s -- you haven’t seen a lot of -- you saw a fantastically innovative merger of equals to BB&T, and congratulations to both CEOs. Those firms were putting together kind of a visionary transaction. But in the absence of that, you haven’t seen a ton of activity because you’re at the -- towards the end of an economic cycle and those variables get hard to predict and those cash flows get tricky. And we’ve got a lot of opportunity without doing that. So, we’re being someone on the conservative side, let’s say, but others are too. I mean, it’s not like we’re on the sidelines and everyone else’s making deals. The numbers are little tough to get through our heads. That’s an honest assessment of kind of how we look at and where we are.

Bobby Grubert

Great. So, I think, our time is up. So, is that it then? Okay. So, we want to thank everyone, Dave. I really want to thank you hearing your vision and all your insights. And I thank you to all our investors and all our clients for being here for a just a spectacular couple of days.

Dave McKay

Thank you for coming to the conference. Have a great day.