Amy Cairncross - VP and Head, Investor Relations Dave McKay - President and CEO Janice Fukakusa - Chief Administrative Officer and CFO Mark Hughes - Chief Risk Officer George Lewis - Group Head, Wealth Management and Insurance

Robert Sedran - CIBC Gabriel Dechaine - Canaccord Genuity Meny Grauman - Cormark Securities Peter Routledge - National Bank Financial Stefan Nedialkov - Citigroup Doug Young - Desjardins Capital Markets Sohrab Movahedi - BMO Capital Markets

Good morning, ladies and gentlemen. Welcome to the RBC 2015 Second Quarter Results Conference Call. I would now like to turn the meeting over to Ms. Amy Cairncross, VP and Head of Investor Relations. Please go ahead.

Good morning and thank you for joining us. Presenting to you this morning are Dave McKay, President and Chief Executive Officer; Janice Fukakusa, Chief Administrative Officer and CFO; and Mark Hughes, Chief Risk Officer. Following their comments, we will open the call for questions from analysts. The call is one hour long and will end at 8:30. 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, Group Head, Capital Markets and Investor & Treasury Services; Jennifer Tory, Group Head, Personal and Commercial Banking; Zabeen Hirji, Chief Human Resources Officer; and Bruce Ross, Group Head, Technology and Operations. As noted on slide two, 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 Dave McKay.

Good morning everybody and thank you for joining us today. This morning we reported record earnings of over $2.5 billion, up 14% from last year. Excluding a foreign exchange gain that Janice will explain, earnings were up 9%. We had solid results across our businesses. Credit trends remained strong; our common equity Tier 1 ratio increased by 10%. Overall, we had a great quarter and a record first-half with the year-to-date earnings of over $4.8 billion on an adjusted basis, up 11% from last year and ROE of nearly 19%. These results again underscore the strength of our diversified business model and our client-focused strategy which has enabled RBC to deliver quality earnings with consistent growth in a range of economic backdrops. As another testament to the strength of our business, RBC was recently named Global Retail Bank of the Year for the second year in a row by Retail Banker International. This marks the first time in the history of the award that a bank has received this distinction for two consecutive years. I am very proud of this achievement. Let me now provide my perspective on the performance of our business segments. Canadian Banking had another strong quarter with earnings up 7% from last year. Our results reflect our continued execution on key strategic priorities which we believe will drive growth and extend our leading Canada. Let me highlight three of our priorities. First, we’ve been adapting to the consumer shift from borrowing to saving and investment as baby boomers retire, as young people become increasingly responsible for their own retirement. With the largest financial planning workforce and industry leading mutual fund business and a proven ability to cross-sell at higher rate than peers, we’re well positioned to capture growth from these demographic trend. Second, as a market leader in business financial services in Canada, RBC underwrites more than a quarter of all business loans under $25 million. And we’re seeing very good momentum with business loans up 8% from last year and business deposits up 10%. Third, we’re focused on becoming a more agile bank. And our investments in technology are paying off and helping to further improve our efficiency ratio, which continues to be an industry best in Canadian banking. For example, as part of our overall digitization program, last year, we introduced e-signatures which we estimate resulted in savings of upto 24,000 hours per week in administration time, allowing employees to spend more time providing advice to clients. Overall, I am very pleased with the strong quarter in Canadian banking. Moving to the Caribbean, our banking business was profitable again this quarter, even with the impairment loss related to the announced sale of RBC Suriname. And we continue to see improvement in our core operating performance. Turning to Wealth Management, we saw continued strength in our two largest businesses. Global asset management had a strong quarter, driven in part by a record winter investment season in Canada. The results also reflect the strength of BlueBay, which now is approximately $75 billion in assets under management, nearly double the size since the acquisition in late 2010. Together with our organically developed U.S. and UK based businesses, clients from outside of Canada now represent one-third of RBC GAM total $370 billion of assets under management. Canadian Wealth Management also had a strong quarter and continues to focus on extending its number one position in the high net worth segment by deepening existing client relationship and continuing to attract new clients and experienced investment advisors. In the U.S., we’re a top 10 full service wealth manager and are seeing the benefits of shifting to a more fee-based model. We’re poised to deepen our client relationship even further the announced acquisition of City National. Last night, in fact we met an important milestone on the pending combination of our two banks; the City National shareholders voted in favor of our merger agreement. So far, our integration plans are going well and we’re on track to close in the fourth quarter of this year, subject to regulatory and other customary approval. Looking at insurance, even with the industry headwinds and higher claims this quarter, the business delivered solid results on a year-to-date basis. And we do expect the second half of the year to be seasonally stronger. Moving to Investor & Treasury Services, the segment delivered another record quarter, reflecting favorable market conditions in our foreign exchange businesses and high levels of client activity including from a growing client base in Europe where we are a leader in the key offshore markets of Luxembourg and Ireland. Turning to Capital Markets, we had a very strong quarter, demonstrating once again the success of our strategy, the focus on traditional client-driven corporate investment banking and origination activities, as well the value of our diversification across product; industry sectors; and geographies. In Canada, we’re committed to maintaining our leading market share; and this quarter, we continued to be on top of the league table, involved in many high profile deals. We’re also proud of our involvement in the launch of Aequitas NEO Exchange this quarter, a significant landmark for clients in the Canadian equity marketplace. In the U.S., we had record revenue this quarter, reflecting broad-based strength across most of our businesses. We’re continuing to see solid growth in new clients and we’re doing more business with existing ones. Our European capital markets business also had a solid growth quarter with revenue up almost 30% from last year. We’re seeing the benefits from repositioning our fixed income business and expanding our investment banking presence in key markets like France and Germany. Despite the challenging economic climate in Europe, I’m encouraged by our progress. Looking ahead, it feels like the macro landscape is less false than it was a few months ago. However, as the outlook for the global economy remains uncertain, we’re continuing to actively monitor industry headwinds. Although price of oil has increased over 25% since the end of January, it remains at levels that challenge the profitability of the sector. Mark will provide more detail but to-date we have not seen significant deterioration in our wholesale and retail loan portfolios on the sustained low oil prices. While we are monitoring conditions carefully, we’re cautiously optimistic that in the second half of the year, we should see the economic benefit of low oil prices and a weaker Canadian dollar and manufacturing and export heavy provinces such as Ontario, D.C. and Quebec. Turning to housing notwithstanding the heightened media focus, we believe that the Canadian housing market generally continues to be supported by strong trends in employment household income and population growth. We also closely watch supply and demand factors and are seeing that buyers and sellers are generally aligned in most markets that new construction has been broadly absorbed. Price increases in a few markets fueled by low rates and limited supply definitely bear close monitoring. But overall, the credit profile of our clients is strong and remains relatively stable over the past year. The debt service ratio is at a record low, reinforcing our confidence in our client’s ability to repay. And we’re comfortable with the results of our stress testing under a higher rate environment. Lastly, the regulatory landscape of financial services continues to evolve. As we’ve demonstrated in the past, our scale and financial strength gives us the flexibility to manage change while continuing to invest in our businesses to drive long-term growth. To wrap up, I am very pleased with our performance this quarter which demonstrates our continued leadership position in Canada, the strength of our client franchises in the U.S. and also in Europe. We feel good about our businesses heading into the second half of the year. While we continue to face some industry headwinds, I’m confident that our RBC’s diversified model positions us well to continue to capitalize on opportunities created by the changing market environment to grow our businesses and to continue delivering value to our shareholders. I will now turn it over to Janice to provide more details on our second quarter results.

Thanks Dave and good morning everyone. As Dave said, we reported a record second quarter with earnings of over $2.5 billion, up $301 million or 14% last year. We had one item of note this quarter in Corporate Support. As a result of our exit of certain proprietary trading activities in Q4 to comply with the Volcker Rule, this quarter we developed a U.S.-based funding subsidiary and realized the foreign gain of $108 million before and after tax. As this amount was previously booked as an unrealized foreign currency translation gain in other component of equity, there was no impact on capital. Excluding this gain, earnings were up $193 million or 9% from last year, driven by solid earnings growth in Canadian Banking, strong growth in Capital Markets, record earnings in Investor & Treasury Services and underlying business strength in Wealth Management. Turning to capital on slide seven, our common equity Tier 1 ratio of 10% increased 40 basis points from last quarter, primarily reflecting internal capital generation and the impact of a higher discount rate which decreased our pension obligation. The growth in risk weighted assets this quarter was more than offset by the impact of FX translations due to the strengthening of the Canadian dollar. With received Tier 1 ratio of 10%, we are well-positioned to maintain our ongoing capital management program of spending organic growth and returning capital to shareholders as we worked towards closing the announced acquisition of City National, which is targeted for the fourth calendar quarter of 2015. On closing, we estimate that the acquisition will impact CET1 ratio by approximately 70 basis points as goodwill and additional risk weighted assets will be partially offset by equity issued at the close of the transaction. Before I turn to our business segments, I would like to point out that this quarter we began disclosing our liquidity coverage ratio which was 111%, well above our asking [ph] minimum of 100%. Overall, we’re comfortable with the mix of our balance sheet. Now, moving to our segment results, starting on slide eight, Personal and Commercial Banking reported earnings of $1.2 billion which was up $85 million or 8% from last year and down $55 million or 4% from last quarter. Canadian Banking reported earnings of over $1.1 billion, up $81 million or 7% from last year. Our performance reflects strong growth in fee-based revenue of 16% as higher client balances drove card services revenue and mutual fund distribution fees. Solid volume growth of 5% also contributed to the increase and includes deposit growth of 6%, reflecting our focus on growing core chequing accounts and loan growth of 4%. Sequentially, Canadian Banking earnings were down $29 million or 2%, largely because there were three fewer days this quarter. This was partially offset by lower PCL. This quarter, our net interest margin was 2.64%, down 4 basis points from last quarter. Excluding the cumulative accounting adjustment, our net interest margin was 2.66%, down 2 basis points from last quarter, reflecting spread compressions and lower amortization of the fair value of our Ally Canada legacy loan portfolio. Looking ahead, we continue to expect margin pressure from the low interest rate environment and competitive pressures and we’ll remain disciplined about managing our margins. Turning to expenses, our results this quarter demonstrated our continued focus on cost management as we continue to invest in our businesses. Our efficiency ratio improved to 100 basis points over last year to 44% and we generated very strong operating leverage of 2.4%. We continue to target operating leverage in the 1% to 2% range. This quarter we came in at the higher end of our range, in part due to elevated marketing cost last year related to our Olympics sponsorship. Caribbean and U.S. Banking results reflect the previously announced impairment loss of $23 million related to the sale of RBC Suriname. Notwithstanding this loss, we’re pleased that Caribbean Banking’s underlying earnings have improved, demonstrating the progress we have made in restructuring our operations. Turning to slide nine, Wealth Management had earnings $271 million, down $7 million or 3% from last year. This quarter, we had after tax restructuring cost of $22 million related to the repositioning of our U.S. and international wealth management businesses. We’ve incurred almost two thirds of the estimated cost related to this repositioning and believe that the majority of restructuring will be completed by our fiscal year-end. Our results were also impacted by PCL of $32 million, primarily related to one account in our U.S. and international wealth management businesses. These factors aside, we had a strong growth in our two largest businesses, Global Asset Management and Canadian Wealth Management, driven by higher average fee-based client assets. Assets under management and assets under administration were up 13% and 8% respectively over last year, due to solid capital appreciation and net sales. Sequentially, net income was up $41 million or 18%, largely driven by growth in average fee-based client assets, partially offset by higher PCL. Moving to insurance on slide 10, net income of $123 million was down $31 million or 20% from last year, largely reflecting the negative impact of a change in Canadian tax legislations, which I discussed last quarter. Sequentially, net income was down $62 million or 34% from the very strong first quarter as we had lower earnings from the UK annuity contract compared to two contracts last quarter and had higher claims costs in our life retrocession business. On a year-to-date basis, earnings are relatively flat to 2014 despite the change in tax legislation. Investor & Treasury Services had a record quarter with earnings of $159 million, up $47 million or 42% from last year and up $17 million or 12% sequentially. For the second consecutive quarter, we benefited from higher foreign exchange transaction volumes and high levels of client activity in foreign exchange forwards markets as some of the volatility we saw in Q1 continued in 2Q. We’re pleased with the results. However these favorable market conditions may not continue to the same degree going forward. I&TS also benefited from higher funding and liquidity results, driven by interest rate volatility and growth in client deposits which are up more than 15% from last year. Capital Markets had a very strong quarter. Net income of $625 million was up $118 million or 23% over last year, reflecting balanced growth across our investment banking, lending and trading businesses. We also benefitted from foreign exchange translation which increased earnings by $34 million. Compared to last quarter, net income was up $31 million or 5%, driven by a significant rebound in U.S. and Canadian underwriting revenues, which in turn drove strong secondary fixed income trading. Equity trading revenue was also strong although down 2% from record levels last quarter. Before I turn it over to Mark, I would like to address the proposed change in the recent federal budget and the potential impact on our RBC. Since this is a consultation process, we are currently assessing the proposal, but at this point we believe the impact maybe 1% to 2% of total RBC earnings. With that, I’ll turn the call over to Mark.

Thank you, Janice, and good morning. Turning to slide 14, our credit quality remained strong this quarter as credit trends stayed near historic lows. This reflects our strong risk management practices and a supportive economic backdrop which includes low interest rates as well as stable unemployment. Provisions for credit losses on impaired loans this quarter were $282 million or 25 basis points, up $12 million or 1 basis point from last quarter. This slight increase mainly reflects higher provisions in Wealth Management and Capital Markets, partially offset by lower provisions in Canadian Banking. Wealth Management PCL was $32 million, up $19 million from last quarter, related mainly to provision on a single account in our international wealth management business. As we’ve mentioned in the past, growing the loan book forms part of this segment’s long-term growth strategy. While some provisions are an expected outcome of that business activity, this quarter’s provisions are higher than we would normally expect. Overall, we remain comfortable with this segment’s credit quality, given our strict credit adjudication standards and the strong creditworthiness of our client base. Capital Markets had PCL of $15 million this quarter, related to drilling and services account and the technology and media account. Moving to Caribbean Banking, provisions were $4 million -- were up $4 million, while credit trends were relatively stable this quarter, reflecting the work we’ve done to strengthen and reposition our operation. We are mindful of the economic environment in the region remains challenging. Turning to Canadian Banking, we had PCL of $212 million or 25 basis points, down $22 million or 1 basis point from last quarter. Looking at our retail portfolio highlighted on slide 15, our credit card provisions remains low at 262 basis points, up 7 basis points sequentially, primarily due to seasonality. In our personal portfolio, provisions increased 3 basis points from last quarter due to lower outstanding loan balances in our auto portfolio and seasonality within our lines of credit. Looking at slide 16, our residential mortgage portfolio makes up 66% of our retail portfolio and is well-diversified across Canada. It continues to perform well, with provisions of 1 basis point this quarter, consistent with historical performance. Turning to slide 18, gross impaired loans and new impaired formations increased this quarter, largely due to a few accounts in Capital Markets, one of which was related to drilling and services account which we provisioned this quarter. Sequentially, our gross impaired loan ratio remained flat. Let me spend a moment on our oil and gas exposure. As Dave noted, we are not seeing any significant credit deterioration in our wholesale portfolio or in our retail loan book in oil-exposed provinces and are encouraged by the increase we saw in oil prices this quarter. Looking at slide 19, our drawn exposure to the oil and gas sector continues to represent only 1.5% of RBC’s total loan book. Over 63% of our oil and gas loan book is towards exploration and production companies, while around 20% is the drilling and service companies. The remaining balance is to integrated companies, refiners and distributors. While we’re seeing some clients drawn their lines, on a net basis it’s relatively stable compared to last quarter. The spring review of our borrowing base clients is nearly complete. As a result of lower oil prices, we have seen some of our clients limits reduce but this has not resulted in additional provision. And while we’ve added a couple of new names to our watch list, we have been proactively monitoring the portfolios, the movement was not significant. Turning to slide 20, in Q2 average market risk value-at-risk of $34 million and our average stress value-at-risk of a $105 million remained largely unchanged compared to the prior quarter. We had no days of trading losses in the quarter. To include, while we are actively monitoring the macroeconomic headwinds impacting our operating environment, I am comfortable with how we are managing our businesses, and overall I’m pleased with our credit performance. Operator, could you now open the lines for Q&A?

Thank you. [Operator Instructions]. Our first question is from Robert Sedran from CIBC. Please go ahead.

I wanted to talk about the Wealth Management segment and the restructuring moment. And actually, I am wondering more if the loan loss that was recorded this quarter has anything to do with the restructuring. Is the loan loss in the part of the business that the go in concern or part of the business that’s being restructured?

It’s George Lewis. I think the -- we are about as Janice mentioned, about two-thirds of the way through our Wealth Management restructuring program on the international side and we do expect that to be completed by the end of the year. As Mark mentioned, the PCL this quarter did relate to a single client account in our international business. You’ll see at the end of that restructuring program, a narrower footprint in that business. And we do -- while we expect PCL from time-to-time well, this was clearly outside of our risk appetite for the segment, one of the reasons we’re doing the restructuring. And I would expect -- if you go back to 2014, we had three straight quarters of zero PCL and I would expect by the time we get through the restructuring program and looking forward, I would expect that that would be more of the norm rather than the exception going forward.

But does this loan fall into that thinner footprint that you’re expecting or does this fall outside that thinner footprint?

It falls within that footprint.

And the last time we had one of these rather sizeable loan losses in this segment, it actually persisted for more than one quarter. Does it feel like this is an item that’s going to happen this quarter and move out of the P&L or should we expect something there perhaps next quarter as well?

It’s Mark here. Obviously, it’s difficult to talk about an individual client circumstance. It is one that we’re working our way through, I think that’s really all I can say at this point.

The following question is from Gabriel Dechaine from Canaccord Genuity. Please go ahead.

Firstly for -- on the trading, another great quarter; I am just wondering if you can give me a sense of how it progressed through the quarter months-by-months and so far how trading is going in May?

I have to think about that, in terms of month-by-month…

Well, you mentioned on the last call that February was good, I guess.

Yes. The credit has been strong through the quarter. And so, credit trading in fixed was quite good. The equity business continues to be good; it was kind of flat quarter-over-quarter but it continues to be good. I think really what’s driving a lot of this improvement is we have constructive markets but we’re originating a lot more active book running positions in the fixed income business and the equities business, which is just helping us for client growth. So, you saw on the results I think where some of the global invest bank, was a good trading quarter overall, I would say that the environment remains quite constructive.

And then, just a question for Dave and Janice on the capital. Couple of things that are tied to this issue, I guess one is, you talk about the target that you want to get to by the end of the City National closing and how you want to balance your capital deployment for shareholders against that. Does that mean that we have to wait till after the close until Royal resumes share buybacks or could it occur during that time? And then also just as we look towards the closing of that deal and Royal becoming noticeably larger, and already the biggest bank in Canada and large globally, what are your thoughts on Royal possibly being named a G SIFI at some point and how would you manage to avoid that if you can?

I’ll take part of that question. So with respect to capital deployment for the balance of this year, as I said, we’re building towards having 70 basis-point additional capital to how we’re building our -- on ongoing basis with our ratios in buffer so that we can fund half of the -- the other half of the acquisition price that we currently funded with the capital to the acquisition. So on that basis, given where we are today, we will probably not be in a position to do any buybacks until after we close that transaction and fully fund it. With respect to your question related to D-SIB, we of course are looking at our balance sheet from where we see with respect to that. Our regulator has not been definitive with respect to whether or not there is a D-SIB or what to do, if there is a D-SIB in terms of capital buffers, as you know we already have a 1% D-SIB buffer in addition to our prudential buffers. So, we’re running our capital quite a bit higher than the 7% minimum. And we are discussing with the regulator from time to time what any D-SIB buffer would mean to our capital position. But on a net basis, we think we’re building into pretty strong capital position. We’re at 10% now as we said after the last call in the past quarter. We’re continuing to build our capital to fund City National and fund solid growth going forward.

The only thing I would add Gabriel is that the calculation for G-SIB status is based on the end of 2014 numbers. So City National won’t impact that. Having said that, City National, all balance sheet compared to our trillion dollar balance sheet won’t have a material difference than our overall score.

So, I guess related to that Dave, since you’ve taken over, we’ve seen a lot of announcements the downsizing of certain wealth activities, exiting Suriname, Jamaica. Are those moves prompted, primarily to make Royal easier to manage or is there any thought on the capital deployments in those regions and how…?

It’s the latter obviously. We go through a very rigorous process of looking at how our businesses are generating shareholder value and shareholder return. We look at our competitive market position and the long-term growth opportunity and the risk return nature. And we go through every one of our businesses. And we’ve been very disciplined about exiting businesses. We don’t think can achieve all those objectives and that’s what you’re seeing is the outcome of exiting businesses that don’t meet those criteria.

The following question is from Meny Grauman from Cormark Securities. Please go ahead. Mr. Grauman, your line is now open, you may proceed.

Just wanted to ask a question on the comment Janice you made on the 1% to 2% impact from synthetic equity arrangements. I am wondering if that includes any mitigation efforts on your behalf.

That estimate Meny is a growth estimate, so it would be looking at what the impact is without mitigation or without capital deployment -- redeployment.

Would you be able to comment on any mitigation tools that you have in terms of the magnitude of those in your view?

I think it’s too early to comment really. We’re looking at our options and there are options for to mitigate some of the impact on the synthetic rules. We’re going to make some missions later in the summer. But we won’t have the final rules until late August I think, early September. So, it’s a little early to tell what the ultimate impact is going to be. But we’re working away.

And then just a quick question on just on the Volcker Rule, is there any more, I don’t know if you call noise, or is there still more to come in terms of adjustments that you’re making to Volker or is it largely behind us?

It’s largely behind us. We took about 5 billion of risk weighted assets off the balance sheet when we closed down roughly half of the strategies at the end of last fiscal year. We have repositioned some of the trading businesses where they are Volcker compliant in terms of facing clients and we’ve also repositioned a few of the other strategies outside of the U.S. So, most of the noise, I would say is behind us.

And then just a quick follow-up on that, there has been talk from the Finance Minister about Volcker and whether it goes against NAFTA, is that something that you have any view on, does it make a difference to you one way or the other?

No, I think that’s really rates or Canadian government securities, that dialog is focused on and that’s not secure, either we actively trade in NAFTA.

Thank you. The following question is from Peter Routledge from National Bank Financial. Please go ahead.

Just question for Mark; I wanted to maybe get a little bit more color; there is a rise in gross formations, bad loan formations in Canadian retail. I accept that it’s off very low base but is there anything there you’ve seen that we should worry about?

The GIL increase as you would have seen is really in Capital Markets but in the Canadian Retail Bank, it’s really flat; we’ve had sort of marginal increases in one place and then marginal decreases in other and then a decrease in the Caribbean partially offsetting the Capital Markets increase.

So you’re not seeing anything problematic related to what’s going on in Alberta or anything like that?

We are not still seeing anything like that.

And Dave, I appreciate your comments on housing. And you mentioned debt service ratios are all time low. But house price to income is also at an all time high. So, the question I’d ask you is how would your view on housing change if mortgage rates went up a 100 basis points?

Certainly, we do expect rates to go up at some point; it was also low environment for quite some time. That’s been a slow demand without a doubt. And what we’ve seen market, market react very well as demand changes, project start much more slowly but still require pre-sale before putting new multi-family inventory into the marketplace. We’ve seen supply and demand balance each other quite well so far in a disciplined fashion. And we watch that equation very carefully. So, you’ll see obviously impact demand factors and we’ll watch our supply and we’ll watch sales to listing ratios in the resale marketplace very carefully around how that impact house prices. So obviously that is the primary impact. We stress our portfolio against higher rates to ensure service ability. As you know when we adjudicate even in this environment and existing mortgage, we adjudicate at a five year mortgage rate irrespective of which terms that client ultimately chooses. So, we’ve already built roughly 200 basis points plus buffer into all adjudications on our side. So, we manage it very prudently although you have to expect demand will come up and rates start to go up.

And when you stress the portfolio for higher rates, what sort of the stress level you use, like increase in rates by x, what’s x?

I’ll hand that to Mark.

We obviously use multiple different stresses but I would say the one that we focus on the most would be 400 basis points. And I think to also add to Dave’s answer to your first question, I think it really would the pace of that increase as to how fast the government would really bring that on. And then, I guess that would also offer 73% to 75% of our portfolio residential mortgage portfolio fixed grade. So again it really relates with the pace and how fast that would affect the portfolio over time.

But it’s a 400 basis points stress and that’s absorbable for Royal.

It’s certainly within our risk appetite.

And just one more question on the wealth management PCL. And I don’t need detail on the individual PCL. But I guess the question would be what are the lessons learned around risk in that business, whether it’s for George or Mark. It just seemed to me like these events over the last year and half occurred during pretty accommodative markets and if markets weren’t as accommodative, the losses could have been larger. And what are the lessons learned on risk?

I think I would say both towards the one that the situation we had at the end of last year. And this particular one, they’re not either really related to market circumstances; they are really related to client circumstances, the value of the underlying collateral and how that is measured against our loan. So I would not really tie the markets at this point.

I guess though, how do you prevent these sorts of circumstances from arising; what are the lessons learned on risk?

It’s a great question, Peter. I think it’s really underlying going back to Dave’s comment about risk rearward as we look at the performance of our businesses, the scale on which we operate these occurred in smaller centers. And ones that are part of our re-examination of our strategy. So, I think the lesson learned from a business perspective is to align your risk and reward with respect to your risk appetite and focused on your larger and high performing businesses, which is what we’re doing.

The following question is from Stefan Nedialkov from Citigroup. Please go ahead.

I had a question on the net interest margin opportunity in Canada. We’ve seen a bit of divergence between you and your other peers that have reported quarter-to-date. More specifically, most of your peers showed good quarter-on-quarter increases while you’re showing a bit of a decline. Obviously, there’s a bit of the Ally impact but I was wondering is there anything more than that in terms of lending spreads, funding costs? Are you seeing more pressure on spreads in certain loan categories for example or just anything else that we’re not really thinking about right now? And the second question is do you have an update on the impact from the City National acquisition?

I’ll answer the first question on NIM. When you look at the 4 basis points, the movement down on NIM two of that related to the correction of an accounting error and the Ally fair value adjustment fixed around a bit because of the way the portfolio is amortizing. And we had always said that for the 1 basis point that given where rates are and given that certain rates have reduced because of the way that we track our deposits, you will see the impact of some of that compression coming through on a quarterly basis. We had always said that it’s 1 to 2 basis points of compressing. So it has do more with the rates coming down again last quarter and our tractors moving through the portfolio we tractor the deposits over a three year period. So, you see the impact of any rate movement happening on the future funding costs. So that’s what’s it all about. As far as our NIMs overall in the portfolio, they are all holding. So it is about the funding side of the equation there. And Dave, City National?

The only thing I would add on NIMs is as we’ve benchmarked, we have a greater exposure to fixed rate mortgages, as Mark referenced over 75% of our portfolio. And you’ve seen some margin expansion in variable rate mortgages which could drive positive NIMs that our competitors are less exposed to or less ratio of fixed to variable on their balance sheet. As far as City National, obviously we’re going through a regulatory approval process. As I mentioned in my remarks upfront, we had a very positive shareholder vote at City National last night with overwhelming support and favor I believe of those who voted over 99% voted in favor of the transaction going through. We remain in the planning phase obviously, looking at our synergies and planning with management. And we’re very excited about this opportunity. We see all the synergies we thought upfront around cross-sell or existing high net-worth client base in the U.S., allowing to accelerate the growth of City National franchise and cross-selling and partnering with our Capital Markets operation in the U.S. So, all those synergies we articulated in January, we are putting detailed plans around and planning the integration to execute those with City National. And I have to say I’m very, very happy the way things are going.

And do you guys have an update on the capital impact or are you sticking with your guidelines for City International?

That would be Janice’s remark.

Yes, 70 basis points of capital from our current rate.

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

I think mine will be fairly quick. Janice, just wanted to go through, I think there was -- just want to get -- make sure I understand all the one-time items. I know you have the Wealth Management PCL which is going to fluctuate, you have the Wealth Management restructuring charge, you have the loss on the sale of Suriname. Those aren’t backed out of cash, is there anything else that I’m missing? And were there any gains on the insurance side related to mark-to-mark interest rates, or any other noise on the insurance side that I should note here?

You picked them all up; there is nothing unusual about the insurance activity. You saw some volatility on the revenue side because of valuation. And the major drivers were the claims experienced, which we said had deteriorated this quarter and basically the fact that we didn’t have a UK reinsurance contract renewed this quarter. Everything else is as stated. Of course you didn’t mention the foreign currency translation gain, which we did adjust for. So that would be the one that you didn’t mention.

But you adjusted I guess for that. And then, just going onto -- I struggle with the treasury area because it’s been so volatile; you’ve kind of gone through what the impacts have been on that business. And I’m just trying to gauge when I think about what the earnings power of this kind of business should be. Can you talk about maybe what some of the normal items are in the quarter or have been recently but what’s the true -- what should we be thinking about in terms of what that business can earn?

Well, I’ll give you some help in terms of why it has such a good quarter. It was really around FX, foreign exchange. And so, executing foreign exchange transactions and FX forwards for clients was quite robust this quarter. It was a $30 million to $40 million increase in revenue for the business from that activity. And if you have volatile foreign exchange markets then you are going to continue to see good numbers. The other thing that’s happened in that business is that the revenues have gone up 11%. The non-interest expenses are down 4%. And so, we have really improved the efficiency ratio of that business. So, it’s going to help the earnings going forward. But I would say that that was an unusually good quarter and it was because the foreign exchange business was quite strong.

The following question is from Steve Theriault from Bank of America Merrill Lynch. Please go ahead. [Operator Instructions] I’m sorry hearing no response, we will move to the next questioner. The next question is from Sohrab Movahedi from BMO Capital Markets. Please go ahead.

Janice, just a quick question on capital. You had previously noted that a 9.5% CET1 plus or minus, call it a 20 to 30 basis-point buffer is probably the range that you think you’d have to operate within on a steady state basis. Are you still comfortable with that post City National acquisition or do you think that range will have to move higher?

I think that we are still comfortable with that range and that’s what we’re sort of forecasting and building towards as we move through Q1 of next year.

[Operator Instructions] There are no further questions registered at this time. I would like to return the meeting to Mr. Dave McKay.

I’d like to thank everybody for getting up early this morning and attending our call. I know it’s a very busy day. So, thank you very much and have a great summer and we’ll see you at the end of August.

Thank you. That concludes today’s conference call. Please disconnect your lines at this time and we thank you for your participation.