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Canada’s largest bank is over a quarter of the way to reaching its $100-billion target for sustainable financing by 2025, according to its report on climate-related financial disclosure. “As Canada’s biggest bank, and one of the largest in the world based on market capitalization, we recognize that we have a role to play in accelerating the transition to a low-carbon economy and in mitigating the risks associated with climate change,” the report reads. About 4.6 per cent of RBC’s credit risk exposure in 2019 carbon-related. (The Logic)

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Talking point: RBC has been carbon neutral since 2017, having rolled out emission-reduction programs and offset its carbon output by purchasing credits. That same year, it started considering climate change as a risk to its business and began tracking and disclosing it across its portfolio. Disclosure is now the norm among financial institutions in Canada—all the Big Six banks, along with the biggest pension funds, support the Task Force on Climate Related Financial Disclosure (TCFD), a global standard for tracking and reporting climate risk on businesses. Still, many firms have been slow to meaningfully change their practices to address climate change. The TCFD’s 2019 status update found just 25 per cent of companies that committed to the guidelines complied with more than five of its 11 recommended disclosures. RBC, for its part, has set targets for five of the nine climate-related metrics it reported for 2019.

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Overall revenue rose 11 per cent year-over-year to $12.8 billion for the quarter ending January 31. Earnings per share increased by the same percentage to $2.44. The new U.S. business will launch late this year or early next, initially targeting wealthier clients before shifting to the mass market. (Bloomberg)

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Talking point: RBC has tried and failed to make inroads in the U.S. consumer market before. It agreed to sell its money-losing U.S. retail-bank and credit-card operations in 2011 at a $1.57-billion writedown. At the time, Dave McKay, then-head of personal and commercial banking and now CEO, described the sale as getting an “albatross off our back,” and said the bank was looking at acquisitions and internet banking as ways back in. RBC has since purchased Los Angeles-based City National Bank; this new push won’t include a return to brick-and-mortar retail banking. RBC’s earnings, which beat consensus analyst estimates, kick off results for the rest of the Big Six, all of which are reporting in the next week.

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Canada’s largest bank has filed a patent application for a method of predicting when customers are about to make large purchases. It’s also looking to patent a text-analytics tool tasked with helping investment advisers identify themes early, such as the rise of cryptocurrencies. (Financial Post)

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Talking point: RBC is facing pressure on two fronts. Fintechs, which have already peeled customers away with free or low-fee products, are now launching their own banking arms. Simultaneously, the world’s largest tech companies are encroaching on RBC’s turf. As the bank’s CEO, Dave McKay, put it last year, the FAANGs are earning “economic rent” by collecting information on RBC’s customers via search and advertising data, then selling it back to the bank. These patents are designed to emulate that process. Once RBC knows a customer is looking to make a large purchase, the bank could sell ads to them regarding that item, according to one of the patents. RBC is in the midst of a broad tech push. In November 2019, The Logic reported the bank was looking into a cryptocurrency platform for investments and online purchases, as well as blockchain-based smart contracts and investment vehicles.

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The Royal Bank of Canada is the only Canadian bank underwriting the Saudi oil giant’s planned IPO, which was postponed again in mid-October, three days before its expected launch in Riyadh. Its inclusion in the list of banks involved confirms a Bloomberg report from September. (Globe and Mail, Bloomberg)

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Talking point: RBC is listed as a “foreign joint bookrunner,” which means it will sell shares to institutional investors but play a less important role than the major banks underwriting the deal, including Goldman Sachs and HSBC. The world’s biggest IPO has faced significant investor skepticism over the firm’s desired US$2-trillion valuation, opposition from environmental groups and in September, drone strikes that temporarily halved its oil production. Canada and Saudi Arabia have been engaged in a diplomatic feud following criticism by Foreign Affairs Minister Chrystia Freeland over the kingdom’s arrest of women’s rights activists; RBC is betting on a successful public launch despite the tension, though it risks reputational and financial fallout if the firm underperforms on returns or suffers further supply shocks down the line.

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RBC will pay $13.55 million and TD $9.3 million; both banks will each pay an additional $800,000 to cover the OSC’s costs for its investigation. In its statement of allegations, the OSC said traders of both banks used virtual chat rooms to share confidential customer information with other firms’ foreign-exchange traders from 2011 to 2013. (Globe and Mail)

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Talking point: This is the first significant regulatory action in Canada, part of a worldwide series of probes into foreign-exchange traders. U.S. regulators took similar actions in 2014, when five banks were fined a total of US$1.4 billion; and in Europe, where another five banks—some that were also fined in the U.S. incident—were fined a combined US$1.2 billion. Those banks were found to have been manipulating or colluding in foreign-exchange trading, or trying to do so; the OSC did not find evidence of the Canadian banks engaging in such conduct. Instead, the banks are accused of not having sufficient supervision and controls in their foreign-exchange trading, which fails a regulatory requirement. Both TD and RBC said their internal controls have improved from several years ago.

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RBC says Canada is uniquely well-positioned in terms of land, water and market access, but must accelerate investment in technology and encourage young Canadians to work in the sector in order to meet its potential. If it does, the report says, agricultural GDP would grow from its current $32 billion annual rate and eclipse the automobile-assembly and aeronautics industries combined. (The Logic)

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Talking point: The report highlights Canada’s relatively low investment in agtech—the country’s share of global agtech investment is at 3.4 per cent, behind India and Brazil, both of which currently outpace Canada in global agricultural market share. RBC’s concerns echo those of industry leaders, as reported by my colleague Catherine in November 2018: documents obtained by The Logic show Canada is lagging behind other countries in agtech, largely as a result of a lack of skills training, and poor broadband connectivity in rural areas. The latter is a major barrier for agtech adoption in Canadian farming—farmers face increasing pressure to incorporate cloud software into their operations as the global food-supply chain shifts towards cloud-based systems. That issue could be exacerbated by a recent feud between Canada’s telecom giants and the Canadian radio-television and Telecommunications Commission—a ruling by the commission significantly reduced the amount third parties must pay larger providers to access their networks, which has prompted Rogers, Bell and Shaw to say they will scale back plans to develop internet infrastructure in rural areas.

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Canada’s largest lender by assets saw shares increase by 0.86 per cent in late afternoon trading, after it reported third-quarter results, and increased its dividend by three cents to $1.05 per share. The bank reported a 6.4 per cent decline in capital markets and a 24.0 per cent drop in investor and treasury services in the quarter. Canadian personal and commercial banking posted a 7.4 per cent jump to $1.66 billion. (The Logic)

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Talking point: RBC CEO Dave McKay said Wednesday its international business was being weighed down by increasing “geopolitical risks” and trade tensions. The bank raised similar concerns about global market conditions in the first two quarters of this year, but the bank still reported a $3.26-billion profit this quarter, up five per cent from the same quarter in 2018. RBC is making personnel changes in one of the struggling divisions. Doug McGregor, group head of RBC Capital Markets and Investor and Treasury Services, will retire on January 31, after 37 years at the bank. RBC is vulnerable to global economic trends with its worldwide asset management operations and capital markets, as well as its ownership of U.S.-based City National Bank. However, it’s far from the only Canadian bank with significant overseas stakes. Last quarter, TD, BMO and Scotiabank all reported significant growth from overseas divisions. RBC’s earnings kick off a series from Canada’s other major banks: CIBC reports Thursday, and the other four between August 27 and 29.

Correction: A previous version of this piece said Doug McGregor has been the group head of RBC Capital Markets and Investor and Treasury Services for 37 years. He has been at RBC for 37 years, but has held his current role only since 2008.