Royal Bank of Canada (NYSE:RY) Q1 2015 Earnings Conference Call - Preliminary Transcript
Feb 24, 2015 • 04:00 pm ET
would be below our segment average. So you know it this is a good move on our part. It's reducing our risk profile. It's reducing our cost structure. And when we get through this program, we'll actually have a much stronger segment with positive operating leverage. And you'll see actually more of the earnings power of our large, high performing businesses coming through in the overall segment.
Great. Thanks for the color George. I'll be in the queue.
Thank you. The following question is from Robert Sedran from CIBC. Please go ahead.
Hi, good morning. I just want to ask about the Canadian, the Canadian margin. I Dave, I think you touched on it a little bit, but specifically the partial cut and prime that followed the Bank of Canada move earlier this year. I mean, everyone else can say they followed you, I guess, but you guys went first. So why was 15 basis points the right number, and should we assume that if the bank moves again, and it'll be a similar partial response on prime?
Thanks for the question. No, we took a number of factors into consideration obviously when we moved prime down our rate down by 15 basis points a few months ago. When we looked at our funding costs, we looked at the environment, we looked at the structure of our business. And that was the appropriate decision at the time and we take the same variables into consideration. For any future prime decrease, the probability of that decrease seems to be less than it was maybe a week ago or a month ago, as you read the current economic environment and some of the signaling that's coming from the Bank of Canada, but the same variables will go into that and funding costs is a big part of that and understanding how the markets reacting and how we fund our lending positions.
We look at it all so it's hard for me to to predict how will react obviously and as far as you know, understanding our margins, a number of variables go into our margins, including notice the shape of the yield curve, and beyond the Bank of Canada rate cuts. So you take all that into consideration. I think our overall view is that with a competitive environment, the shape of the yield curve, the greater shorter term pressure on rates that will continue To see a very small margin declines over time that you've seen 1 to 2 basis points here and there. So nothing drastic, but that's, you know, continues to be Oracle.
But that probably would have been your outlook even before the move. So I guess it's fair to say that the partial cut in prime was able to offset some of the other pressure that might have come as you've moved prime, you know, in line with the Bank of Canada.
So I'm looking at our historic margins in our variable rate mortgage book, and we're