RBC CEO on AI, Jobs, SpaceX IPO, US Trade, Energy Demand

Asks about state of markets and SpaceX IPO distribution, noting RBC is the only Canadian bank involved.

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Dave McKay

There is a real appetite to take risk; it's absolutely risk-on in both Canada and US. There's hunger for new issues (SpaceX), focus on technology, and strong capital flow for pipelines, rare earth minerals, and food exports.

RBC is seeing greatest foreign interest in its stock in quite some time. There's hunger for both traditional businesses and emerging technologies.

Notes the insatiable appetite for capital debt and equity from both companies and investors, and asks why everyone is so eager to raise and lend money.

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Dave McKay

There's a race among hyperscalers and compute/memory providers to capture demand. Shortage of supply vs demand for AI compute. Energy supply is critical. This drives demand for capital across full capital stack (bank debt, high yield, equity).

There's also fear of running out of capital; syndicated bank market is not infinite and balance sheets fill up quickly. Banks must be prudent about sector limits.

Asks if RBC is taking more risk or paring back as balance sheets fill up.

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Dave McKay

RBC is taking more risk in the US because the economy is performing strongly with tech sector demand. In Canada, demand is more muted due to unresolved USMCA uncertainty.

Most of RBC's balance sheet growth is in the United States right now.

Asks if RBC continues to expand in the US despite fraught US-Canada relations.

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Dave McKay

The US-Canada relationship is strong because it's embedded in $1.3 trillion of trade. USMCA foundation is strong; negotiations are normal. There's a big difference between termination (not extending) and cancellation (permanent withdrawal).

35 US states have Canada as their number one export partner. Cancellation would cause significant inflationary shock. Discussion is about termination of extension option, not cancellation.

Asks if Canadian companies are expanding outside US borders to Europe and Asia for diversification.

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Dave McKay

Yes, diversification is a big part of Canada's strategy. Canada has 80% of trade with US and needs to de-risk. Canada wants to export more oil, LNG, rare earth minerals, and food (protein superpower). Needs more infrastructure.

Stronger Canada makes stronger North America. This creates unprecedented opportunity for the next decade.

Asks about RBC's expansion in Europe and China.

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Dave McKay

Expansion is US first, Europe second. Growing wealth and capital markets in Europe, expanding in Paris, looking at Middle East and Asia. HSBC Canada acquisition brought global mindset and clients.

It's about global transaction banking, FX, trade finance, and lending capabilities.

Asks about RBC taking equity investments in Canadian companies, noting JP Morgan does similar.

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Dave McKay

Canada has great seed capital and ideas but lacks scaling capital. 70% of Canadian growth capital came from US; that has diminished. RBC stepped in to provide equity so companies can scale in Canada instead of moving IP to US.

Investments include quantum computing (Photonics in Vancouver), healthcare tech, and a lentil-based protein plant with tech angle and offtake to Asia.

Asks how AI tools have changed McKay's day personally.

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Dave McKay

Designed an 'agentic CEO office' suite of tools: macro model, markets model (FX, yields, trader positions), consumer behavior model (credit card trends, defaults, shopping), mortgage business model, risk module, HR module. Gets reports in 4 seconds instead of a week.

Spends at least an hour every morning with it. The model produces a report of what he should know, then he drills into what he needs.

Asks if McKay still needs the same team size if he can do this himself.

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Dave McKay

The model shortens the cycle but he still calls his team to validate and ask what to do differently. It increases capacity and condenses speed. Example: a client said what took 8 employees 2 months now takes 2 employees 4 hours.

RBC serves 17 million customers, aims for 25 million. Most AI deployment is revenue enablement, not cost takeout.

Asks how AI changes composition of bank staff.

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Dave McKay

Shift from back office to front office. More producers, customer-focused roles. AI trains staff faster; young people learn banking much more quickly.

Society will learn quickly; these models will make us smarter.

Asks if RBC has limited token use due to cost, like some companies.

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Dave McKay

RBC built its own GPU tech stack with Nvidia and own LLM (Atom), so compute is fixed cost, not variable. Most tokens come from internal capability, not renting from hyperscalers.

RBC has 100 PhDs in Borealis Institute working on ML for over a decade.

Asks if AI is more inflationary or deflationary long term.

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Dave McKay

AI is inflationary to start (cost of build, tokens, infrastructure) but will become deflationary through productivity gains, similar to the personal computer cycle which took 6-7 years for productivity to hit.

Models have veracity and are accurate enough to deploy; training employees now, productivity will follow.

Notes the conundrum: deflationary AI could reduce money for companies charging high prices now, raising valuation concerns. Asks how worried McKay is.

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Dave McKay

There will be change to different models. SaaS models are at risk as companies like RBC can code internally what they previously outsourced. New business models will emerge. Efficiency in token use will improve.

Market is right to be concerned about software disruption, but it will take time.

Asks where we are in the default cycle for companies subject to AI disruption (SaaS, Hollywood producers).

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Dave McKay

For most software providers, it's not a default issue (low production cost) but a valuation issue. Revenue models are at risk due to price negotiation pressure, but high margins mean no default cycle—just a valuation challenge the market already appreciates.

Asks to characterize where we are in the business cycle for both Canada and US, noting two consecutive quarters of negative growth in Canada.

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Dave McKay

US will print a very large Q2 growth number driven by government spend (7% structural deficit), hyperscaler investments, and resilient consumer (growing over 2%). Canada will see positive print next quarter; technical recession is disputed. Job numbers strong, consumers resilient, residential mortgage market coming back.

Canada has shrinking population (lack of immigration) which was a big growth driver. GDP per capita is up. Catalysts: $80B defense spend, pipeline construction, port/rail infrastructure for grain and minerals. Risk-on for Canada.

Asks if this is a moment for big banks to take market share where private capital left off.

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Dave McKay

RBC never exited that market. Seeing accelerated growth in US due to absence of private capital. Margins are good, funding is tight but markets are well-priced. Pipeline is very strong in tech, US, and Canadian energy. RBC is hiring more bankers.

There's another leg of growth coming.

Asks how much energy security issues (Middle East conflict, Strait of Hormuz) underpin the strength.

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Dave McKay

There's a diversification strategy. Canada is late but capturing offtake. Saudi Arabia needs pipelines. Canada can export another 2 million barrels/day (currently 5 million). Demand for both LNG and oil offtake. Expect announcement in next couple of weeks.

Asks for advice to someone entering finance today given robust financing cycle, AI changes, and market conditions.

Speaker1

Dave McKay

Create a learning flywheel. Master AI tools (LLMs, small language models) to accelerate learning and take on responsibility more quickly. Young people will make impactful decisions in years, not 10-15 years like previous generations.

RBC hired over 3,600 students this year (5% increase) because of demographic gaps and need for talent.

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