RBC STRATEGIC MEMO: STABILIZING THROUGH THE AI TRANSITION
Managing Multiple Simultaneous Disruptions
CONFIDENTIAL | Executive Leadership Only From: The 2030 Report Date: June 2030
THE SITUATION
You're managing a large Canadian bank through simultaneous disruptions: AI is eliminating capital markets jobs; Canadian housing is deflating; deposit flight is compressing NII; and the HSBC integration is still messy.
Your stock is down 38% from peak. Your capital markets headcount is down 15%. Your mortgage origination is down 18%. And your earnings are down 14% YoY.
THE IMMEDIATE PRIORITIES (H2 2030 - 2031)
1. Capital Markets Right-Sizing
Capital Markets represented 15-20% of RBC revenue but 25-30% of profit in 2022. By 2030, it's still profitable, but AI is destroying the economics. You need to:
- Accept that trading volume will decline 20-30% as clients shift to AI algorithms
- Cut research head count (clients use AI research instead of paying for RBC research)
- Shift to higher-margin businesses: M&A advisory, capital raising, risk management
- Target: Reduce Capital Markets headcount from 5,200 to 4,000 by 2032
- Goal: Maintain capital markets revenue at CAD $8-9B (vs. current CAD $10B) with better margins
2. Wealth Management Pivot
Similar to Schwab, you need to transition from pure human advisory to AI-assisted advisory: - Launch "RBC AI Advisor" (partner with Anthropic or build in-house) - Shift wealth advisors to HNW specialization - Reduce advisory headcount 20-30% while maintaining AUM through AI - Target: Grow AUM while declining headcount
3. Mortgage Portfolio Management
Housing is deflating. You can't stop that. But you can: - Maintain mortgage origination market share through competitive pricing - Focus on prime borrowers (lower default risk) - Grow non-mortgage lending (commercial, construction) - Target: Accept 2-3% annual decline in mortgage origination; maintain margins through efficiency
4. Complete HSBC Integration
HSBC Canada acquisition (2022) is still creating headcount redundancy and cultural friction. By Q4 2031, you need: - Clear organizational structure (which teams stay, which teams merge) - Headcount rationalization (eliminate 2,000-3,000 redundant roles) - Systems integration (which platforms, which technology)
THE CAPITAL ALLOCATION QUESTION
You have CAD $4-5B annual FCF. You're allocating it to: - Regulatory capital requirements (CAD $1-1.5B) - Dividend + buyback (CAD $2.0-2.5B) - Growth investments (CAD $0.5-1.0B)
In the AI disruption context, consider: - Reduce buyback (preserve capital for uncertainty) - Maintain dividend (political/investor necessity) - Increase AI/digital investment (competitive necessity)
THE BOTTOM LINE
RBC will emerge from the AI disruption as Canada's strongest bank. The capital, scale, and regulatory position are durable advantages. But earnings growth is stalled for 3-5 years. Management's job is to navigate this period calmly, execute headcount reductions skillfully, and position for stabilization by 2033.
The stock re-rates higher when earnings stabilize. Until then, it's a "hold" for income investors.
The 2030 Report | Confidential Strategic Counsel | June 2030