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RBC aims for up to C$1 billion from AI investments by 2027

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CEO McKay highlights AI's role in expanding top staff capabilities

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Tariff uncertainties impact commercial client investment decisions

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Focus on US market to challenge Wall Street peers

By Nivedita Balu, Niket Nishant

March 27 (Reuters) -

Royal Bank of Canada ( RY ) expects to earn up to about C$1 billion ($699.15 million) from its AI investments, its CEO said at its first investor day since 2018, emphasizing the pivotal role the technology will play in the lender's next growth phase.

The earnings of C$700 million to C$1 billion, before tax, by 2027 will come from revenue growth across its businesses and cost savings in technology, CEO Dave McKay said.

"Generative AI lets us take the capabilities of the top 10% and expand them to the top 80%," McKay said in an interview, adding the technology can be used to speed up training consumer-facing staff.

AI is becoming a key tool for banks globally, which are using it to streamline customer communications, process documents, spot fraudulent activity and automate other mundane tasks.

RBC is also using Nvidia chips to build avatars, or technology that can engage with personal banking clients and provide product details, McKay said, noting positive responses from the chipmaker's CEO Jensen Huang on the use of AI at RBC's capital market unit.

The lender, Canada's largest, expects to deliver return on equity of 16% by 2027, despite turmoil related to the U.S. trade war, tariffs and other economic challenges.

"While there may be short-term disruption from whatever comes out in the tariff side, it doesn't change the need for us to execute against these strategies," he said.

McKay said the lender is looking to expand its foothold in capital markets and wealth management globally setting the stage for fiercer competition with its peers on Wall Street, while growing share in its personal banking and wealth segments at home. While RBC has scaled the capital market businesses in the U.S., its market share is "relatively small" and it still has room to grow, McKay said. "We are focused on the US... They (customers) want to give RBC business, because we're bringing ideas that are different than the JP Morgans, and that makes them more successful."

Capital markets have become a vital revenue stream for banks in recent years. Buoyed by an equities rally and a strong economy, more companies are pursuing takeovers and raising capital via stock and bond offerings. Uncertainties caused by tariffs could slow some of the bank's momentum, bank executives told investors. Commercial client sentiment has weakened as companies in some sectors are deferring investments until they have greater certainty on tariff impacts to their businesses, the executives said. RBC's shares were down 0.9% in afternoon trading in Toronto.

($1 = 1.4303 Canadian dollars) (Reporting by Nivedita Balu in Toronto and Niket Nishant in Bengaluru; Editing by Shilpi Majumdar)