RBC Earnings Slip Despite Boost from Wealth Management
(Bloomberg) — Dwindling dealmaking and testy markets caught up with Royal Bank of Canada, leading to the company’s first quarterly profit decline since the start of 2018.
“This was a rare miss for Royal,” Barclays Plc analyst John Aiken said in a note to clients. “Capital markets earnings were down on the back of lower advisory fees as well as higher provisions and expenses.”
RBC Capital Markets was hurt by a tough year for dealmaking, with the industry coping with a 15% decline in the value of mergers and acquisitions amid fewer transactions and a 6% drop in equity financings, hurting fee pools among investment banks worldwide. At Royal Bank, investment-banking fees fell 17% to C$428 million ($322 million) in the quarter, the lowest since the first quarter.
Trading revenue was C$706 million, the lowest in a year and down from the third quarter. RBC Capital Markets also set aside C$78 million for provisions, more than double the amount a year earlier and up 39% from the third quarter.
Overall, Royal Bank’s net income slipped 1.4% to C$3.21 billion in the three months through Oct. 31, its first decline since the first quarter of 2018. Adjusted per-share earnings were C$2.22, missing the C$2.27 average estimate of 14 analysts in a Bloomberg survey.
Royal Bank still ended the year with profit of C$12.9 billion, extending a record streak that stretches back to 2011, though the pace of earnings growth is cooling. This year’s 3.5% earnings increase marked the slowest annual growth for the Canadian bank in a decade.
Also in the earnings report:
- Royal Bank is one of Canada’s most diversified banks, with worldwide operations in asset management and capital markets and ownership of Los Angeles-based City National Bank. Yet Canadian personal and commercial banking remains the lender’s biggest division. Earnings from Canadian banking rose 6.3% to C$1.56 billion in the quarter.
- Royal Bank is showing continued strength in its domestic mortgage business, which is the largest among Canada’s big lenders. Domestic mortgage balances rose 7.3%, the biggest year-over-year increase since 2016, to a record C$265 billion.
- Royal Bank’s $5 billion takeover of City National in 2015 has helped lift wealth management revenue over the past four years. Profit from wealth management rose 32% to C$729 million.
- The bank’s investor and treasury services division is seeing an even bigger drop in profit, with earnings declining 71% to C$45 million. The business had its worst quarter for earnings in at least two years.