Royal Bank of Canada RY-T posted higher second-quarter profit that beat analysts’ estimates, boosted by a surge in capital markets earnings and lower provisions for sour loans.
RBC’s profit climbed 25 per cent to $5.5-billion, or $3.85 per share, in the three months that ended April 30. Adjusted to exclude certain items, the bank said it earned $3.90 per share, topping the $3.77 per share analysts expected, according to Bloomberg data.
The quarter’s results were driven by “strong client flows across all our businesses,” RBC chief executive officer Dave McKay said during a conference call with analysts.
Analysts had expected capital markets activity to continue to bolster profits across the sector while loan growth slows.
A breakdown of the big Canadian banks’ second-quarter earnings
RBC’s capital markets unit posted earnings of $1.48-billion, an increase of 23 per cent from a year earlier, driven by higher revenue in global markets and corporate and investment banking. Head of capital markets Derek Neldner said he expects elevated trading and mergers and acquisitions activity to continue as clients navigate heightened uncertainty.
“In terms of the near-term visibility of our pipelines that we see, we continue to be very encouraged by the level of activity, and so that certainly will carry us through a number of quarters,” Mr. Neldner said.
“We think a lot of those trends in terms of the environment we’re in over the next few years stay intact. They’ll ebb and flow a little bit quarter to quarter, but the volatility and the level of uncertainty that we’re seeing from a variety of different factors probably persists.”
The bank raised its quarterly dividend by 12 cents to $1.76 per share. The lender also said it plans to repurchase 45 million of its shares, representing about 3 per cent of its common stock.
RBC has been focused on bolstering its profitability. During fourth-quarter earnings in December, the bank raised its return on equity (ROE) target to 17 per cent or more after surpassing the 16-per-cent goal the bank set at its investor day last year.
In the quarter, the bank posted higher ROE at 17.2 per cent.
RBC is the fifth major Canadian bank to report earnings for the fiscal second quarter. Bank of Montreal BMO-T, Bank of Nova Scotia BNS-T and National Bank of Canada NA-T reported earnings on Wednesday. Toronto-Dominion Bank TD-T and Canadian Imperial Bank of Commerce CM-T also posted earnings on Thursday.
RBC set aside $912-million in provisions for credit losses – the funds banks set aside to cover loans that may default. That was lower than analysts anticipated, and included $899-million against loans the bank believes may not be repaid, based on models that use economic forecasting to predict future losses.
In the same quarter last year, RBC set aside $1.4-billion in provisions as it built up reserves ahead of a potential economic downturn.
“We’ve seen more stability, if not some improvements in a lot of our kind of credit indicators, ratings migration, watch list and delinquency trends,” RBC chief risk officer Graeme Hepworth said.
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Profit from personal banking was $1.87-billion, up 17 per cent from a year earlier, on higher net interest income and lower provisions. Loan balances were up 4 per cent year over year while deposits decreased 1 per cent.
The commercial banking unit posted profit of $854-million, up 43 per cent from a year earlier, largely driven by lower provisions.
The wealth management division generated $1.19-billion of profit, up 28 per cent on higher fee-based client assets and net interest income.
Profit from insurance was up 3 per cent at $218-million. RBC is restructuring the unit’s leadership as insurance head Jennifer Publicover is leaving the bank effective June 1.