Royal Bank of Canada Reports Strong Quarterly Profit

By Nivedita Balu and Arasu Kannagi Basil

TORONTO (Reuters) – The Royal Bank of Canada (RBC) exceeded quarterly profit expectations, driving its shares to a record high on Wednesday. CEO Dave McKay expressed caution regarding the potential economic uncertainties affecting consumers.

McKay noted that uncertainty surrounding interest rate cuts could impact consumers’ mortgage costs next year and the bank’s net interest income due to rising deposit costs. “We are trying to express it’s uncertain and it’s volatile… there are some unknowns out there that we’re trying to manage, but we feel we can manage them quite well,” he said.

The Bank of Canada has lowered interest rates, with money markets anticipating further reductions, while the U.S. Federal Reserve is expected to follow suit next month. Although lower rates ease the financial load on mortgage holders, banks might need to increase payouts to keep consumer deposits, potentially affecting their profit margins amid ongoing provisions for bad loans.

RBC’s third-quarter results saw a robust 17% profit increase in its personal and commercial banking sector, totaling C$2.49 billion ($1.85 billion), bolstered by C$198 million from its acquisition of HSBC’s domestic operations. As Canada’s largest bank by market capitalization, RBC has restructured its upper management and reporting segments while integrating HSBC’s clientele and loan book.

Jefferies analyst John Aiken stated, “Royal reported a standout quarter… (its) earnings are gaining the lift of a full quarter’s inclusion from HSBC.” The bank’s shares rose by 3.1%, hitting a peak of C$161.5.

Moreover, a resurgence in mergers and acquisitions led to a 23% increase in RBC’s capital markets net income. The smaller National Bank of Canada also surpassed quarterly earnings expectations, driven by growth in its capital and wealth management divisions, with shares also reaching a record of C$127.22.

Contrary to the trends seen in Canada’s big five banks negatively impacted by credit issues and penalties, RBC’s net interest income rose by 16.5%. Provisions for credit losses were C$659 million, significantly lower than the analyst forecast of C$903 million.

Per share, RBC earned C$3.26, exceeding the average estimate of C$2.95. The National Bank’s earnings of C$2.68 also surpassed expectations of C$2.49.

($1 = 1.3457 Canadian dollars)