Royal Bank of Canada beat back the economic impacts of the Covid-19 pandemic, with record capital markets earnings and loan-loss provisions that were about half what analysts expected in its fiscal third quarter.
Profit from the bank’s RBC Capital Markets division rose 45% to a record C$949 million ($720 million) in the three months through July, helping Canada’s largest lender by assets post earnings that beat analysts’ estimates.
The Toronto-based lender joins Bank of Montreal and Bank of Nova Scotia, which announced results Tuesday, in reporting record capital markets earnings as surging trading activity and higher investment-banking fees fueled gains in the divisions. Royal Bank’s trading revenue more than doubled from a year ago, reaching almost C$1.7 billion, while fees from dealmaking jumped 17% to C$570 million.
“Royal came in well ahead of expectations on the back of a strong capital markets performance and lower-than-forecast provisions,” Barclays Plc analyst John Aiken said in a note to investors. “We view the lower level of provisions positively, a reward for taking significant allowances in the second quarter.”
Royal Bank shares rose 1.9% to C$101.86 at 9:45 a.m. in Toronto. They’ve fallen 0.8% this year, outperforming the 11% decline for the eight-company S&P/TSX Commercial Banks Index.
RBC Capital Markets was the best performer of Royal Bank’s main operating businesses, and the only one aside from insurance to see profit growth. Canadian personal and commercial banking, typically the bank’s largest source of earnings, saw profit fall 17% to C$1.33 billion as provisions rose and net interest margins shrank from a year earlier.
Royal Bank also benefited in the third quarter from being more conservative on provisioning earlier in the year to brace for the economic impacts of the pandemic. The bank reserved C$675 million for souring loans in the quarter, well below the C$1.3 billion analysts were expecting and less than a quarter of the C$2.83 billion earmarked in the prior three months, suggesting Royal Bank is comfortable with provisioning despite the uncertainty of the pandemic.
The results “demonstrated the strength of our fortress balance sheet, our disciplined and strong risk-management culture, that we were able to basically return our capital ratios to pre-pandemic levels within two quarters,” Chief Financial Officer Rod Bolger said in a phone interview. “We’re on track to continue our strong performance going forward.”
The results “demonstrated the strength of our fortress balance sheet and our strong risk-management culture,”
Net income fell 1.9% to C$3.2 billion, or C$2.20 a share, with adjusted earnings of C$2.23 beating the C$1.85 estimate of 13 analysts in a Bloomberg survey.
National Bank of Canada also posted quarterly profit that topped analysts’ estimates, led by its financial-markets and international divisions. Net income for the Montreal-based lender fell 1% to C$602 million, with adjusted per-share earnings of C$1.66, beating the C$1.32 average estimate of 12 analysts in a Bloomberg survey.
— With assistance by Kevin Orland
(Updates with share price in fifth paragraph, CFO comment in eighth.)