OTTAWA: Royal Bank of Canada’s fiscal fourth-quarter earnings fell 2% from a year earlier, missing expectations due to higher provisions in the energy sector, increased expenses and lower-than-expected capital-markets revenue.
Toronto-based RBC, Canada’s largest lender by assets, said Wednesday that earnings were hurt by declines in capital markets and retail banking, as well as rising costs, which overshadowed gains from its wealth-management and insurance-services businesses.
For the year as a whole, however, the bank said earnings rose 4% to a record level, reflecting “significant investment across all of our businesses, notwithstanding the more challenging operating environment,” Chief Executive Dave McKay said on a conference call.
RBC said its net profit fell to 2.54 billion Canadian dollars ($1.89 billion), or C$1.65 a share, in its latest quarter ending Oct. 31, from C$2.59 billion, or C$1.74 a share a year earlier.
Adjusted to exclude items, cash earnings came in at C$1.69 a share, the bank said, falling short of the C$1.71 analysts polled by Thomson Reuters expected.
Hurting RBC this quarter was an increase in its total gross impaired loans. Those were up almost 71% from a year earlier due to higher impaired oil and gas loans in its capital-markets division and the inclusion of City National Corp., the Los Angeles-based lender it acquired last year.
Overall, the bank’s loan-loss provisions climbed to C$358 million in the quarter from C$275 million a year earlier and C$318 million in the previous quarter. Canada continues to be pressured by a prolonged slump in oil prices, pushing producers in the energy sector to pare spending and cut staff.
Earnings from personal and commercial banking operations were up slightly from a year earlier, while wealth-management earnings jumped 55% due largely to the inclusion of City National, which it said added C$89 million to earnings. Capital-markets earnings fell 13% from a year earlier due to income tax adjustments, while insurance earnings rose 1% from a year ago. Revenue of C$9.27 billion was up from C$8.02 billion a year earlier.
In an effort to trim costs, RBC incurred C$130 million in severance charges in 2016, higher than its typical run rate of about C$100 million, Mr. McKay said.
RBC’s fourth-quarter results may leave the bank’s shares vulnerable for a brief correction given that it has been the best performing Canadian lender over the past month, Cormark Securities said in a research note. RBC shares were recently down 2.5% at C$87.82 on the Toronto Stock Exchange.
“Although these results are arguably better than they appear, especially given that trading revenue was up 20%…there is no doubt that the run-up in the shares leading up to fourth-quarter reporting was driven in part by a ratcheting up of expectation for the firm’s capital markets business,” Cormark said. RBC’s shares are up about 18% year-to-date.
RBC’s results come a day after smaller peer Bank of Nova Scotia posted a better-than-expected 9% improvement in earnings amid strong revenue from its domestic and international arms, capital-markets improvements and moderating energy-loan losses.
Bank earnings season continues on Thursday, with results expected from Toronto-Dominion Bank and Canadian Imperial Bank, followed by Bank of Montreal next week.
