Royal Bank of Canada missed analysts’ estimates after setting aside more money than expected to cover bad loans, making it the latest lender to take a profit hit due to a darkening economic picture.
(Bloomberg) — Royal Bank of Canada missed analysts’ estimates after setting aside more money than expected to cover bad loans, making it the latest lender to take a profit hit due to a darkening economic picture.
The country’s largest bank took provisions for credit losses of C$600 million ($441 million), higher than analysts’ forecasts of C$574.5 million. Trading revenue plunged 28% from the first quarter, as equities trading was its weakest in years. Expenses, including employee pay, jumped.
Excluding some items, Royal Bank earned C$3.76 billion, or C$2.65 a share, falling short of the C$2.80 average estimate of analysts in a Bloomberg survey.
Earnings in its two largest divisions, wealth management and personal and commercial bank, came up shy of forecasts. Royal Bank is Canada’s largest retail bank and its key profit driver is its P&C group, which made C$1.92 billion. Analysts had been expecting C$2.06 billion.
Expenses were elevated, which contributed the earnings miss. Compensation costs were up 15% over last year, and real estate, equipment and other costs were also up. In the wealth management group, which includes California-based City National Bank, non-interest expenses increased 16%.
“As we continue to realize the benefits of our strategic investments in technology and our incredible talent, we are confident in our ability to slow expense growth and drive greater efficiencies while supporting our clients’ needs,” Chief Executive Officer Dave McKay said in a statement.
Outside of trading, RBC Capital Markets had a strong quarter, with corporate and investment banking revenue rising 11% over the prior year. The group earned C$939 million, which was about 10% higher than a year earlier and better than analysts had forecast, according to data compiled by Bloomberg.
Canadian bank shares tumbled Wednesday to their lowest level in two months after Bank of Montreal and Bank of Nova Scotia both reported disappointing results. In both cases, provisions for loan losses went up and expenses remained elevated.
Read More: BMO, Scotiabank Shares Slump After Earnings Miss Estimates
Royal Bank is in the process of acquiring HSBC Holdings Plc’s Canadian unit to extend its lead in domestic retail banking. The C$13.5 billion deal is a play to get access to HSBC’s affluent client base, which is concentrated in major cities such as Toronto and Vancouver, and tap into growth in commercial deposits and loans. The transaction is still under regulatory review in Canada.
Royal Bank shares have dropped 2.8% this year in Toronto through Wednesday, compared with a 3.5% decline for the S&P/TSX Commercial Banks Index.
(Updates with additional information beginning in the second paragraph. An earlier version was corrected to fix an incorrect descriptor in the second paragraph.)
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