Royal Bank Quarterly Earnings Rise Despite Higher Credit-Loss Provisions
By Robb M. Stewart
Royal Bank of Canada turned in a strong jump in earnings for the latest quarter, with growth across its business segments countering a rise in provisions against possible soured loans.
The bank, the country's largest by market value and one of the biggest in North America, recorded net income of 5.13 billion Canadian dollars ($3.58 billion), or C$3.54 a share, for the three months to Jan. 31, against C$3.58 billion, or C$2.50, a year earlier.
Excluding certain items, first-quarter adjusted per-share earnings came in at C$3.62, beating the C$3.25 mean forecast of analysts polled by FactSet.
Total revenue was 24% higher at C$16.74 billion, against the C$15.61 billion expected.
The result for the latest quarter was boosted by the inclusion of HSBC Canada's operations, which Royal Bank picked up last year in a $10.1 billion deal. The acquisition, which bolstered its personal and commercial banking operations and added roughly 780,000 clients, closed late last March.
The Toronto-based bank's provision for credit loss was lifted to C$1.05 billion from C$840 million the quarter before and C$813 million in the same period last year. Royal Bank said the rise was due to higher provisions in commercial banking, wealth management and personal banking, partially offset by lower provisions in capital markets. The buffer was higher for impaired loans, but fell for performing loans.
A string of six interest-rate cuts by the Bank of Canada since June has lowered borrowing costs and helped drive household spending, offsetting weakness in business investment. Still, the outlook for interest rates has been clouded by the 25% tariff on all U.S.-bound non-energy exports and 10% levy on energy products that Trump in early February unveiled then paused for a month. Economists estimate a protracted trade dispute between the countries would spur price increases and weigh on gross domestic product, potentially throwing Canada into a recession.
Canada's lenders face an uncertain few years with the change in the U.S. administration and bank executives have pointed to uncertainty among clients in the face of pending tariffs on U.S. imports from Canada. Business surveys indicate companies are pausing investments and looking at supply chains and alternative markets for goods.
Royal Bank said the potential for further protectionist U.S. trade policy is adding to economic uncertainty globally, and there is downside risk for the Canadian economy. Its economic outlook assumes that the blanket 25% U.S. tariffs on Canadian imports President Trump has threatened will be avoided, but it said the threat of significant targeted tariff increases on specific industries will remain a source of uncertainty for businesses.
The bank's capital position remained strong, with a common equity Tier 1 ratio of 13.2%, steady on the prior quarter. Canada's banking regulator requires the big lenders to maintain a capital ratio of at least 11.5% of risk-weighted assets.
Write to Robb M. Stewart at robb.stewart@wsj.com