Royal Bank of Canada RY-T -3.47%decrease reported higher second-quarter profit that missed analysts’ estimates as the lender sets aside more money for potential loan defaults with trade concerns dragging on consumers and businesses.
RBC earned $4.39-billion, or $3.02 per share, up 11 per cent from the same quarter last year.
Adjusted to exclude certain items, including integration costs related to the purchase of HSCB Bank Canada, the bank said it earned $3.12 per share. That fell below the $3.20 per share analysts expected, according to S&P Capital IQ.
The bank raised its quarterly dividend by 6 cents to $1.54 per share. RBC also said it plans to buy back 35 million of its shares.
Canada’s largest bank is telling its employees to return to their offices four days a week. The new rules take effect in the fall.
RBC to require employees to work in the office four days a week
RBC is the final major Canadian bank to report earnings for the fiscal second quarter. Over the past week, Toronto-Dominion Bank, Bank of Montreal, Canadian Imperial Bank of Commerce and National Bank of Canada posted results that beat analyst estimates,while Bank of Nova Scotia’s profit missed expectations.
Analysts expected Canada’s banks to continue grappling with higher loan loss reserves activity as U.S. President Donald Trump’s trade war threatens a deeper economic downturn.
In the quarter, RBC set aside $1.42-billion in provisions for credit losses – the funds banks reserve to cover loans that may default. That was higher than analysts anticipated, and included an increase in performing loans, or debt that is still being repaid, to $568-million, based on models that use economic forecasting to predict future losses.
In the same quarter last year, RBC reserved $920-million in provisions.
“Changes to long standing U.S. and international trade policies have resulted in a volatile and uncertain operating environment, given the potential for structural disruptions to the global supply chains and capital flows,” RBC chief executive officer Dave McKay said during a conference call.
“But we can’t say for certain where global trade policies will settle. We are cautiously optimistic about the path forward.”
Profit from personal and commercial banking was $1.6-billion, up 14 per cent from a year earlier, driven by earnings from HSBC Canada and higher net interest income.
The commercial banking unit earned $597-million, up 3 per cent from a year earlier, bolstered by profit from HSBC Canada.
The wealth management division generated $929-million of profit, up 11 per cent on higher fee-based client assets.
Capital markets profit fell 5 per cent to $1.2-billion as higher trading revenue in global markets was offset by lower merger and acquisition activity in corporate and investment banking.
“Performing PCLs were higher than consensus (conservative provisioning is a positive) and RBC is one of the few banks that did not beat on trading revenue (we are okay with that),” CIBC analyst Paul Holden said in a note to clients.
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