RBC beats expectations on back of capital markets, commercial banking and wealth management

Royal Bank of Canada RY-T -2.79%decrease reported higher third-quarter profit that beat analysts’ estimates as the lender booked stronger performance across capital markets, commercial banking and wealth management.

RBC’s profit rose 11 per cent to $6-billion, or $4.23 per share, in the three months that ended July 31.

Adjusted to exclude certain items, including HSBC Canada transaction and integration costs, the bank said it earned $4.28 per share, topping the $4.07 per share analysts expected, according to data by S&P Capital IQ.

“Our third quarter earnings showcase the strength of our diversified business and our robust balance sheet,” RBC chief executive officer Dave McKay said in a statement. “In a faster-moving, more complex economy, we remain focused on building the bank to meet clients wherever they need us, with the capabilities, advice and insights to help them succeed.”

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RBC is aiming to boost its profitability. During fourth-quarter earnings in December, the bank raised its return on equity (ROE) target to 17 per cent or more after exceeding the 16-per-cent goal the bank set at its investor day last year.

In the quarter, the bank posted adjusted ROE of 18.1 per cent.

RBC is the fifth major Canadian bank to report earnings for the fiscal third quarter. Earlier in the week, Bank of Montreal, Bank of Nova Scotia and National Bank of Canada released results that beat analysts’ estimates. Canadian Imperial Bank of Commerce and Toronto-Dominion Bank also post earnings on Thursday.

In the quarter, RBC set aside $1-billion in provisions for credit losses – the funds banks set aside to cover loans that may default. That was lower than analysts anticipated, and included $979-million against loans that the bank believes may not be repaid, based on models that use economic forecasting to predict future losses.

Total revenue rose 9 per cent in the quarter to $18.54-billion. Expenses increased 6 per cent to $9.79-billion, which the bank said was driven by higher performance-based compensation, salary and staff-related costs.

RBC bets on growth in Europe as businesses diversify trade

RBC is expanding its capital markets business in Europe in a bid to break out from its position as the 13th-largest capital-markets business globally and climb into the top ten list, which is dominated by U.S. banks.

Capital markets profit increased 16 per cent to $1.54-billion on higher equity and debt origination and mergers and acquisitions activity, as well as higher equity trading

Profit from personal banking was $1.92-billion, down 1 per cent from the same quarter last year, as higher net interest income was offset by an uptick in expenses driven by staff and technology costs, operating costs and provisions.

Commercial banking earned $936-million, up 12 per cent from a year earlier, driven by higher net interest income and lower provisions. Loan balances grew 4 per cent and deposits rose 9 per cent year over year.

The wealth management division generated $1.44-billion of profit, up 32 per cent on higher fee-based client assets. Profit from insurance was down 20 per cent at $197-million.