RBC tops quarterly profit estimates on smaller bad loan provisions

Royal Bank of Canada RY-T +0.34%increase on Wednesday beat analysts’ quarterly profit estimates as it set aside a smaller than expected sum to protect against bad loan losses and wrapped in HSBC’s domestic operations.

The results were also powered by a 17 per cent rise in earnings at its personal and commercial banking segment to $2.49-billion, of which $198-million came from its $13.5-billion acquisition of HSBC’s domestic operations.

Canada’s biggest bank by market capitalization, RBC has moved to rejig its upper ranks and change its reporting segments while absorbing HSBC’s 780,000 clients and $71-billion loan book in the country.

“Royal reported a standout quarter … (its) earnings are gaining the lift of a full quarter’s inclusion from HSBC,” Jefferies analyst John Aiken wrote, noting the lender had rebuilt its capital level and was no longer a laggard.

At the end of July 31, RBC’s Common Equity Tier 1 ratio, a measure of a bank’s resilience that compares its capital against its assets, stood at 13 per cent, well above the Canadian banking regulator’s requirement.

A resurgence in deal making activity as expectations of a soft landing gave corporate executives the confidence to pursue acquisitions and sell stocks and bonds to raise capital drove a 23 per cent jump in net income at RBC’s capital market business to $1.17-billion.

Smaller peer National Bank of Canada NA-T -0.61%decrease also reported better-than-expected quarterly earnings, helped by a smaller loan-loss provision for the quarter and a 55 per cent rise in net income at its capital markets unit.

The Montreal-based lender is also focusing on growth at home, expanding from Canada’s east coast to west coast through its $2.5-billion acquisition of Canadian Western Bank. The deal is awaiting regulatory approval.

The results are in contrast with others from Canada’s big five banks that have reported so far, which were dragged down by credit pressures or provisions for penalties related to U.S. investigations.

RBC’s net interest income (NII) – the difference between what a bank earns on loans and pays out on deposits – rose 16.5 per cent.

Provisions for credit losses came in at $659-million, compared with analysts’ estimate of $903-million, according to LSEG data.

The bank’s adjusted net income rose 16.2 per cent to $4.73-billion. On a per share basis, the bank earned $3.26 compared with the average analyst estimate of $2.95.

National Bank’s earnings of $2.68 per share were more than the expected $2.49 per share.