Royal Bank of Canada's Profit Increases--Update
August 21 2019 - 12:08PM
Dow Jones News
By Vipal Monga and Allison Prang
TORONTO -- Royal Bank of Canada's profit increased in its fiscal
third quarter as net interest income rose by almost 10%.
Canada's largest bank by market capitalization reported net
income of $3.26 billion Canadian dollars ($2.45 billion) in the
three months that ended July 31, up from roughly $3.1 billion in
the year-prior quarter. Earnings were C$2.22 a share, up from
C$2.10 a share. The bank said it had earnings of C$2.26 a share on
an adjusted basis, up from C$2.14 a share.
The Toronto-based bank's personal and commercial banking, wealth
management and insurance businesses grew, but income from capital
markets and treasury investor services fell 6% and 24%,
respectively.
RBC followed the recent lead of larger firms like JPMorgan Chase
& Co., Goldman Sachs Group and Morgan Stanley in saying
investment banking results were pressured by low market volatility,
along with slow underwriting and merger advisory business, amid
global trade concerns and economic uncertainty,
"Geopolitical risks and trade tensions are having an impact on
both business and market sentiment world-wide," said chief
executive Dave McKay, during a call with analysts.
RBC's credit-loss provision climbed 27% from a year earlier to
C$425 million.
Net interest income, or the money that banks make from loans
after taking out what they pay customers in interest, was C$5.05
billion, up 9.8%. Noninterest income, which comes from categories
like insurance premiums and investment management, was C$6.5
billion, up 1%.
The bank expects interest margins to fall in the coming year,
assuming the outlook for more rate cuts in Canada and the U.S.
remains unchanged, said Rod Bolger, the chief financial
officer.
The Bank of Canada, the country's central bank, is expected to
keep interest rates steady, but it has faced more pressure to lower
rates after the U.S. Federal Reserve recently cut interest rates by
25 basis points. Lower rates can hurt bank profitability by
reducing what they earn in interest on some loans.
To counter the expected drop, the bank will cut expenses,
particularly in the treasury services group, he said.
Total revenue, or net interest income and noninterest income
combined, was C$11.54 billion. Analysts were expecting C$11.16
billion.
The bank's capital ratio climbed to 11.9% in the third quarter
from 11.8% in the second-quarter. Mr. McKay said the bank would
conserve capital in light of global economic uncertainty and avoid
acquisitions. He said prices for other banks in the U.S. are still
relatively high, and the bank is content for now to grow its
existing business.
The bank, which spent C$197 million on share buybacks during the
quarter, will continue to return money to shareholders with further
repurchases, said Mr. McKay. RBC hiked its quarterly dividend by 3%
to C$1.05 a share.
Separately, the bank said Wednesday that the head of RBC Capital
Markets and RBC Investor & Treasury Services, Doug McGregor,
63, is retiring at the end of January. RBC Capital Markets' global
head of investment banking, Derek Neldner, 46, will take over as
group head of capital markets in November.
A bank spokeswoman said the capital markets business more than
doubled between 2008 and 2018 during Mr. McGregor's tenure. RBC has
been aggressively trying to grow its U.S. capital-markets presence
in recent years.
It ranks 11th in terms of investment banking revenue in the U.S.
so far this year, behind Deutsche Bank AG, Wells Fargo & Co.
and Credit Suisse Group AG, according to Dealogic.
Write to Vipal Monga at vipal.monga@wsj.com and Allison Prang at
allison.prang@wsj.com
(END) Dow Jones Newswires
August 21, 2019 11:53 ET (15:53 GMT)
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