RY Royal Bank of Canada

By Vipal Monga and Dave Sebastian 

Royal Bank of Canada plans to roll out a direct-to-consumer bank in the U.S. as it seeks to boost its deposit base and wealth-management franchise.

"The loan book has been growing faster than the deposit book, so growing our deposit strategy has become of paramount importance," said Chief Executive Dave McKay in a call with analysts following the release of the bank's earnings report Friday. "So you'll see us likely launch a direct-to-consumer bank in the United States sometime at the end of this year."

Though Mr. McKay didn't provide details about the types of services the online bank would offer, he said it would allow RBC to cultivate customers "a little bit down market" from the extremely wealthy clients the bank's wealth-management business usually courts.

RBC's business catering to wealthy clients in the U.S. is largely driven by its City National franchise, a bank it bought in 2015 for $5.4 billion. The deal has paid off by allowing the bank to benefit from the growth in U.S. wealth-management businesses.

RBC has been growing its City National branch network. It has four branches in New York, and plans to open three more in the city this year. The bank will also add one more branch in Washington, D.C., doubling its branch network in the nation's capital.

Overall, RBC posted a net income of 3.51 billion Canadian dollars ($2.64 billion), or C$2.40 a share, for its fiscal first quarter ended Jan. 31. The result beat the C$2.26 a share that analysts polled by FactSet had expected. It earned C$3.17 billion, or C$2.15 a share, a year earlier.

Revenue at the bank's U.S. wealth-management business, which includes City National, rose 12%, or $131 million, from a year earlier. Loans and deposits both grew 19%, but net interest margins fell 0.17 percentage point as interest rates fell.

Total revenue at Canada's largest bank by assets grew to C$12.84 billion from C$11.59 billion in the prior year. Analysts were expecting C$11.47 billion.

Net income in the capital-markets division rose 35% to C$882 million as RBC booked higher fixed-income trading revenue and had higher mergers-and-acquisitions activity and debt origination. The boost from the capital markets business also raised costs, however. Noninterest expenses rose 10% from last year, as the bank paid out more in bonuses.

The personal-and-commercial banking unit's net income rose 7% to C$1.69 billion, led by average loan growth of 7%, an increase in residential mortgages and average deposit growth of 9% in Canada.

The bank's provision for credit losses was C$419 million, 18% lower than a year ago. The bank set aside less money for impaired loans in personal-and-commercial banking, and wealth management.

Bank executives said companies faced growing risk from the coronavirus epidemic's impact on global economic activity and a railway blockade by indigenous and climate-change activists in Canada that has snarled supply chains.

"We are monitoring the situation closely," said Rod Bolger, the bank's finance chief, in an interview. He said the bank has "limited direct exposure" to the coronavirus epidemic because it has no direct business in China, but some clients are feeling the effect of the disruption on manufacturing and supply chains.

RBC's capital ratio was 12% for the quarter, compared with 11.4% in the year-ago period. Mr. Bolger said the bank is "very comfortable" at the level and doesn't see any reason to increase the ratio much from there.

The bank raised its quarterly dividend by 2.9% to C$1.08, payable May 22 to shareholders of record on April 23.

Write to Vipal Monga at vipal.monga@wsj.com and Dave Sebastian at dave.sebastian@wsj.com

(END) Dow Jones Newswires

February 21, 2020 15:01 ET (20:01 GMT)

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