RBC posts strong quarter despite headwinds from U.S. banking crisis
Despite higher provisions for credit losses and a quarter in which “everything went against” Royal Bank of Canada’s City National franchise in the United States, the bank beat third-quarter earnings estimates, aided by lower taxes and strong performance in Canada including growth in loans, deposits and credit card balances in the three months ending July 31.
Net income of $3.9 billion for the quarter was up eight per cent from the prior year, while diluted earnings per share (EPS) of $2.73 were up nine per cent. Adjusted EPS of $2.84 was above the consensus analyst estimate of $2.70.
“The performance yet again demonstrated the strength of our diversified business model, which produced revenue growth across our business,” said Dave McKay, RBC’s chief executive.
The results came despite Royal Bank setting aside $616 million in provisions for credit losses, a slight increase from the second quarter but below consensus expectations of $649 million. The bank set aside $95 million of provisions linked to newly impaired commercial real estate loans, primarily tied to its capital markets unit and City National in the U.S.
On a conference call with analysts, McKay and other RBC executives said the bank was benefiting from higher interest rates, with Canadian operations posting an increased net interest margin (NIM) — a measure of revenue generated from a bank’s interest-bearing assets such as mortgages and commercial loans against the expenses associated with paying interest, such as to depositors.
In RBC’s Canadian personal and commercial unit, NIM increased three basis points from the previous quarter to 2.68 per cent, while provisions for credit losses of $308 million were lower than the $431 million set aside in the second
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