RBC beats expectations with record showing in capital markets – Financial Post

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Royal Bank of Canada beat back the economic impacts of the COVID-19 pandemic, with record capital markets earnings and loan-loss provisions that were about half what analysts expected in its fiscal third quarter.

Profit from the bank’s RBC Capital Markets division rose 45 per cent to a record $949 million in the three months through July, helping Canada’s largest lender by assets post earnings that beat analysts’ estimates.

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The Toronto-based lender joins Bank of Montreal and Bank of Nova Scotia, which announced results Tuesday, in reporting record capital markets earnings as surging trading activity and higher investment-banking fees fuelled gains in the divisions. Royal Bank’s trading revenue more than doubled from a year ago, reaching almost $1.7 billion, while fees from dealmaking jumped 17 per cent to $570 million.

“Royal came in well ahead of expectations on the back of a strong capital markets performance and lower-than-forecast provisions,” Barclays Plc analyst John Aiken said in a note to investors. “We view the lower level of provisions positively, a reward for taking significant allowances in the second quarter.”

RBC Capital Markets was the best performer of Royal Bank’s main operating businesses, and the only one aside from insurance to see profit growth. Canadian personal and commercial banking, typically the bank’s largest source of earnings, saw profit fall 17 per cent to $1.33 billion as provisions rose and net interest margins shrank from a year earlier.

Lower Provisions

Royal Bank also benefited in the third quarter from being more conservative on provisioning earlier in the year to brace for the economic impacts of the pandemic. The bank reserved $675 million for souring loans in the quarter, well below the $1.3 billion analysts were expecting and less than a quarter of the $2.83 billion earmarked in the prior three months, suggesting Royal Bank is comfortable with provisioning despite the uncertainty of the pandemic.

“We continue to navigate these uncertain times from a position of strength and stability,” Chief Executive Officer Dave McKay said in a statement Wednesday.

Net income fell 1.9 per cent to $3.2 billion, or $2.20 a share, with adjusted earnings of $2.23 beating the $1.85 estimate of 13 analysts in a Bloomberg survey. Royal Bank shares have fallen 2.8 per cent this year through Tuesday, outperforming the 12 per cent decline for the eight-company S&P/TSX Commercial Banks Index.

National Bank of Canada also posted quarterly profit that topped analysts’ estimates, led by its financial-markets and international divisions. Net income for the Montreal-based lender fell 1 per cent to $602 million, with adjusted per-share earnings of $1.66, beating the $1.32 average estimate of 12 analysts in a Bloomberg survey.

Bloomberg.com