Royal Bank 3Q Earnings Buoyed by Addition of HSBC Canada

By Robb M. Stewart

Royal Bank of Canada logged a jump in third-quarter earnings thanks to a rise in income in its core operations and with a boost from the recent acquisition of HSBC's Canadian operations.

The bank, the country's largest by market value and one of the biggest in North America, recorded net income of 4.49 billion Canadian dollars (US$3.34 billion), or C$3.09 a share, for the three months to July 31, up from C$3.86 billion, or C$2.73, a year earlier.

Excluding items such as impairment losses and acquisition costs, adjusted per-share earnings rose to C$3.26, beating the C$2.96 mean estimate of analysts polled by FactSet.

Total revenue was 13% higher at C$14.63 billion, but was shy of the C$14.4 billion analysts expected. The rise was driven largely by an increase in net interest income thanks to the inclusion of HSBC Bank Canada, which was picked up in a $10.1 billion deal that closed in March. Royal Bank also benefited from a rise in investment management and custodial fees, underwriting and other advisory fees and mutual fund revenue.

Income was lower in Royal Bank's smaller insurance and corporate support operations, but rose in its capital markets and wealth management businesses and increased 17% to C$2.49 billion in its largest personal and commercial banking segment. HSBC Canada increased overall net income by C$239 million but also came with a number of one-time costs for the transaction and integration.

Canada's biggest banks continue to face a number of headwinds that continue, including still-high interest rates that have weighed on consumer and business spending and lifted borrowing costs and an unemployment rate has also been ticking higher for more than a year. Toronto-based Royal Bank like its peers was dented by an elevated credit-loss reserve compared with a year earlier, though with the Bank of Canada having cut its policy interest rate twice in as many months and expectations easing will continue, analysts expect less pressure on banks to set aside money against the risk of soured loans.

Royal Bank's provision for credit losses increased by C$43 million year-over-year to C$659 million, but was lowered from C$920 million in the second quarter and was less than the C$909 million expected by analysts. The increase from last year reflected higher provisions in personal and commercial banking, partially offset by lower provisions in capital markets and wealth management. The credit-loss provision on performing loans was down 65% on-year but was 25% higher o impaired loans thanks largely to increased provisions in Canadian banking portfolios, Royal Bank said.

The bank said it capital position remains strong, with a common equity Tier 1 ratio of 13%, up 0.2 percentage point from the prior quarter.

Although interest rates are moving lower, Royal Bank said they remain at elevated levels that are slowing the pace of economic growth, with softer gross domestic product expected to continue across most advanced economies in the second half of the calendar year. In Canada, the economic backdrop has continued to soften, it said.

Write to Robb M. Stewart at robb.stewart@wsj.com

(END) Dow Jones Newswires

August 28, 2024 06:54 ET (10:54 GMT)

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