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Royal Bank of Canada (RY) Down Despite Rise in Q1 Earnings

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Royal Bank of Canada (RY - Free Report) posted improved first-quarter fiscal 2017 (ended Jan 31) results. Adjusted earnings per share for the quarter came in at C$1.87, up from C$1.64 in the prior-year quarter.

Higher revenues and lower provision for credit losses were the primary reasons for the strong results. Also, steady growth in loan and deposits, and strong capital position acted as tailwinds. Despite the improved results, the company’s shares fell nearly 1.5% on the NYSE given the growing concerns related to continued rise in expenses.

After considering non-recurring items, net income of C$3.02 billion ($2.26 billion) was up 24% from the prior-year quarter.

Rise in Revenues Supported Results

Total revenue was C$9.55 billion ($7.16 billion), up 2% on a year-over-year basis. The rise was driven by higher net interest and non-interest income.

Net interest income came in at C$4.32 billion ($3.24 billion), up 3% from the prior-year quarter. Net interest margin expanded 2 basis points year over year to 1.73%.

Non-interest income was C$5.22 billion ($3.91 billion), a rise of 1% year over year. This was attributable to a rise in all fee income components, except insurance premiums, investment and fee income as well as net gains in available-for-sale securities.

Non-interest expenses were C$5.22 billion ($3.91 billion), up 5% from the year-ago quarter.

Total provision for credit losses was C$294 million ($220 million) in the quarter, down 28% year over year.

Strong Balance Sheet & Capital Position

As of Jan 31, 2017, average loans and acceptances were C$535.6 billion ($407.8 billion), inching up 1% from the prior quarter. Also, deposits were C$757.5 billion ($576.8 billion), relatively stable sequentially. Total assets were C$1.16 trillion ($0.9 trillion), down 2% from the year-ago quarter.

As of Jan 31, 2017, Tier 1 capital ratio came in at 12.6%, up from 11.3% in the prior-year quarter. Total capital ratio was 14.7%, up from 13.4% as of Jan 31, 2016. Further, the company’s estimated Basel III Common Equity Tier 1 (CET1) ratio was 11.0%, up from 9.9% in the year-ago quarter.

Dividend Hike

Concurrently, Royal Bank of Canada announced a 5% rise in quarterly dividend to 87 cents per share. The dividend will be paid on May 24 to the shareholders on record as of Apr 25.

Our Viewpoint

A consistent improvement in the top line and diversified product mix will help Royal Bank of Canada grow organically. Further, the export-driven economy of Canada is expected to benefit from the gradual recovery of the U.S. economy. However, a persistent low interest rate environment and stringent regulatory reforms keep us skeptical about a steady growth.

Royal Bank Of Canada Price, Consensus and EPS Surprise

 

Royal Bank Of Canada Price, Consensus and EPS Surprise | Royal Bank Of Canada Quote

Royal Bank of Canada currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Foreign Banks

Deutsche Bank AG (DB - Free Report) reported net loss of €1.9 billion ($2.05 billion) in fourth-quarter 2016 compared with the loss of €2.1 billion in the prior-year quarter. Higher provisions impacted the results. However, the reduction in non-interest expenses and high expenses were the positives.

Barclays PLC’s (BCS - Free Report) fourth-quarter 2016 net income from continuing operations was £380 million ($472.3 million) against a net loss of £2.24 billion recorded in the prior-year quarter. Improved bond trading, rebound in equity trading and encouraging investment banking performance were the main reasons for the improved results. However, lower net interest income and a rise in credit impairment charges were the undermining factors.

HSBC Holdings plc (HSBC - Free Report) reported a net loss attributable to shareholders of $4.2 billion, compared with net loss of $1.3 billion in the year-ago quarter. Despite witnessing steady success in its cost-saving initiatives, HSBC's results were hampered by streamlining operations and several one-time write downs. Further, lower revenues acted as a headwind.

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