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Royal Bank of Canada (RY) Q3 Earnings Disappoint, Provisions Up

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Royal Bank of Canada (RY - Free Report) reported third-quarter fiscal 2020 (ended Jul 31, 2020) net income of C$3.2 billion ($2.3 billion), down 2% from the prior-year quarter’s reported tally.

The bank witnessed escalating expenses and provisions. However, higher revenues, along with elevated loans and deposit balances, were positives, boosting investors’ optimism, resulting in its shares to rise 1.47% on the NYSE, following the results.

Furthermore, on a year-over-year basis, Wealth Management, Personal & Commercial Banking, Investor & Treasury Services and Canadian Banking reported a decline of 12%, 18%, 36% and 17.3%, respectively, in the quarterly net income. Nevertheless, net income in the Capital Markets and Insurance segments climbed 45% and 6%, respectively. Corporate Support recorded net income as against the net loss reported in the prior-year quarter.

Revenues Up, Expenses & Provisions Escalate

Total revenues came in at C$12.9 billion ($9.4 billion) during the May-July quarter, up 12.2% on a year-over-year basis. Revenues were aided by higher non-interest as well as net interest income.

Net interest income came in at C$5.1 billion ($3.7 billion), up 2% from the prior-year quarter. Non-interest income was C$7.8 billion ($5.7 billion), up 20% year over year.

Non-interest expenses came in at C$6.4 billion ($4.7 billion), up 6.7% from the year-ago quarter. This upswing primarily resulted from rise in almost all the components, partly muted by lower other and communication costs.

As of Jul 31, 2020, Royal Bank of Canada’s average total loans came in at C$680.9 billion ($507.5 billion), up 1.1% from the prior quarter. Additionally, deposits totaled C$1.02 trillion ($0.76 trillion), up around 1% sequentially. Total assets were C$1.68 trillion ($1.25 trillion), marginally up from the previous quarter.

Total provision for credit losses was C$675 million ($493.3 million) in the quarter, surging 58.8% year over year, mainly due to the coronavirus concerns.

Solid Capital Position

As of Jul 31, 2020, Royal Bank of Canada’s Tier 1 capital ratio came in at 13.3%, up from the prior-year quarter’s 13%. Total capital ratio came in at 15.3%, up from the 15% reported in the year-earlier quarter.

The company’s estimated Common Equity Tier 1 (CET1) ratio came in at 12%, expanding 10 basis points from the prior-year quarter.

Our Viewpoint

We believe a continued improvement in loan balances and a diversified product mix will drive Royal Bank of Canada’s organic growth in the days to come. Though stringent regulatory reforms, along with escalating expenses and provisions, keep us skeptical about the company’s sustainable growth over the long term, Canada’s export-driven economy is anticipated to gain from the recovery of the U.S. economy that has been hit hard by the coronavirus mayhem, thereby benefiting the bank.
 

Royal Bank Of Canada Price, Consensus and EPS Surprise

Royal Bank Of Canada Price, Consensus and EPS Surprise

Royal Bank Of Canada price-consensus-eps-surprise-chart | Royal Bank Of Canada Quote


Royal Bank of Canada currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Competitive Landscape

Bank of Montreal’s (BMO - Free Report) third-quarter fiscal 2020 (ended Jul 31) adjusted net income was C$1.26 billion ($0.92 billion), down 20% year over year. The results reflected a significant rise in credit costs and lower loan balance. However, increase in revenues, lower expenses and improvement in deposit balance offered some support.

The Bank of Nova Scotia (BNS - Free Report) reported third-quarter fiscal 2020 (ended Jul 31) adjusted net income of C$1.31 billion ($0.96 billion), down 47% year over year. The results excluded certain one-time items.

ItauUnibanco Holding S.A. (ITUB - Free Report) posted recurring earnings of R$4.2 billion ($0.78 billion) in second-quarter 2020, significantly down 40% year over year. Including non-recurring items, net income came in at R$3.4 billion ($0.63 billion), plummeting 50% year on year.

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