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Royal Bank of Canada (RY) Q3 Earnings & Revenues Improve
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Royal Bank of Canada (RY - Free Report) reported third-quarter fiscal 2016 (ended Jul 31) net income of C$2.9 billion ($2.24 billion), up 17% from the prior-year quarter. Excluding after-tax gains, net income was C$2.7 billion ($2.08 billion), a rise of 7% year over year.
Growth in net interest income and fee revenues benefited the results. Further, steady growth in loan and deposit balances and strong capital position acted as tailwinds. On the downside, a rise in expenses and higher provisions remained major concerns.
A Rise in Revenues Supported the Results
Total revenue was C$10.3 billion ($7.95 billion), up 16% on a year-over-year basis. Revenue was driven by higher net interest and non-interest income.
Net interest income came in at C$4.1 billion ($3.16 billion), up 9% from the prior-year quarter. The rise reflected the inclusion of the City National acquisition, and volume growth across most of its businesses in Canadian Banking.
Net interest margin contracted 3 basis points compared to last year to 1.69%. The fall was largely due to the sustained low interest rate environment and competitive pressures.
Non-interest income was C$6.1 billion ($4.71 billion), surging 22% year over year. A rise in all fee income components, except underwriting and other advisory fees mainly drove the increase.
Non-interest expenses were C$5.1 billion ($3.94 billion), up 10% from the year-ago quarter. The rise was primarily due to an increase in almost all the components.
Total provision for credit losses was C$318 million ($245.4 million) in the quarter, up 18% year over year, mainly due to higher provisions in Capital Markets, Wealth Management and Canadian Banking segments. These were partially countered by a decline in provision in Caribbean Banking.
Strong Balance Sheet & Capital Position
As of Jul 31, 2016, total average loans and acceptances stood at C$527.6 billion ($404 billion), up marginally from the prior quarter. Also, deposits were C$754.4 billion ($577.6 billion), up 2% sequentially. Total assets were C$1.20 trillion ($0.9 trillion), up 4% from the last quarter.
As of Jul 31, 2016, Tier 1 capital ratio came in at 12.1%, up from 11.7% in the prior-year quarter. Total capital ratio was 14.2%, up from 13.4% as of Jul 31, 2015.
The company’s estimated Basel III Common Equity Tier 1 (CET1) ratio stood at 10.5%, expanding 20 basis points year over year.
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 the company’s sustainable growth over the long term.
Royal Bank of Canada currently has a Zacks Rank #3 (Hold).
Performance of Other Foreign Banks
Bank of Montreal’s (BMO - Free Report) third-quarter fiscal 2016 (ended Jul 31) adjusted earnings of C$1.94 per share compared favorably with C$1.86 earned in the prior-year quarter. Results benefited primarily from robust growth in the top line. However, rise in expenses and higher provisions continued to weigh on the results.
Itau Unibanco Holding S.A. (ITUB - Free Report) posted second-quarter 2016 recurring earnings of R$5.58 billion ($1.59 billion), down 9% year over year. Results displayed decreased managerial financial margin along with lower revenues from insurance, pension plans and capitalization operations. Additionally, the increase in non-interest expenses was a headwind.
Deutsche Bank AG (DB - Free Report) reported net income of €20 million ($22.6 million) in second-quarter 2016, significantly down on a year-over-year basis. Lower revenues and higher provisions hurt the results. However, the reduction in non-interest expenses was a positive factor.
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Royal Bank of Canada (RY) Q3 Earnings & Revenues Improve
Royal Bank of Canada (RY - Free Report) reported third-quarter fiscal 2016 (ended Jul 31) net income of C$2.9 billion ($2.24 billion), up 17% from the prior-year quarter. Excluding after-tax gains, net income was C$2.7 billion ($2.08 billion), a rise of 7% year over year.
Growth in net interest income and fee revenues benefited the results. Further, steady growth in loan and deposit balances and strong capital position acted as tailwinds. On the downside, a rise in expenses and higher provisions remained major concerns.
A Rise in Revenues Supported the Results
Total revenue was C$10.3 billion ($7.95 billion), up 16% on a year-over-year basis. Revenue was driven by higher net interest and non-interest income.
Net interest income came in at C$4.1 billion ($3.16 billion), up 9% from the prior-year quarter. The rise reflected the inclusion of the City National acquisition, and volume growth across most of its businesses in Canadian Banking.
Net interest margin contracted 3 basis points compared to last year to 1.69%. The fall was largely due to the sustained low interest rate environment and competitive pressures.
Non-interest income was C$6.1 billion ($4.71 billion), surging 22% year over year. A rise in all fee income components, except underwriting and other advisory fees mainly drove the increase.
Non-interest expenses were C$5.1 billion ($3.94 billion), up 10% from the year-ago quarter. The rise was primarily due to an increase in almost all the components.
Total provision for credit losses was C$318 million ($245.4 million) in the quarter, up 18% year over year, mainly due to higher provisions in Capital Markets, Wealth Management and Canadian Banking segments. These were partially countered by a decline in provision in Caribbean Banking.
Strong Balance Sheet & Capital Position
As of Jul 31, 2016, total average loans and acceptances stood at C$527.6 billion ($404 billion), up marginally from the prior quarter. Also, deposits were C$754.4 billion ($577.6 billion), up 2% sequentially. Total assets were C$1.20 trillion ($0.9 trillion), up 4% from the last quarter.
As of Jul 31, 2016, Tier 1 capital ratio came in at 12.1%, up from 11.7% in the prior-year quarter. Total capital ratio was 14.2%, up from 13.4% as of Jul 31, 2015.
The company’s estimated Basel III Common Equity Tier 1 (CET1) ratio stood at 10.5%, expanding 20 basis points year over year.
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 the company’s sustainable growth over the long term.
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Royal Bank of Canada currently has a Zacks Rank #3 (Hold).
Performance of Other Foreign Banks
Bank of Montreal’s (BMO - Free Report) third-quarter fiscal 2016 (ended Jul 31) adjusted earnings of C$1.94 per share compared favorably with C$1.86 earned in the prior-year quarter. Results benefited primarily from robust growth in the top line. However, rise in expenses and higher provisions continued to weigh on the results.
Itau Unibanco Holding S.A. (ITUB - Free Report) posted second-quarter 2016 recurring earnings of R$5.58 billion ($1.59 billion), down 9% year over year. Results displayed decreased managerial financial margin along with lower revenues from insurance, pension plans and capitalization operations. Additionally, the increase in non-interest expenses was a headwind.
Deutsche Bank AG (DB - Free Report) reported net income of €20 million ($22.6 million) in second-quarter 2016, significantly down on a year-over-year basis. Lower revenues and higher provisions hurt the results. However, the reduction in non-interest expenses was a positive factor.
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