The Toronto-based bank earned C$2.85 per share on an adjusted basis in the fiscal first quarter, it said in a statement Wednesday, topping the C$2.80 average estimate of analysts in a Bloomberg survey. Net income of C$1.15 billion ($849 million) in the capital-markets business topped expectations of C$943.7 million, with fixed-income revenue giving the unit a boost.
Royal Bank has been working to rein in expenses with recent rounds of job cuts both in Canada and at its struggling City National Bank subsidiary in the US. Los Angeles-based City National reported a net loss of $22 million, its third straight quarterly loss. Royal Bank injected almost $3 billion to boost City National’s balance sheet last year and has installed new top managers at the unit.
Provisions for credit losses in the three months through January totaled C$813 million, slightly more than the C$812.1 million analysts had forecast.
Results also were impacted by a special assessment of C$159 million before taxes by the US Federal Deposit Insurance Corp. related to bank failures.
“Royal posted a strong quarter, well ahead of expectations, particularly when the FDIC charge is removed from core,” said Jefferies Financial Group Inc. analysts John Aiken, Joe Ng and Aria Samarzadeh. “It continues to demonstrate solid growth in a challenging environment, and with the pending HSBC Canada acquisition, is set for additional growth heading into 2025.”
Royal Bank’s C$13.5 billion deal to acquire HSBC Holdings Plc’s Canadian operations won government approval in December and is set to close on March 28, which is later than analysts had initially expected. The purchase is expected to help boost operating leverage at Royal Bank as cost synergies kick in.
Royal Bank’s Common Equity Tier 1 ratio came in at 14.9% as of the first quarter, and the firm said it expects a CET1 ratio of 12.5% after the deal closes. That’s well above the regulatory minimum level of 11.5%.
The lender said in a slide presentation Wednesday that it plans to turn off the discount on its dividend reinvestment program as of May 24. It has used the discounted DRIP as a means of raising additional capital.
Non-interest expenses totaled C$8.32 billion, up 9.7% from a year earlier. That was a slower pace of growth than in 2023, when the bank reported a 15.8% increase in year-over-year expenses. Costs rose as a result of higher spending on transaction and integration work for the HSBC deal as well as the FDIC charge, Royal Bank said.
Provisions for impaired loans were up in Royal Bank’s Canadian commercial-lending business, particularly in the automotive and real estate sectors. The lender also provided new details on commercial real estate, noting that its total lending in the space represents 9.7% of its overall loan book, while US office loans represent just 0.6% of its total portfolio.
Looking ahead, “downside provisioning scenarios account for a reduction in CRE prices of 25% to 40%,” the company said.
Royal Bank’s wealth business reported net income of C$606 million, beating estimates of C$520.3 million.
Competitor National Bank of Canada, which also reported results Wednesday, had adjusted earnings per share of C$2.59 for the fiscal first quarter, topping estimates for C$2.35.
The Montreal-based bank posted revenue growth across all of its businesses, it said in a statement, while provisions for credit losses rose to C$120 million, slightly higher than analysts had forecast.
(Updates with analyst comment, earnings details, National Bank results beginning in fifth paragraph.)
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