Royal Bank of Canada missed estimates after setting aside more money than expected to cover possible loan losses amid a faltering economy even as income rose across most business lines.
Canada's largest lender earned C$3.12 per share on an adjusted basis in its fiscal second quarter, according to a statement Thursday, falling short of the C$3.18 average estimate of analysts in a Bloomberg survey. Provisions for credit losses totaled C$1.42 billion ($1.03 billion) for the three months through April, more than the C$1.26 billion analysts had forecast.
As the Canadian economy weakens in the face of US tariff uncertainty, the country's big banks are preparing by putting aside more money for loans that are still in good standing. Toronto-Dominion Bank, Bank of Nova Scotia, Bank of Montreal, National Bank of Canada and Canadian Imperial Bank of Commerce which have reported results over the past week, all increased their provisions for performing loans compared with the first quarter.
At Royal Bank, the last of the country's large lenders to report quarterly results, provisions for performing loans totaled C$568 million in the second quarter, up from C$68 million in the first three months of the fiscal year. Provisions for impaired loans declined to C$852 million from C$985 million in the first quarter.
CIBC, which also reported its results Thursday, set aside C$142 million for performing loans, up from C$127 million in the first quarter.
The bank, Canada's fifth-biggest, earned C$2.05 per share on an adjusted basis, topping the C$1.88 average estimate of analysts in a Bloomberg survey. It saw higher revenue across the business, including strong performance at its capital-markets unit.
"We are navigating the volatility in the global business environment from a position of strength, supported by our robust capital position, disciplined risk management and strong credit quality," CIBC Chief Executive Officer Victor Dodig said in a statement.
Royal Bank said Thursday that it's
It was a mixed quarter for Royal Bank, according to Bank of Nova Scotia analyst Mike Rizvanovic, who highlighted the firm's "more conservative approach" to loan-loss provisions as a positive. On the negative side, he pointed to weaker non-interest revenue and lower margins in the commercial-banking unit than he had predicted.
"We expect the shares to see modest downward pressure on the headline EPS miss," Rizvanovic wrote.
Jefferies Financial Group Inc. analyst John Aiken said he expected to see "strong support for Royal's valuation" while noting investors might have some concerns about an increase in gross impaired loans. The firm reported C$8.94 billion in loans that are unlikely to be paid back, up 13.5% from the first quarter.
"While profitability eased from a very strong first quarter, we note that most of RY's operating segments exceeded expectations," Aiken wrote in a note to clients.
Royal Bank acquired HSBC Holdings Plc's Canadian assets in early 2024, and that's expected to generate about C$740 million in annual cost savings by early next year. The combination of the two firms is also forecast to produce about C$300 million in revenue synergies by 2027, Royal Bank said at an
The lender didn't unveil any major changes in strategy at that time, saying it would keep pursuing growth in Canada, look to expand fee-based revenue from its capital-markets and wealth-management businesses, and keep investing in technology, including artificial intelligence.
