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May 27, 2020

RBC Q2 profit cut in half as credit loss provisions reach $2.83B

RBC, BMO profits crushed by credit loss provisions

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Royal Bank of Canada missed expectations by a wide margin in its fiscal second quarter as a seven-fold jump in loan loss provisions cut profit in half.

Net income for the three-month period ending April 30 slid 54 per cent to $1.45 billion, the bank announced Wednesday. On an adjusted basis, RBC earned $1.03 per share. Analysts, on average, were expecting $1.65 in earnings per share.

The bank's bottom line was overwhelmed by a surge in cash being put aside for loans that could go bad. Provisions for credit losses (PCLs) reached $2.83 billion, compared to $419 million in the prior three-month period.

RBC also said Wednesday it is maintaining its quarterly dividend at $1.08 per share.

"We entered this period of heightened macroeconomic uncertainty from a position of strategic and financial strength," said CEO Dave McKay in a release. "Our strong capital and liquidity position, and disciplined risk management, have enabled us to remain resilient and focused on delivering long-term value for our clients, shareholders and communities."

RBC saw sharp declines in profit in key divisions during the second quarter. Earnings in its capital markets unit plummeted 86 per cent year-over-year, with the bank pointing to higher provisions and weaker fixed-income trading revenue as primary reasons.

Profit in Royal's bread-and-butter banking business sank 66 per cent year-over-year as loss provisions rose and amid what RBC described as "competitive pricing pressures," among other factors.

And wealth management earnings fell 28 per cent. Aside from provisions, RBC also cited an uptick in costs relating to staff and technology as weighing on the division's profit.