(Bloomberg) -- Royal Bank of Canada set aside a record C$2.83 billion ($2.06 billion) in anticipation of soured loans from plunging oil prices and the economic impacts of the coronavirus pandemic.

  • The country’s largest lender by assets had the highest provisions among Canadian banks that have reported fiscal second-quarter results so far. Royal Bank’s set-asides contributed to a 54% decline in net income, which missed analysts’ estimates.

Key Insights

  • Royal Bank has the biggest investment-banking business among Canada’s large lenders, with significant operations in Canada and the U.S. and a growing platform in Europe. Earnings from its RBC Capital Markets division plunged 86% to C$105 million as loan-loan loss provisions surged to more than C$1 billion.
  • U.S. banks benefited from a surge in trading earlier in the year as markets reacted to the Covid-19 outbreak, countering some of the pandemic’s damage to their first-quarter results. In Royal Bank’s fiscal quarter, which ended April 30, the firm gained from a similar experience, with trading revenue rising 15% to C$1.11 billion.
  • Canadian personal and commercial banking is the lender’s largest source of profit. Earnings from the unit fell 56% to C$649 million in the quarter as provisions for soured loans more than tripled.
  • Royal Bank’s $5 billion takeover of City National in 2015 has given the Canadian lender a wealth-management boost in the past four years. That failed to show up in the second quarter, with earnings from wealth management falling 28% to C$424 million as revenue from the U.S. declined.

Market Reaction

  • Royal Bank shares have fallen 14% this year through Tuesday, compared to the 20% decline of the eight-company S&P/TSX Commercial Banks Index.

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  • Second-quarter net income fell 54% to C$1.48 billion from C$3.23 billion a year earlier, with adjusted earnings of C$1.03 missing the C$1.65 estimate of 13 analysts in a Bloomberg survey.
  • Read more about Royal Bank’s quarterly results here.

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