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May 30, 2024

RBC tops estimates on record profit in capital-markets unit

Royal & CIBC beat Q2 EPS expectations

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Royal Bank of Canada beat analysts’ estimates on strong performance from the company’s capital-markets business and lower-than-expected provisions for potential loan losses. 

Canada’s biggest lender earned $2.92 a share on an adjusted basis in the fiscal second quarter, it said in a statement Thursday, topping the $2.76 average estimate of analysts in a Bloomberg survey. The bank’s provisions for credit losses totaled $920 million, less than the $929 million analysts had forecast.

Canadian Imperial Bank of Commerce also announced results that topped estimates Thursday, with the lender setting aside $514 million for possible credit losses, less than the $567 million analysts had forecast.

The Royal Bank and CIBC announcements come after Bank of Montreal’s shares tumbled Wednesday when the lender reported higher-than-expected provisions. Bank of Nova Scotia and Toronto-Dominion Bank earlier reported loan-loss provisions of more than $1 billion each. Set-asides at both Toronto-Dominion and National Bank of Canada came in higher than analysts had forecast.

At Royal Bank, net income in the firm’s capital-markets business rose 31 per cent from a year earlier to a record $1.26 billion, primarily the result of higher revenue in corporate and investment banking.

Royal Bank saw costs increase 12 per cent from a year earlier as it digests the purchase of HSBC Holdings Plc’s Canadian assets, the biggest takeover in its history. Non-interest expenses totaled $8.31 billion in the three months through April, more than the $7.95 billion analysts were expecting.

HSBC deal

Royal Bank completed its $13.5 billion takeover of HSBC Canada on March 28, with about one month left to go in the quarter, and immediately began converting branches to the Royal Bank banner and switching customers and employees over to its own systems. The lender has also grappled with higher costs at its Los Angeles-based City National Bank subsidiary, where it’s investing in improved risk controls after being hit with a regulatory fine over lapses in compliance practices.

Overall net income at Toronto-based Royal Bank was up 7.3 per cent to $3.95 billion.

It was a “strong quarter” for Royal Bank, Keefe, Bruyette & Woods analyst Mike Rizvanovic wrote in a note to clients, pointing to “an impressive top-line performance, manageable credit costs and a solid capital position following the close of the HSBC Canada acquisition.”

Royal Bank’s shares climbed 2.8 per cent to $144.96 at 9:39 a.m. in Toronto. They’ve gained 8.2 per cent this year.

The lender’s Common Equity Tier 1 ratio was 12.8 per cent at the end of the quarter, higher than the 12.5 per cent level it forecast it would hit after closing the HSBC deal. It announced a 4-cent increase in its quarterly dividend to $1.42 per share and said it plans to buy back as many as 30 million common shares.

Also during the quarter, Royal Bank fired Chief Financial Officer Nadine Ahn, a shock exit that came after the bank said she’d violated its code of conduct by having an undisclosed “close personal relationship” with a colleague who was given preferential treatment. Katherine Gibson was named interim CFO.

CIBC results

Toronto-based CIBC earned $1.75 per share on an adjusted basis in the fiscal second quarter, it said Thursday, beating the $1.65 average estimate of analysts in a Bloomberg survey. 

CIBC has grappled with higher credit-loss provisions in the past owing to the bank’s U.S. office-loan portfolio. But executives said earlier this year that the issue was largely behind the lender after it took steps to reduce its exposure to such debt.

The bank’s overall net income increased 3.6 per cent to $1.75 billion.

CIBC’s Common Equity Tier 1 ratio was 13.1 per cent at the end of the quarter, up from 13 per cent in the prior three months, and the bank said Thursday it’s cancelling the discount on its dividend-reinvestment program, a measure used to increase capital.

The lender’s shares rose 3.1 per cent to $66.64. They’re up 4.4 per cent this year.