Thursday, October 6

RBC Misses Estimates on Dealmaking Slump, Loan-Loss Provisions


Royal Bank of Canada’s capital-markets division dragged down the company’s results last quarter as slumping investment-banking activity took a toll on revenue, while a deteriorating economic outlook prompted a bigger-than-expected provision for loan losses.

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(Bloomberg) — Royal Bank of Canada’s capital-markets division dragged down the company’s results last quarter as slumping investment-banking activity took a toll on revenue, while a deteriorating economic outlook prompted a bigger-than-expected provision for loan losses.

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RBC Capital Markets’ revenue fell by a third to C$1.65 billion ($1.27 billion) in the fiscal third quarter, the Toronto-based bank said in a statement Wednesday. Overall profit missed analysts’ estimates.

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Plunging equity markets have dried up investor demand for initial public offerings and share sales, reducing the fees investment banks reap from arranging the transactions. Despite the quarter’s turbulent markets, trading revenue also fell, failing to counter the hit from the investment-banking downturn.

“Expectations for capital markets are subdued given recent market performance,” Gabriel Dechaine, an analyst at National Bank of Canada, said in a note to clients before the results were announced. “However, we also see a few specific challenges to Royal Bank’s business ,” including its outsize exposure to investment-banking fee revenue and high-yield bond trading.

Royal Bank set aside C$340 million in provisions for credit losses “mainly due to unfavorable changes in our macroeconomic outlook,” according to the statement. Analysts expected C$296.8 million in provisions.

The company’s shares have slid 5.8% this year, compared with an 8.8% drop for the S&P/TSX Commercial Banks Index.

Net income fell 17% to C$3.58 billion, or C$2.51 a share. Excluding some items, profit was C$2.55 a share. Analysts estimated C$2.67, on average.



financialpost.com