Royal Bank of Canada (RY) Q2 Earnings Impress, Revenues Up

Royal Bank of Canada RY reported second-quarter fiscal 2019 (ended Apr 30, 2019) net income of C$3.2 billion ($2.4 billion), up 6% from the prior-year quarter.

The bank witnessed higher revenues and strong capital position in the quarter. Notably, elevated loans and deposit balances were on the positive side. However, investors’ concerns were visible on escalating expenses and provisions which led its share price to fall 1.4% on the NYSE, following the results.

Furthermore, on a year-over-year basis, Wealth Management, Capital Markets, Personal & Commercial Banking and Canadian Banking reported rise of 9%, 17%, 6% and 2.4%, respectively, in quarterly net income. Nevertheless, net income in Investor & Treasury Services and Insurance segments declined 29% and 10%, respectively. Corporate Support segment reported stable income as compared with the prior-quarter.

Revenues Improve, Partly Offset by Higher Expenses & Provisions

Total revenues came in at C$11.5 billion ($8.6 billion) during the February-April quarter, up 13.9% on a year-over-year basis. Revenues were driven by higher interest and non-interest income.

Net interest income came in at C$4.8 billion ($3.6 billion), up 9.1% from the prior-year quarter. Non-interest income was C$6.7 billion ($5 billion), up 19.6% year over year.

Non-interest expenses were C$5.9 billion ($4.4 billion), up 7.3% from the year-ago quarter. This upswing primarily resulted from rise in almost all the components.

As of Apr 30, 2019, Royal Bank of Canada’s total loans came in at C$613.1 billion ($457.9 billion), up 9.1% from the prior-year quarter. Additionally, deposits totaled C$864.1 billion ($645.3 billion), up 5.1% year over year. Total assets were C$1.38 trillion ($1.03 trillion), up 8.7% from the year-earlier quarter.

Total provision for credit losses was C$426 million ($319.8 million) in the quarter, up 59% year over year, mainly due to elevated provisions in Personal & Commercial Banking, Wealth Management and Capital Markets.

Strong Capital Position

As of Apr 30, 2019, Royal Bank of Canada’s Tier 1 capital ratio came in at 12.9%, up from the prior-year quarter’s 12.3%. Total capital ratio came in at 14.8%, up from 14.1% reported in the year-earlier quarter.

The company’s estimated Common Equity Tier 1 (CET1) ratio came in at 11.8%, up 90 basis points from the prior-year quarter.

Our Viewpoint

We believe a continued improvement in loan balances and diversified product mix will drive Royal Bank of Canada’s organic growth. Though stringent regulatory reforms and escalating expenses keep us skeptical about the company’s sustainable growth over the long term, the export-driven economy of Canada is anticipated to benefit from the gradual recovery of the U.S. economy, thereby benefiting the bank.

Royal Bank Of Canada Price, Consensus and EPS Surprise

Royal Bank Of Canada Price, Consensus and EPS Surprise

Royal Bank Of Canada price-consensus-eps-surprise-chart | Royal Bank Of Canada Quote

Royal Bank of Canada currently has a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Foreign Banks

Deutsche Bank DB reported net income of €201 million ($467.1 million) in first-quarter 2019, up 67% from the year-ago quarter’s €120 million. The bank reported profit before taxes of €292 million ($364.3 million). First-quarter results benefited from net asset inflows and prudent expense management.

UBS Group AG UBS delivered first-quarter net profit attributable to shareholders of $1.1 billion, down 27% from $1.6 billion witnessed in the year-earlier quarter.

The Royal Bank of Scotland RBS posted first-quarter 2019 net income attributable to its shareholders of £707 million ($919 million), down 12.5% from £808 million ($1.1 billion) witnessed in the prior-year quarter.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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