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RBC beats second-quarter profit estimates on strength of capital markets, wealth management units

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Royal Bank of Canada’s reported $4-billion in quarterly profit as the lender recovered loan loss provisions and benefitted from a spike in investment banking revenue.

For the three months that ended April 30, RBC earned $2.76 per share, compared with profit of $1.48-billion, or $1 per share, in the same quarter last year.

After adjusting for certain items, RBC said it earned $2.79 per share, well ahead of analysts’ consensus estimate of $2.47 per share, according to Refinitiv.

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A major reason profits are soaring is that RBC recovered $96-million in provisions for credit losses in the quarter. Those funds had previously been set aside to cover loans that might default. In the same quarter last year, RBC earmarked $2.83-billion in provisions, which took a large bite out of its 2020 profits.

In the fiscal second quarter, RBC set aside $177-million against loans that are past due, but recovered $260-million in previous provisions for loans that are still performing, as economic forecasts and the bank’s outlook for credit brightened.

Bank of Montreal and Canadian Imperial Bank of Commerce also reported sharp declines in loan loss provisions this week, reclaiming some funds from their reserves against losses.

RBC also added to a trend of surging returns from capital markets, reporting $1.07-billion in profit from the division. After recording weak results in the same quarter last year, corporate and investment banking revenue rebounded in a busy market for mergers and acquisitions, rising 66 per cent, while trading revenue from markets remained robust.

Profit from Canadian retail banking $1.9-billion, compared with $532-million in the same quarter last year. The division’ provisions for credit losses fell 98 per cent, accounting for much of the rebound. Revenue increased 4 per cent, driven largely by a 12.6-per-cent rise in mortgage balances amid frenzied activity in housing markets. Balances on credit cards are down 13.5 per cent year over year.

Wealth management profit increased 63 per cent to $691-million, while profits from insurance rose 4 per cent because of lower claims. Profit from investor and treasury services, which surged early in the pandemic, fell 47 per cent to $120-million as demand for liquidity and funding waned.

RBC kept its quarterly dividend constant at $1.08 per share, abiding by temporary restrictions from Canada’s banking regulator that prohibit dividend hikes. As a result, RBC’s excess capital continued to rise, with the bank’s common equity Tier 1 (CET1) ratio climbing to 12.8 per cent, from 12.5 per cent in the fiscal first quarter.

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