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Royal Bank of Canada leans on City National, U.S. wealth unit

During a quarter when Royal Bank of Canada’s net income declined by double digits, its U.S. retail and wealth management segment was a relative bright spot.

The Toronto-based company said Wednesday that its U.S. wealth management business, which includes City National Bank in Los Angeles, benefited from strong volume growth and higher margins during its fiscal third quarter, which ended July 31. Net income for the unit climbed 10% from the year-ago quarter, while revenue was up 14%.

Net interest income at City National specifically rose at an even faster clip, moving up 24% year over year, while the U.S. subsidiary’s net interest margin climbed 31 basis points to 2.5%, RBC reported. City National’s average retail loans rose by 7% and its average wholesale loans climbed by 26%, while average deposits increased 5% from the same quarter last year.

At City National Bank, a Los Angeles-based subsidiary of Royal Bank of Canada, net interest income rose 24% from the same period a year earlier, thanks partly to growth in both retail and wholesale loans.

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RBC President and CEO Dave McKay assured analysts Wednesday that the ongoing buildout of the Canadian bank’s stateside operations is paying off. He pointed specifically to the bank’s U.S. investments in technology, infrastructure, treasury management and sales capacity in the form of new commercial and private bankers. 

“We are effectively leveraging our multiyear investments in this business,” McKay said during the company’s quarterly earnings call.

For RBC’s entire wealth management segment, net income increased by 4% year over year, primarily due to higher net interest income, which was driven by rising interest rates and strong average volume growth. But other segments had more turmoil.

In the capital markets unit, net income tumbled 58% from the year-ago quarter, reflecting a barrage of challenging market conditions. RBC also reported a 4% fall in net income in personal and commercial banking and a 21% decline in net income in its insurance segment.

Across the entire company, net income slid 17% year over year. The reduction was partly due to $340 million Canadian ($262.3 million) of provisions set aside for potentially souring loans, which followed a CA$540 million reserve release in the fiscal third quarter of 2021. 

Earnings per share fell 15% over the same one-year period.

RBC’s third-quarter earnings story was similar to that of at least one other Canadian bank. Scotiabank reported Tuesday that a lackluster performance in capital markets pulled down its overall profits, though loan growth in the United States was a strong spot.

RBC, which acquired City National in 2015 in a cash-and-stock deal that was worth around $5 billion in U.S. dollars, continues to be “on the lookout for strategic opportunities” to grow, McKay said Wednesday.

Earlier this year, the bank announced that its RBC Wealth Management subsidiary intended to acquire Brewin Dolphin Holdings, a provider of wealth management services in the United Kingdom and Ireland. The transaction is expected to be finalized by the end of October, pending regulatory approval, RBC said Wednesday.

“We’re very excited about the opportunities in front of us and executing that playbook,” McKay said.

Toronto-Dominion Bank and Canadian Imperial Bank of Commerce are scheduled to report their earnings on Thursday. Bank of Montreal will deliver its report on Aug. 30.