Economic outlook | Royal takes a provision of 340 million

(Toronto) The Royal Bank of Canada (RBC) posted lower third-quarter earnings than a year ago as it saw a sharp decline in capital market activity and took action for possible payment defaults due to deterioration in capital markets. its economic prospects.

Posted at 6:47 am

Ian Bickis
The Canadian press

The bank said Wednesday that it made net income of $ 3.6 billion or $ 2.51 per share for the quarter ended July 31, compared with earnings of $ 4.3 billion or $ 2.97 per share in the year. same quarter of the previous year.

Chief Executive Dave McKay pointed to the uncertain macroeconomic environment, including inflation, supply chain constraints, geopolitical tensions, tight labor markets and climate change-related droughts as some of the factors contributing to declining profits.

“Our market-sensitive businesses have achieved a challenging set of results against the backdrop of one of the toughest environments for financial markets,” he said during a phone call with analysts. This was supported by increased uncertainty, increased volatility, lower asset valuations and widening credit spreads which impacted customer sentiment and activity. ”

Earnings were hit by loan loss provisions totaling $ 340 million for the quarter, compared with a $ 540 million reversal in the same quarter last year.

McKay said the provisions are conservative given the range of potential future outcomes, including the likelihood of a recession in North America, as central bank rate hikes further push the economy towards the end of a cycle.

Profits were also impacted by its capital markets split, where net income fell $ 650 million, or 58%, year-over-year to $ 479 million, as it requested a $ 385 million underwriting cut. caused by market conditions, while provisions and lower debts, stocks and loans also weighed on the business.

Personal and commercial banking saw profits drop by $ 90 million, or 4%, to $ 2 billion in provisions, while the division recorded a 14% increase in net interest income as it posted growth in net interest income. lending by 10%, including double-digit mortgage growth, while credit card spending was 30% above pre-pandemic levels.

McKay added that while mortgage growth has been strong, he doesn’t expect it to last as interest rates hit the housing market.

We anticipate a slowdown in mortgage growth in the coming quarters as activity and house prices fall, and a return to a more balanced sales / listings ratio, “he said.

Dave McKay, CEO of the Royal Bank of Canada

Overall, the bank posted total revenue of $ 12.1 billion, up from $ 12.8 billion a year ago.

On an adjusted basis, RBC said it earned $ 2.55 per share for the quarter, compared to the prior year’s adjusted earnings of $ 3.00 per share.

Analysts on average had expected adjusted earnings of $ 2.66 per share, according to financial market data firm Refinitiv.

National Bank analyst Gabriel Dechaine said in a statement that capital markets fell more than expected, with trade revenues of $ 480 million below his estimate of $ 790 million, largely due to the depreciation of the loan.

Leave a Comment