(Bloomberg) -- Royal Bank of Canada’s shares rose to a record high after the lender posted a sixth straight quarterly earnings beat, fueled by revenue gains across the company and a boost from its acquisition of HSBC Holdings Plc’s Canadian operations.
“We’re really bullish on the business,” Chief Executive Officer Dave McKay said on a call with analysts. He pointed to the bank’s strong capital generation, which gives it the ability to invest in winning new business across commercial and consumer banking as well as capital markets.
Royal Bank can increase its return on equity to more than 16% over the next three to five years, from 14.3% currently, the CEO said. Still, McKay warned of an increasingly gloomy economic landscape, including subdued business conditions, rising unemployment, constrained immigration policy and the threat of rising protectionism.
Shares of the company rose 0.6% to C$176.91 as of 1:17 p.m. in Toronto after paring an earlier gain of 2.3%.
Canada’s biggest bank earned C$3.07 per share on an adjusted basis in its fiscal fourth quarter, according to a statement Wednesday, topping the C$3.03 average estimate of analysts in a Bloomberg survey. The report extended a winning streak for the firm, which has exceeded analyst forecasts in every period since the third quarter of 2023, the only Big Six Canadian bank to do so.
The lender also set aside less money for possibly bad loans than expected, with provisions for credit losses totaling C$840 million for the three months through October, less than the C$846 million analysts had forecast.
While consumers and businesses have struggled to pay down debt, causing credit conditions to deteriorate, a series of central-bank interest-rate cuts has helped ease some investor concern about bad loans. Bank of Nova Scotia, the first of Canada’s Big Six banks to report on Tuesday, recorded C$1.03 billion in provisions in the quarter, which was also less than analysts had forecast.
Royal Bank Chief Financial Officer Katherine Gibson said she expects credit losses to continue to be within the same range in 2025, “with peak loss rates coming in the second half of the year.”
On trade, McKay said he thinks “it’s important not to overreact” to the tariff threats floated by US President-elect Donald Trump, and said RBC isn’t changing its strategy in response.
“This was a strong message that we have to improve certain aspects of our operations in Canada around our borders,” McKay said. “There are other ways of solving that without hurting both economies — the Canadian economy and the US economy — and I expect our political leaders to find a better path to do that.”
HSBC Boost
Revenue at Royal Bank also topped analysts’ expectations, coming in at C$15.1 billion, more than the C$14.8 billion forecast.
“It wasn’t a blowout quarter but very solid in many ways including margins, operating leverage (synergies at HSBC are ahead of schedule), and capital levels,” Scotiabank analyst Meny Grauman said in a report.
Royal Bank acquired HSBC’s Canadian assets in late March, a deal that has given RBC’s domestic banking unit renewed momentum. The bank’s shares have gained more than 30% this year amid what analysts have called solid execution across multiple business lines.
Net income in the fourth quarter was C$4.22 billion, up 7.2% from a year earlier, as the lender benefited from the inclusion of HSBC’s assets as well as higher fee-based client assets in its wealth-management division.
The bank recently split its Canadian operations into separate personal and commercial divisions. In the first quarter recording separate results, the personal-banking business posted a 16% surge in net income, to C$1.58 billion, and was up 9% excluding HSBC Canada results as it saw higher net interest spreads and “average volume growth of 9% in deposits and 4% in loans.”
Its new commercial-banking business was also up 16%, to C$774 million, amid growth in loans and deposits. Excluding HSBC Canada results, however, net income fell 5%, as the company recorded higher revenue but was hurt by higher provisions for loan losses and expenses.
Results at Royal Bank’s capital-markets business were little changed from a year earlier, with net income of C$985 million. The bank said it had “record fourth-quarter revenue in global markets and corporate and investment banking,” but said that was more than offset by C$93 million in legal provisions plus higher taxes compared with a year earlier.
Royal Bank also announced a 4% increase to its quarterly dividend, boosting it by 6 cents to C$1.48 a share, payable on Feb. 24.
National Bank
National Bank of Canada also announced fiscal fourth-quarter results Wednesday, posting higher revenue in the quarter that was buoyed by what it called “good performance in all of the business segments.” Adjusted total revenue came in at almost C$3 billion, topping analyst expectations of C$2.94 billion.
The Montreal-based bank earned C$2.58 per share on an adjusted basis, it said in a statement, higher than the C$2.57 average estimate of analysts in a Bloomberg survey. National Bank hiked its quarterly dividend by 4 cents to C$1.14 per common share, payable Feb. 1.
But there was “some noise in the result” as a beat in revenue driven by better-than-expected margin expansion made up for “worse-than-expected credit and expense performance,” Grauman wrote in a separate report to clients. He said the market would likely “view this as a lower quality result, which should put some pressure on the shares given the premium that they command.”
The bank’s shares fell as much 4% to C$135.09, the biggest intraday drop since June.
--With assistance from Geoffrey Morgan.
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