Royal Bank of Canada (RY) Q4 Earnings Impress, Revenues Up

Royal Bank of Canada RY reported fourth-quarter fiscal 2019 (ended Oct 31, 2019) net income of C$3.2 billion ($2.4 billion), down 1% from the prior-year quarter’s reported tally.

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 caused its shares to fall 1.5% on the NYSE, following the results.

Furthermore, on a year-over-year basis, Wealth Management, Personal & Commercial Banking and Canadian Banking reported rise of 32%, 5% and 2.4%, respectively, in quarterly net income. Nevertheless, net income in the Investor & Treasury Services, Capital Markets and Insurance segments declined 71%, 12% and 11%, respectively. The Corporate Support segment reported net loss as against the net income recorded in the prior-year quarter.

For fiscal 2019, net income was C$12.9 billion ($9.7 billion), up 4% from the prior-year quarter.

Revenues Improve, Partly Offset by Higher Expenses & Provisions

For fiscal 2019, total revenues were C$46 billion ($34.6 billion), up 8% on a year-over-year basis.

Total revenues came in at C$11.4 billion ($8.6 billion) during the August-October quarter, up 6.5% on a year-over-year basis. Revenues were driven by higher interest and non-interest income.

Net interest income came in at C$5.1 billion ($3.9 billion), up 8.5% from the prior-year quarter. Non-interest income was C$6.3 billion ($4.8 billion), up 5% year over year.

Non-interest expenses came in at C$6.3 billion ($4.8 billion), flaring up 6.8% from the year-ago quarter. This upswing primarily resulted from rise in almost all the components.

As of Oct 31, 2019, Royal Bank of Canada’s total loans came in at C$618.9 billion ($470 billion), up 1.1% from the prior quarter. Additionally, deposits totaled C$886 billion ($672.8 billion), up around 1% sequentially. Total assets were C$1.43 trillion ($1.09 trillion), up 1.4% from the prior quarter.

Total provision for credit losses was C$499 million ($376.9 million) in the quarter, surging 41.4% year over year, mainly due to elevated provisions in Personal & Commercial Banking, Wealth Management and Capital Markets.

Solid Capital Position

As of Oct 31, 2019, Royal Bank of Canada’s Tier 1 capital ratio came in at 13.2%, up from the prior-year quarter’s 12.8%. Total capital ratio came in at 15.2%, up from the 14.6% reported in the year-earlier quarter.

The company’s estimated Common Equity Tier 1 (CET1) ratio came in at 12.1%, expanding 60 basis points from the prior-year quarter.

Our Viewpoint

We believe a continued improvement in loan balances and a 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, Canada’s export-driven economy is anticipated to gain 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 carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

Bank of Montreal’s BMO fourth-quarter fiscal 2019 (ended Oct 31) adjusted net income was C$1.61 billion ($1.22 billion), up 5% year over year. Results were primarily driven by rise in net interest income, and higher loan and deposit balances. Further, capital and profitability ratios remained strong.

The Bank of Nova Scotia BNS reported fourth-quarter fiscal 2019 (ended Oct 31) adjusted net income of C$2.4 billion ($1.8 billion), up 2% year over year. Results excluded acquisition- and divestiture-related costs.

Eaton Vance Corp.’s EV fourth-quarter fiscal 2019 (ended Oct 31) adjusted earnings of 95 cents per share surpassed the Zacks Consensus Estimate of 89 cents. Also, the bottom line increased 12% year over year. Results were driven by improvement in assets under management (AUM) balance and a slight rise in revenues. However, higher operating expenses acted as a headwind.

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