Royal Bank of Canada said fiscal fourth–quarter profit rose 11 per cent as a jump in trading revenue and a lower tax rate helped counter slowing earnings growth from Canadian banking and declines across other key businesses.
Net income for the period ended Oct. 31 rose to a record $2.59-billion, or $1.74 a share, from $2.33-billion, or $1.57, a year earlier, the Toronto-based lender said Wednesday in a statement. Adjusted profit, which excludes some items, was $1.77 a share, topping the $1.64 average estimate of 14 analysts surveyed by Bloomberg.
RBC Dominion Securities helped drive profit growth in the quarter on trading, lower taxes and favourable foreign-exchange trends. That offset declining earnings in wealth management, insurance and the bank's investor and treasury services units. Earnings in Canadian personal and commercial banking, Royal Bank's largest operation, rose 1.4 per cent from a year earlier, the slowest pace in more than two years.
"We face industry headwinds" in 2016, chief executive officer Dave McKay said in the statement. Record yearly earnings reflect "the strength of our diversified business model and our ability to execute our growth strategy in a changing environment," he said.
RBC said it had a "lower effective tax rate reflecting net favourable tax adjustments in corporate support." Revenue fell 4.3 per cent from a year earlier to $8.02-billion. The lender set aside $275-million for bad loans, down 20 per cent from $345-million last year.
"There is always a quarter in which this bank has a low tax rate to reflect the truing up of prior years – but not this low," said Rob Sedran, an analyst with CIBC World Markets. "On balance, this looks more like a notional miss."
Profit from personal and commercial banking rose 10 per cent to $1.22-billion, aided by a return to profit in Caribbean and U.S. banking from a year-earlier loss, the company said. Earnings for Canadian banking rose 1 per cent, its slowest pace in more than two years.
Capital markets profit rose 38 per cent to $555-million a year earlier, when the firm was hurt by a plunge in fixed-income trading and costs tied to exiting some proprietary trading strategies to comply with regulations. While trading revenue rose, underwriting and advisory fees fell 18 per cent to $350-million from the year-earlier period.
At RBC Dominion Securities, "revenues were decent again this quarter, much better than some weaker numbers we have seen elsewhere," Jason Bilodeau, an analyst with Macquarie Capital Markets in Toronto, said in an e-mailed note. Canadian consumer banking was "maybe a bit light," he said.
Royal Bank saw a 38 per cent jump in trading revenue across the bank from a year ago to C$649-million, led by equities.
Profit from wealth management fell 11 per cent to $255-million a year earlier, hurt by a $38-million restructuring cost mostly tied to its U.S. and international business and sale of its RBC Suisse business, the company said. A year earlier, the firm took a $18-million charge for exiting the Caribbean and closing international private banking offices in the U.S. and Canada.
Insurance income fell 12 per cent to $225-million due to changes in Canadian tax legislation, the bank said, while investor and treasury services income fell 22 per cent to $88-million as widening credit spreads and unfavorable market conditions hurt results.
Royal Bank had 1,375 fewer full-time employees at the end of October from the end of July, a 1.9 per cent reduction to its work force that now stands at 72,839. That follows the trend of job cuts at other Canadian banks amid slowing domestic growth and a shift toward digital banking.