Royal Bank of Canada profit disappoints on capital markets weakness, shares drop
Reuters
Published Dec 04, 2019 12:35
By Nichola Saminather
(Reuters) - Royal Bank of Canada (TO:RY) became the latest Canadian lender to post disappointing quarterly earnings, driven by a dearth of deals and higher loan loss provisions and expenses, dragging its stock down nearly 2%.
As TD (TO:TD) and Canadian Imperial Bank of Commerce ( CIBC ) (TO:CM) prepare to unveil quarterly earnings Thursday, wrapping up the 2019 fiscal reporting season, the picture emerging is of a sector battling higher bad debt provisions, margin pressure in the United States and a sluggish environment for deals, making it the worst year for earnings growth since the financial crisis.
RBC , Canada's biggest lender by market value, said fourth-quarter adjusted earnings from its capital markets unit fell 12% due to lower investment banking and trading revenues, which resulted in the bank missing analyst estimates.
"While the bank's core Canadian banking business continues to perform in line with our expectations, other segments were very noisy in the quarter due to numerous factors (i.e. a challenging environment and the timing of deal closings for Capital Markets," analysts at Credit Suisse (SIX:CSGN) wrote in a note.
In contrast, smaller rival National Bank of Canada (TO:NA) withstood the challenges dogging the rest of the industry, reporting a 7% increase in income from its financial markets business.
Across the industry, capital markets businesses have struggled as global economic uncertainty has led to sluggish dealmaking and security issuances.
National Bank "is strong in the trading business, always have been," Robert Sedran, an analyst at CIBC Capital Markets, said by email. "Even in down quarters, they often outperform."
Smaller Montreal-based lender Laurentian Bank of Canada (TO:LB) posted a 20% decline in adjusted income from a year ago, missing analyst estimates, as earnings from its core Canadian business slid and expenses rose.
Royal Bank shares were down 2% by midday, on track for their lowest close in almost two months. National Bank rose 1.6%, set for a record, while Laurentian shares dropped 1.9%. The Toronto stock benchmark gained 0.2%.
Royal Bank's 41% jump in loan-loss provisions was bigger than expected and surpassed National Bank's 22% rise, which was lower than estimates. Banks have been increasing provisions in anticipation of worsening economic conditions.
Get The App
Royal Bank cut jobs in Europe and in Australia though the overall staff numbers were up. BMO on Tuesday surprised markets by announcing cuts to 5% of its workforce.
Written By: Reuters
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.