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

Royal Bank of Canada RY reported fourth-quarter fiscal 2017 (ended Oct 31, 2017) net income of C$2.8 billion ($2.2 billion), up 12% from the prior-year quarter.

Higher revenues and lower provisions were the tailwinds. Moreover, elevated loans and deposits balances were on the positive side. However, escalating expenses were an undermining factor.

For fiscal 2017, net income came in at C$11.5 billion, up 10% year over year.

Increase in Revenues & Lower Provisions, Partly Offset by Higher Expenses

For fiscal 2017, total revenues were C$40.7 billion, up 4.9% year over year.

Total revenues came in at C$10.5 billion ($8.4 billion) in the reported quarter, up 11.7% on a year-over-year basis. Revenues were driven by higher non-interest as well as net interest income.

Net interest income came in at C$4.4 billion ($3.5 billion), up 4.8% from the prior-year quarter. Non-interest income was C$6.2 billion ($5 billion), up 19.2% year over year.

Non-interest expenses were C$5.6 billion ($4.5 billion), up 5.7% from the year-ago quarter. The rise came primarily due to an increase in almost all the components.

During the fiscal fourth quarter, Personal & Commercial Banking, Wealth Management, Insurance, Capital Markets and Canadian Banking segments’ net income reported year-over-year rise of 10%, 24%, 16%, 21% and 9%, respectively. However, Investor & Treasury Services segment’s net income reported a year-over-year decline of 10%. Notably, the Corporate Support segment reported net loss.

As of Oct 31, 2017, Royal Bank of Canada’s total loans came in at C$542.6 billion ($422.9 billion), up 4% from the prior-year quarter. Additionally, deposits were C$789.6 billion ($615.4 billion), up 4.2% year over year. Total assets were C$1.21 trillion ($0.94 trillion), up 2.5% from the year-earlier quarter.

Total provision for credit losses was C$234 million ($187.2 million) in the quarter, down 35% year over year, mainly due to lower provisions in Capital Markets division which included increased recoveries in the oil & gas and real estate & related sectors.

Strong Capital Position

As of Oct 31, 2017, Royal Bank of Canada’s Tier 1 capital ratio came in at 12.3%, in line with the prior-year quarter. Total capital ratio came in at 14.2%, down 20 basis points (bps) year over year.

The company’s estimated Common Equity Tier 1 (CET1) ratio came in at 10.9%, advancing 10 bps year over year.

Our Viewpoint

We believe a continued improvement in loan balances, revenues and 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, the export-driven economy of Canada is anticipated to benefit from the gradual recovery of the U.S. economy, thereby benefiting the bank.
 

Royal Bank Of Canada Price

Royal Bank Of Canada Price | Royal Bank Of Canada Quote

Royal Bank of Canada currently has a Zacks Rank #4 (Sell). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Foreign Banks

The Bank of Nova Scotia BNS reported fourth-quarter fiscal 2017(ended Oct 31) results before the opening bell. Net income for the quarter came in at C$2.1 billion ($1.7 billion), jumping 3% year over year. A rise in revenues and fall in provisions largely drove the improved results. These were partially offset by elevated expenses. Improvement in capital and profitability ratios was impressive.

Among other Canadian banks, Canadian Imperial Bank of Commerce CM and The Toronto-Dominion Bank TD are expected to report fourth-quarter fiscal 2017 results this week.

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