RBC misses expectations as profit falls

Earnings hit as bank sets aside more money for bad loans

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The Royal Bank of Canada missed expectations as profit fell in the second quarter on higher credit-loss provisions and staffing and technology costs.

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RBC’s net income fell 14 per cent year over year to $3.6 billion in the three months ending April 30. On an adjusted basis, the bank’s profit was down 13 per cent at $3.8 billion. Adjusted diluted earnings per share were $2.65. Bloomberg analysts had been expecting $2.80 per share.

The bank’s total revenue grew 20 per cent to $13.52 billion since the same quarter last year. RBC raised its quarterly dividend by three cents to $1.35 per share.

“Our focused growth strategy, prudent risk and capital management, and diversified business mix exemplify our strength and stability amidst a complex macro environment,” RBC chief executive Dave McKay said in a press release accompanying the results.

RBC’s capital equity tier 1 ratio, which compares a bank’s capital against its risk-weighted assets to gauge its resilience in an economic downturn, stood at 13.7 per cent this quarter.

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Expenses grew over 16 per cent from last year to $7.49 billion on higher employee costs and investments in technology. Provisions for credit losses, or the amount a bank sets aside for loans potentially going sour, rose to $600 million, marking a reversal from the provision release of $342 million this time last year.

RBC’s core Canadian personal and commercial banking profit slipped 14 per cent year over year to $1.92 billion as the bank built up its provisions for credit losses, compared with a provision released last year. Rising costs as the bank took on more staff and invested in technology, as well as a 1.5 percentage point increase in the federal corporate tax rate for banks and insurers announced in the 2022 federal budget, contributed to the drop in profit. The average deposit and loan volume grew by eight per cent.

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Volatile markets weighed on the bank’s wealth management segment as net income slipped eight per cent year over year to $742 million. Higher provisions for credit losses, staffing expenses and fees also led to the decrease, the bank said.

The capital markets business was a bright spot for the bank as profit rose 10 per cent year over year to $939 million due to a lower effective tax rate and higher revenue in corporate and investment banking.

RBC’s conference call discussing the results will take place later this morning at 8:30 am ET.

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