Royal Bank Of Canada (RY) Q1 Earnings Impress, Revenues Up

Royal Bank of Canada (NYSE:RY) reported first-quarter fiscal 2018 (ended Jan 31, 2018) adjusted net income of C$3 billion ($2.4 billion), up 7% from the prior-year quarter, including the impact of the U.S. tax reform of $178 million. Including certain one-time items, net income remained stable as compared with the year-ago quarter at C$3 billion ($2.4 billion).

Higher revenues aided by elevated loans and deposits balances were on the positive side. Moreover, the bank experienced strong client activity and volume growth during the quarter. However, escalating expenses and provisions were undermining factors.

Furthermore, on a year-over-year basis, Wealth Management, Investor & Treasury Services and Capital Markets segments reported rise of 39%, 2% and 13%, respectively, in quarterly net income. Nevertheless, net income at the Personal & Commercial Banking and Insurance segments reported declined 4% and 5%, respectively. Corporate Support segment reported loss in the quarter.

Increase in Revenues Partly Offset by Higher Provisions & Expenses

Total revenues came in at C$10.8 billion ($8.5 billion) in the November-January quarter, up 12.5% 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 2.3% from the prior-year quarter. Non-interest income was C$6.4 billion ($5.1 billion), up 20.8% year over year.

Non-interest expenses were C$5.6 billion ($4.4 billion), up 5.7% from the year-ago quarter. The rise came primarily due to an increase in almost all the components.

As of Jan 31, 2018, Royal Bank of Canada’s total loans came in at C$538 billion ($436 billion), up 3.1% from the prior-year quarter. Additionally, deposits totaled C$800 billion ($648.3 billion), up 5.6% year over year. Total assets were C$1.28 trillion ($1.04 trillion), up 10.3% from the year-earlier quarter.

Total provision for credit losses was C$334 million ($264.1 million) in the quarter, up 14% year over year, mainly due to higher provisions in Personal & Commercial Banking. This was partially offset by lower provisions in the Wealth Management and Capital Markets.

Strong Capital Position

As of Jan 31, 2018, Royal Bank of Canada’s Tier 1 capital ratio came in at 12.4%, down from 12.6% in the prior-year quarter. Total capital ratio came in at 14.4%, contracting 30 basis points (bps) year over year.

The company’s estimated Common Equity Tier 1 (CET1) ratio came in at 11%, in line with the prior-year quarter.

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 currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Foreign Banks

UBS Group AG (NYSE:UBS) reported fourth-quarter 2017 net profit attributable to shareholders of CHF 955 million ($967.7 million) on an adjusted basis, up around 25.2% from the prior-year quarter. Results exclude deferred tax expense. Including deferred tax expense, net loss attributable to shareholders came in at CHF 2.2 billion ($2.23 billion) compared with net income of $636 million recorded in the prior-year quarter.

Deutsche Bank AG (NYSE:DB) reported net loss of €2.2 billion ($2.6 billion) in the fourth quarter compared with net loss of €1.9 billion ($2.3 billion) incurred in the year-ago quarter. The results were affected by non-cash charge of €1.4 billion resulting from a valuation adjustment on its deferred tax assets due to the tax reform.

ICICI Bank Ltd.’s (NYSE:IBN) net profit plunged 32% year over year to INR16.50 billion ($258 million). Results were adversely impacted by fall in non-interest income and a slight rise in operating expenses. However, increase in net interest income (reflecting rise in loans) and lower provisions were the tailwinds.

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