Shares of Royal Bank of Canada hit all-time highs on Wednesday as the bank reported earnings that topped expectations.
The notable revenue growth came despite the economic headwinds that helped push profits higher. RBC also reported much lower-than-expected loan loss provisions.
RBC reported a third-quarter profit of $4.49 billion, up from $3.86 billion a year earlier, boosted in part also by $239 million from the HSBC Canada acquisition it completed in March.
“While there’s a higher degree of geopolitical uncertainty and volatility, our diversified businesses are well positioned for the macro driven shifts in the operating environment,” chief executive Dave McKay said on an earnings call Wednesday.
He said the bank is doing well enough that it expects to increase share buybacks in the coming quarters.
On an adjusted basis, RBC says it earned $3.26 per diluted share, up from an adjusted profit of $2.83 per diluted share a year ago.
Earnings were well above the average of $2.97 per share that analysts had expected, according to LSEG Data & Analytics.
The beat helped push up RBC’s share price by a little over three per cent to more than $161 in early afternoon trading on the Toronto Stock Exchange, up more than 30 per cent from a year ago. That gave the company a market capitalization of close to $221 billion.
RBC’s revenue totalled $14.63 billion, up from $12.98 billion a year ago, while the bank’s provision for credit losses for the quarter amounted to $659 million, up from $616 million in the same quarter last year.
While the bank set aside more money in total, the proportion of loans under provision fell 0.02 percentage points from last year and 0.14 percentage points from the previous quarter.
The 0.27% of loans the bank is concerned about was well below the 0.38% expected by analysts, helping lead to the strong earnings beat.
“Credit was a standout for Royal, with provisions coming in well below expectations,” said Jeffries analyst John Aiken in a note.
The credit performance is in sharp contrast to some other banks that have reported so far, such as BMO, where worsening provisions weighed heavily on results.
RBC chief risk officer Graeme Hepworth did, however, caution that the bank is still seeing borrower stress with more expected ahead. The better performance in the quarter was more related to wholesale, both in capital markets and its City National segments, compared with previous quarters.
“I wouldn’t read that into a definitive indication that we’ve now turned the corner … the trends in retail are still negative,” he said.
He said the bank is seeing rising stress across almost all products and expects it to continue into 2025 as unemployment rises and more consumers renew their mortgages at higher rates.
“We still see a consumer who faces a lot of headwinds with the current rate environment … those are all factors that leave us still quite cautious through the end of this year and going into next year.”
McKay emphasized that while the bank is prepared, there is still the potential for economic turbulence ahead.
“We are in a position to absorb this volatility and continue to perform strongly going forward … but we want to make sure you’re cognizant of we haven’t landed this plane.”