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Royal Bank of Canada’s (RY) Q4 Revenues Rise, Stock Falls


Royal Bank of Canada’s RY shares fell more than 3% on the NYSE following the fourth-quarter fiscal 2016 (ended Oct 31) earnings release. The company recorded net income of C$2.5 billion ($1.9 billion), down nearly 2% from the prior-year quarter. Net income for fiscal-year 2016 was C$10.5 billion ($8 billion), up 4.3% from the prior year.

Rise in expenses and higher provisions led to investors’ apprehension. However, growth in net interest income, steady growth in loan and deposits, and strong capital position acted as tailwinds.

Rise in Revenues Supported Results

Total revenue for the reported quarter was C$9.3 billion ($7.1 billion), up 15.5% on a year-over-year basis. Revenue was driven by higher net interest and non-interest income. For fiscal-year 2016, revenue was C$38.4 billion ($29.3 billion), up 8.7% from the previous year.

Net interest income came in at C$4.2 billion ($3.2 billion), up 10.2% from the prior-year quarter.

Net interest margin expanded 3 basis points year over year to 1.70%.

Non-interest income was C$5.1 billion ($3.9 billion), surging 20.4% year over year. This was driven by a rise in all fee income components, except mutual fund revenue, securities brokerage commission and other advisory fees.

Non-interest expenses were C$5.2 billion (approximately $4.0 billion), up 11.9% from the year-ago quarter. The rise was primarily due to an increase in all the components.

Total provision for credit losses was C$358 million ($273 million) in the quarter, up 30.2% year over year, mainly due to higher provisions in Capital Markets, Wealth Management, Personal & Commercial Banking, and Canadian Banking segments.

Strong Balance Sheet & Capital Position

As of Oct 31, 2016, total average loans and acceptances were C$531.9 billion ($405.6 billion), up 10.5% from the prior-year quarter. Also, deposits were C$757.6 billion ($577.7 billion), up 8.7% year over year. Total assets were C$1.2 trillion ($0.9 trillion), up 9.9% from the year-ago quarter.

As of Oct 31, 2016, Tier 1 capital ratio came in at 12.3%, up from 12.2% in the prior-year quarter. Total capital ratio was 14.4%, up from 14.0% as of Oct 31, 2015.

The company’s estimated Basel III Common Equity Tier 1 (CET1) ratio was 10.8%, expanding 20 basis points year over year.

Our Viewpoint

A consistent improvement in the top line and diversified product mix will help Royal Bank of Canada grow organically. Further, the export-driven economy of Canada is expected to benefit from the gradual recovery of the U.S. economy. However, a persistent low interest rate environment and stringent regulatory reforms keep us skeptical about a steady growth.

ROYAL BANK CDA Price, Consensus and EPS Surprise

ROYAL BANK CDA Price, Consensus and EPS Surprise | ROYAL BANK CDA Quote

Royal Bank of Canada currently has a Zacks Rank #4 (Sell).

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

Performance of Other Foreign Banks

Deutsche Bank AG DB reported net income of €278 million ($310.2 million) in third-quarter 2016, as against a loss of €6 billion ($6.70 billion) in the prior-year period. Income before income taxes came in at €619 million ($690.6 million), as against a loss of €6.1 billion ($6.80 billion) in the year-ago quarter.

Itau Unibanco Holding S.A. ITUB posted third-quarter 2016 recurring earnings of R$5.60 billion ($1.72 billion), down 8.9% year over year. Including non-recurring items, net income came in at R$5.39 billion ($1.66 billion), down 9.7% year over year. Results were mainly affected by lower managerial financial margin and higher expenses. However, the quarter highlighted a strong balance-sheet position.

The Royal Bank of Scotland Group plc RBS reported third-quarter 2016 profit attributable to shareholders of £896 million ($1.5 billion) as against loss of £828 million ($1.28 billion) in the prior-year comparable period. Notably, results included litigation and conduct costs of £780 million ($1.3 billion).

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