Royal Bank of Canada (RY) reported fiscal first-quarter 2015 (ended Jan 31) before the markets opened on Feb 25. Net income came in at C$2.5 billion ($2.1 billion), increasing 17% year over year.
Results benefited from top-line growth and decline in provisions. However, these were partially offset by a rise in non-interest expenses.
Performance in Detail
Total revenue was C$9.6 billion ($8.3 billion), up 14% on a year-over-year basis. Revenue growth was driven by a rise in non-interest income as well as net interest income.
Net interest income came in at C$3.6 billion ($3.1 billion), up 4.9% from the prior-year quarter. Non-interest income was C$6 billion ($5.2 billion), rising 20.3% year over year.
Non-interest expenses were C$4.6 billion ($4 billion), up 5.3% from the year-ago quarter. The rise was primarily due to an increase in all the components, partially offset by a marginal fall in communications and other expenses.
During the quarter, all segments, except the Wealth Management, exhibited improved performance. Wealth Management segment recorded a 2.1% year-over-year fall in net income. However, net income in banking, insurance and capital market divisions were up 17.2% 17.8% and 17.6%, respectively. Further, Investor and treasury services recorded a 34% rise in net income while Corporate Support’s net income also rose significantly.
As of Jan 31, 2015, Royal Bank of Canada’s total average loans and acceptances stood at C$454.3 billion ($358.8 billion), up 7.3% from the prior-year quarter. Moreover, deposits were C$654.7 billion ($517 billion), up 10.1% year over year. Total assets were C$1.1 trillion ($858.2 billion), rising 17.2% from the prior-year period.
Total provision for credit losses was C$270 million ($213.2 million) in the quarter, down 7.5% year over year, mainly due to lower provisions in Canadian Banking and Wealth Management segments.
Capital Position
As of Jan 31, 2015, Royal Bank of Canada’s Tier 1 capital ratio came in at 11%, down 50 basis points (bps) from the prior-year quarter. Total capital ratio was 13.0%, down 50 bps year over year.
The company’s estimated Basel III Common Equity Tier 1 (CET1) ratio stood at 9.6%.
Capital Deployment Activities
Concurrent with the earnings release, Royal Bank of Canada announced a 3% increase in the quarterly dividend to C$0.77 ($0.61).
Our Viewpoint
We expect a consistent improvement in top line and diversified product-mix will help Royal Bank of Canada grow organically. Further, 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 overall sluggishness in the economy, coupled with stringent regulatory reforms, keep us skeptical about the company’s sustainable growth in the long term.
Royal Bank of Canada currently has a Zacks Rank #4 (Sell).
Performance of Other Foreign Banks
Deutsche Bank AG (DB) reported net income of €441 million ($551 million) in the fourth quarter of 2014 (ended Dec 31, 2014), compared with loss of €1.37 billion ($1.86 billion) in the prior-year quarter.
Brazil’s Itau Unibanco Holding S.A. (ITUB) reported fourth-quarter 2014 net income, inclusive of non-recurring items, of R$5.5 billion ($2.16 billion), up 19.6% year over year.
The Royal Bank of Scotland Group plc (RBS) reported loss of £5.8 billion ($9.2 billion) in fourth-quarter 2014 compared with loss of £8.7 billion ($14.1 billion) in the prior-year comparable period.
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