Royal Bank of Canada RY reported fiscal fourth-quarter 2015 (ended Oct 31) net income of C$2.6 billion ($2.0 billion), increasing 11% year over year. Results benefited from a decline in provisions. Elevated loans and deposits balances reflected organic growth. However, a rise in non-interest expenses and lower revenues were the headwinds.
The company reported fiscal 2015 (ended Oct 31) net income of C$10 billion ($8.1 billion), increasing 11% year over year. Excluding certain non-recurring items, net income was up 9% year over year.
Performance in Detail
Total revenue was C$8.0 billion ($6.1 billion), down 5% on a year-over-year basis. Revenue was impacted by lower non-interest income, partially offset by higher net interest income.
Net interest income came in at C$3.6 billion ($2.7 billion), up 6% from the prior-year quarter. Non-interest income was C$4.2 billion ($3.2 billion), down 13% year over year.
Non-interest expenses were C$4.6 billion ($3.5 billion), up 7% from the year-ago quarter. The rise was primarily due to an increase in almost all the components.
During the quarter, Personal & Commercial Banking, Canadian Banking, Capital Markets and Corporate Support segments’ net income reported a year-over-year rise of 10%, 2%, 38% and 59%, respectively. However, Insurance, Wealth Management and Investor & Treasury Services segments’ net income reported a year-over-year fall of 12%, 11% and 22%, respectively.
As of Oct 31, 2015, Royal Bank of Canada’s net loans stood at C$472.2 billion ($359.4 billion), up 9% from the prior-year quarter. Moreover, deposits were C$697.2 billion ($530.6 billion), up 14% year over year. Total assets were C$1.1 trillion ($0.8 trillion), rising 15% from the prior-year period.
Total provision for credit losses was C$275 million ($209 million) in the quarter, down 20% year over year, mainly due to lower provisions in Caribbean Banking.
Capital Position
As of Oct 31, 2015, Royal Bank of Canada’s Tier 1 capital ratio came in at 12.2%, down 80 basis points from the prior-year quarter. Total capital ratio was 14.0%, down 60 basis points year over year.
The company’s estimated Basel III Common Equity Tier 1 (CET1) ratio stood at 10.6%, up 50 basis points sequentially. The rise mainly reflects internal capital generation and reduced risk-weighted assets.
Our Viewpoint
We believe 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 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 #3 (Hold).
Performance of Other Foreign Banks
Including certain one-time expenses, Deutsche Bank AG DB reported net loss of €6 billion ($6.7 billion) in the third quarter of 2015, as compared with €92 million ($122 million) in the prior-year quarter. The bank reported loss before income taxes of €6.1 billion ($6.8 billion), as compared with income of €266 million ($352.9 million) in the prior-year quarter.
The Royal Bank of Scotland Group plc RBS reported third-quarter 2015 earnings attributable to shareholders of £952 million ($1.5 billion), up 6.3% year over year. Results were driven by lower expenses. However, reduced net interest as well non-interest income was on the downside.
Driven by strong top-line performance, Brazil’s Itau Unibanco Holding S.A. ITUB reported third-quarter 2015 recurring earnings of R$6.1 billion ($1.7 billion), up 10.9% year over year. Including non-recurring items, net income came in at R$5.9 billion ($1.68 billion), up 9.3% year over year.
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