Most Read by Bloomberg RBC Capital Markets’ revenue fell by a third to C$1.65 billion ($1.27 billion) in the fiscal third quarter, the Toronto-based bank said in a statement on Wednesday. Overall profit missed analysts’ estimates. Royal Bank’s investment banking revenue was hit by a plunge in equity markets that sapped investor demand for initial public offerings and share sales, along with C$385 million in write-downs on loans it had taken out. Despite the quarter’s choppy markets, trading revenue also fell, failing to counter the blow from the investment banking downturn. “Investment banking in particular has been much weaker than people expected, even with these cuts,” Paul Gulberg, an analyst at Bloomberg Intelligence, said in an interview. “People knew there were no IPOs, they knew there were much weaker M&A, but they were still very much down.” Royal Bank shares were down 3.1% at C$122.61 as of 9:46 a.m. in Toronto. They have slipped 8.7% this year, compared with a 9.9% decline in the S&P/TSX Commercial Banks Index. RBC Capital Markets’ net income fell 58% to C$479 million. Corporate and investment banking revenue fell 52% to C$625 million, with the declines resulting in C$26 million in investment banking revenue. Revenue from global markets fell 7.3% to C$1.14 billion. “The results of our capital markets platform this quarter do not reflect the strength of this premium franchise, nor the potential for its performance going forward,” CEO Dave McKay said on a conference call with analysts. “Results were impacted by a reduction in bond supplies across the industry along with disruption in high yield and broader credit markets.” The story continues In contrast, National Bank of Canada on Wednesday posted an 18% rise in trading revenue that helped beat top analysts’ estimates. Among Canada’s six largest banks, National Bank generates most of its revenue from capital markets activities. At Royal Bank, the company’s net profit fell 17% to C$3.58 billion, or C$2.51 per share. Excluding certain items, earnings were C$2.55 per share. Analysts on average estimated C$2.67. Royal Bank’s results were also weighed down by higher-than-expected loan loss provisions, which the company said were “mainly due to adverse changes in our macroeconomic outlook”. The lender set aside C$340 million in provisions, more than analysts had expected of C$296.8 million, a reversal from C$342 million of issuances in the previous three months. The higher forecasts were largely the result of forecasts of economic weakness going forward rather than any current signs of trouble, Chief Financial Officer Nadine Ahn said. Unemployment remains low and customers have extra cash that should protect them from executives, she said in an interview. “While conditions remained extremely strong in the quarter, it’s really what’s on the horizon that determines our forecast,” Ahn said. The bank’s common equity capital ratio fell slightly to 13.1%, down from 13.2% at the end of the second quarter. Despite the gloomier outlook, Royal Bank’s domestic banking business underscored a Canadian economy that is still performing well for now. Revenue in the segment rose 11%, helped by growth in mortgage, credit card and small business loan balances. Net income for the unit fell, hurt by provisions for credit losses of $331 million, compared with C$122 million in releases a year earlier. Royal Bank also got a boost from the Bank of Canada’s rate hikes, which helped boost its net interest margin to 1.52 per cent last quarter from 1.45 per cent in the second quarter, an expansion that National analyst Bank Gabriel Dechaine called it “very strong”. (Share updates and CFO, CEO comments start in the fifth paragraph.) Most Read by Bloomberg Businessweek ©2022 Bloomberg LP
