Royal Bank of Canada, the country’s biggest bank, beat quarterly profit expectations, helped by its acquisition of HSBC’s domestic business and strength at its wealth management arm, sending shares to a record high on Wednesday.
CEO Dave McKay told analysts the bank added over 600,000 clients to its Canadian banking business, also helped by its sponsorship of singer Taylor Swift’s Toronto and Vancouver tour. RBC saw higher client interest in the U.S., a key market for its wealth management business.
National Bank, the smallest of Canada’s six large banks – which together control over 90 per cent of the domestic market – also reported earnings above estimates, helped by a rise in income at its wealth management arm.
The wealth management business has been a big focus for Canadian banks as more high-net-worth clients and others are increasingly opting for services and advice to secure their financial futures.
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RBC’s wealth management division, which includes U.S. subsidiary City National, reported a threefold rise in income to C$969 million ($689 million) and recorded a recovery in loan loss provisions of C$25 million, largely helped by higher fees.
The $10 billion acquisition of HSBC’s Canadian operation helped RBC increase earnings by C$86 million, adding about 780,000 clients to its retail and commercial business and expanding its mortgage and corporate loan books.
“HSBC is a big part of the overall theme,” McKay said.
Jefferies analyst John Aiken noted that RBC’s “bigger than anticipated” quarterly dividend increase of 4% to C$1.48 per share signaled its confidence in the integration of HSBC Canada.
McKay however had a cautious tone on the future, noting rising unemployment in Canada, more constrained immigration policy and the threat of U.S. tariffs.
“You heard maybe a bit of a cautious outlook, it is just a macro call. It’s hard to make a macro call right now with so many variables, but we’re cautiously optimistic,” he told analysts.
“We haven’t changed our forecast… We said whatever it is, we will adjust to that and that will play out as it does.”
Jefferies’ Aiken said the outlook for contributions from HSBC and City National, along with a rebound in capital markets bodes well for earnings growth next year.
Provision for credit losses came in at C$840 million in the three months ended Oct. 31, compared with C$720 million a year ago. Analysts had forecast C$831.7 million, according to LSEG data.
The bank’s adjusted net income rose 17.7% to C$4.44 billion. On a per share basis, RBC earned C$3.07, 6 Canadian cents higher than the analysts’ average estimate.
National Bank reported adjusted earnings of C$2.58 per share, a cent more than expectations. Analysts said it was a “lower quality result” as its personal banking unit struggled.
Its shares were down 3.5%.
RBC’s shares rose as much as 2.4% to hit a record of C$179.86.
