RBC Shares Decline on Credit Concern, Canada Economic ‘Malaise’

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Royal Bank of Canada fell in Toronto trading after third-quarter results raised concerns among analysts and investors over deteriorating business loans and future earnings growth at the country’s largest lender.

“There’s just a malaise in the sector, and Royal Bank is the biggest of the bunch,” said Greg Eckel, a portfolio manager at Morgan Meighen & Associates, which oversees about C$1.2 billion ($900 million). “There’s real concern on what’s happening in the Canadian economy and trying to figure out where loan-loss provisions are going to go.”

Royal Bank shares slid 0.4 percent to C$72.10 at 4 p.m., the worst performance in the Standard & Poor’s/TSX Commercial Banks Index, after posting results that were in line with analysts’ expectations. The eight-company index climbed 2.2 percent.

“There could be some expectations that we should be higher than meets expectations,” Chief Financial Officer Janice Fukakusa said in a phone interview. “We trade at a slightly higher multiple than the other Canadian banks, generally, so there could be some over-correction for that.”

In contrast, Montreal-based National Bank of Canada rose 4.8 percent to C$43.76, the most since 2009, after third-quarter profit topped estimates.

Revenue Miss

Royal Bank’s net income for the period ended July 31 rose to C$2.48 billion, or C$1.66 a share, from C$2.38 billion, or C$1.59, a year earlier, the Toronto-based lender said Wednesday in a statement. While adjusted profit topped estimates by a penny, revenue of C$8.83 billion missed analysts’ prediction of C$9.15 billion.

The performance of the lender’s main business lines was mixed. RBC Capital Markets earnings fell 15 percent to C$545 million on a decline in trading revenue and lower equity issuance and loan syndication. Wealth-management profit was little changed at C$285 million, while insurance dropped 19 percent to C$173 million.

Personal and commercial banking, Royal Bank’s largest division, rose 13 percent to C$1.28 billion, fueled by record Canadian banking results. Investor and treasury services, which includes the global custodial business, rose 52 percent to C$167 million.

‘Souring’ Outlook

The performance in domestic retail banking was “solid” and helped by international banking contributions, John Aiken, an analyst with Barclays Plc, said in a note to clients.

“The contributions from its other segments, which are anticipated to fuel future growth, moderated, somewhat negating the benefits and souring the relative outlook on Royal Bank’s third quarter,” he said.

Royal Bank set aside 4.6 percent less for bad loans across the firm, though gross impaired loans jumped 19 percent to C$2.38 billion from the second quarter, the firm said. The soured loans were tied to a couple of oil-and-gas accounts in its capital-markets unit and one account in U.S. and international wealth management, the bank said. Impaired loans in oil-and-gas almost quadrupled to C$183 million from C$46 million in the second quarter.

The company boosted its dividend 2.6 percent to 79 cents.

National Bank, Canada’s sixth-largest lender, said profit rose 2.7 percent to C$453 million, or C$1.28 a share, from C$441 million, or C$1.24, a year earlier. Personal and commercial banking, wealth management and its capital-markets business all had higher earnings.

“All three major business lines contributed to profit growth,” Chief Executive Officer Louis Vachon, 53, said in a call with analysts. Capital markets “did manage to beat a record quarter that they had generated in 2014. So generally it was very good performance for the quarter.”

Vachon said earlier on an investor call that, even with a rise in loan losses tied to the oil-and-gas industry, National Bank “has a shot” at increasing per-share earnings in 2016.

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