RBC Shares Fall After Profit Misses Estimates on Bad Oil Loans

  • Impaired loans to oil-and-gas firms hurt capital markets unit
  • Canadian banking earnings climb at slowest pace in four years

Royal Bank of Canada fell the most in six months after posting fiscal first-quarter profit that missed analysts’ expectations on higher provisions fueled by soured oil-and-gas loans.

The lender dropped 5.1 percent to C$66.05 at 10:10 a.m. in Toronto, the most intraday since Aug. 24 and the second-worst performance in the eight-company Standard & Poor’s/TSX Composite Commercial Banks Index. The shares have tumbled 11 percent this year.

Net income for the period ended Jan. 31 fell 0.4 percent to C$2.45 billion ($1.77 billion), or C$1.58 a share, from a year earlier, the Toronto-based bank said Wednesday in a statement. Adjusted profit, which excludes some items, was C$1.64 a share, compared with the C$1.66 average estimate of 14 analysts surveyed by Bloomberg. Revenue slid 3 percent to C$9.36 billion.

Earnings from RBC Capital Markets were hurt by rising loan losses, tied to four oil-and-gas accounts and one utilities firm outside Canada and the U.S., Chief Risk Officer Mark Hughes said in conference call, without naming the companies. Two-thirds of those provisions were tied to a single oil-and-gas account, he said.

“The majority of our expectation under stress would be in exploration and drilling and services," Hughes said.

Soured Loans

Royal Bank set aside C$410 million for bad loans, up 52 percent from a year earlier. Impaired oil-and-gas loans in the quarter almost doubled to C$310 million from the previous period. Bank of Montreal and National Bank of Canada on Tuesday also reported increases in soured energy-related loans.

“We think that, if anything, Royal Bank is a bellwether, and that the losses we see here today stand as a warning of what is to come for the sector as a whole," Meny Grauman, an analyst with Cormark Securities Inc., said in a note to clients.

Profit from its RBC Capital Markets business dropped 4 percent to C$570 million from a year earlier on lower trading revenue and investment-banking fees and the higher provisions for energy companies. Insurance profit fell 29 percent to C$131 million, partly on higher claims costs, the bank said.

Earnings from Canadian banking rose 0.9 percent, the slowest pace in at least four years. Wealth management profit jumped 32 percent to C$303 million after adding contributions from the November purchase of Los Angeles-based City National Corp., Royal Bank’s largest-ever acquisition.

The lender increased its quarterly dividend 2.5 percent to 81 cents a share.

Royal Bank is the third major Canadian lender to post quarterly results. Bank of Montreal and National Bank both reported profit Tuesday that beat analysts’ estimates. Toronto-Dominion Bank and Canadian Imperial Bank of Commerce are scheduled to report Thursday, followed by Bank of Nova Scotia on March 1.

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