Royal Bank of Canada Posts Strong 1Q - Analyst Blog
March 01 2013 - 10:05AM
Zacks
Royal Bank of Canada (RY) reported fiscal
first-quarter 2013 net income from continuing operations of C$2.1
billion ($2.1 billion), beating the year-ago earnings of C$1.9
billion ($1.9 billion). This reflects a year-over-year increase of
11%.
Results reflect a rise in revenue, aided by higher net interest and
non-interest income. Yet, the deteriorating credit quality and
elevated non-interest expenses were the headwinds.
Performance in Detail
Total revenues in the quarter reached C$7.9 billion ($7.8 billion),
rising 4% from C$7.6 billion ($7.5 billion) reported in the
comparable prior-year period. Revenue growth was mainly due to
higher interest as well as non-interest income.
Net interest income came in at C$3.3 billion ($3.3 billion), up
6.7% from C$3.0 billion ($3.0 billion) reported in the comparable
prior-year period. Non-interest income stood at C$4.6 billion ($4.6
billion), almost in line with the year-ago quarter’s level.
For the quarter, non-interest expenses were recorded at C$2.1
billion ($2.1 billion), up 11.4% from C$1.9 billion ($1.9 billion)
recorded in the prior-year quarter. The increase was marked mainly
by higher human resources, occupancy and equipment expenses.
Credit Quality
Total provision for credit losses stood at C$349 million ($347
million) in the quarter, up 31% from the year-ago quarter,
primarily due to provisions on a couple of accounts in the
wholesale portfolio, partly offset by lower write-offs related to
the credit card portfolio.
Capital Position
As of Jan 31, 2012, Royal Bank of Canada reported total loans of
C$382.9 billion ($383.7 billion), up 8% from the prior year.
Moreover, deposits climbed to C$514.6 billion ($515.7 billion) up
5% as of Jan 31, 2012. Total assets were C$837.6 billion ($839.5
billion), up 3% as of Jan 31, 2012.
As of Jan 31, 2013, Royal Bank of Canada’s Tier 1 capital ratio
came in at 11.5%, down 70 basis points (bps) from the prior-year
quarter. Total capital ratio was 14.3%, down 2 bps year over
year.
The company’s estimated pro-forma Basel III common equity Tier 1
ratio was about 9.3%, up 90 basis points compared with 8.4% last
quarter, reflecting the delayed regulatory implementation of the
credit valuation adjustment (CVA) capital requirements and strong
internal capital generation.
Dividend Update
Concurrent with the earnings release, the company’s board of
directors approved an increase in quarterly dividend of 5%, to 63
cents per share. The increased dividend will be paid on and after
May 24, 2013, to shareholders of record at the close of business on
Apr 25, 2013.
Our Viewpoint
Going forward, we expect Royal Bank of Canada’s strong business
model, diversified product mix and sturdy capital position to boost
its bottom line. However, a persistent low interest rate
environment, weak economic recovery and stringent regulatory
requirements will remain a drag on its financials.
Royal Bank of Canada currently carries a Zacks Rank #3 (Hold).
Foreign banks that are performing well include Bank of
China Limited (BACHY), Banco do Brasil
S.A. (BDORY) and Credit Suisse Group
(CS). Bank of China carries a Zacks Rank #1 (Strong Buy), while the
other 2 stocks carry a Zacks Rank #2 (Buy).
BANK CHINA LTD (BACHY): Get Free Report
BANCO DO BRASIL (BDORY): Get Free Report
CREDIT SUISSE (CS): Free Stock Analysis Report
ROYAL BANK CDA (RY): Free Stock Analysis Report
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