TORONTO — Royal Bank of Canada beat analyst expectations with a 12 per cent jump in its fourth-quarter net income that helped to cap off its fiscal year with a record $11.5 billion profit.
RBC’s (TSX:RY) results for the three-month period ended Oct. 31 hit $2.84 billion, driven by double-digit year-over-year increases in personal and commercial banking, wealth management and capital markets.
“Each of our business segments delivered strong underlying earnings growth in 2017, while making significant investments,” Dave McKay, RBC’s president and CEO told analysts on a conference call Wednesday.
“During the year, we spent $3 billion on technology, including digital initiatives and cybersecurity, and we’ve expanded our capabilities in artificial intelligence.”
Canada’s biggest lender by market capitalization on Wednesday reported $10.52 billion in revenue for the quarter, up 12.3 per cent from $9.36 billion a year earlier.
The bank’s profit for the quarter amounted to $1.88 per diluted share, up 14 per cent from $1.65 during the same period in 2016. Excluding one-off items, RBC’s fourth-quarter earnings per share was $1.92.
RBC was expected to earn $1.87 earnings per share, according to analysts polled by Thomson Reuters.
Shares of RBC were relatively flat at $101.17 in morning trading in Toronto, up less than one per cent.
The lender’s earnings beat was helped by its personal and commercial banking division, which saw net income rise 10 per cent to $1.40 billion. RBC’s wealth management and capital markets divisions saw even bigger bumps in the fourth quarter, with net income of $491 million and $584 million, up 24 per cent and 21 per cent, respectively, from the same period in the previous year.
RBC also reported $234 million in provisions for credit losses, or money set aside for bad loans, compared with $358 million a year earlier.
Its key measure of financial health, called the Common Equity Tier 1 ratio (CET1), was 10.9 per cent, up 10 basis points from a year ago but unchanged from the third quarter.
Barclays analyst John Aiken said RBC beat expectations in part due to a smaller amount of money set aside for bad loans.
“If the better than expected corporate provisions and actuarial reserve release is taken into account, RY notionally missed expectations,” he said in a note to clients Wednesday.
“We believe that the underlying business growth is evident, particularly in domestic lending and (assets under management) growth in wealth management, however, spending and other factors continue to mute the impact to the bottom line. ”
Robert Sedran, an analyst with CIBC Capital Markets, called it “a solid quarter.”
“Overall, key revenue lines came in ahead of expectations (even trading revenue did reasonably well, considering the environment) and loan losses found a new trough (we would expect them to normalize), which more than offset expenses that also came in higher than our forecasts,” Sedran told clients in a research note.
For its full financial year, Royal Bank reported record net income of $11.47 billion, up more than a $1 billion or 10 per cent from $10.46 billion in 2016.
That annual profit amounted to $7.56 per diluted share, up 12 per cent from $6.78 in the previous year.
Armina Ligaya, The Canadian Press