Royal Bank of Canada
(RY-T, RY-N) C$126.50 | US$97.52
Q3/22 Actual versus Estimate
Event
Royal reported Q3/22 results.
Impact: MIXED (Strong NIM and loan growth in retail banking, offset by significant marks in leveraged lending)
Adjusted cash EPS of $2.55 (down 15% y/y) versus our estimate of $2.71 (consensus $2.66). PTPP down 2% y/y and 7% lower-than-our-forecast reflecting much lower-than-expected trading revenue ($385mm in leveraged loan marks, we forecasted $200mm) and fee income (wealth and other fees), partially offset by stronger NII. Operating leverage was weak at -0.8% (forecast +1.6%). Non-comp expenses higher than expected on higher marketing, travel, and other expenses. PCLs were in line with our estimate. NII up 19% y/y reflecting a 10bps q/q increase in all-bank NIM (forecast +8bps) and 14% y/y growth in loans (better than expected). NIM up sharply in domestic banking and U.S.
PCLs of $340mm ($163mm impaired; $177mm performing) versus our estimate of $324mm ($254mm impaired; $70mm performing). Impaired-loan PCLs flat q/ q. Strengthened performing reserve for increased macro uncertainty. ACL ratio unchanged at 49bps. New formations up q/q, but remain low.
Canadian P&C PTPP earnings up 15% y/y reflecting revenue growth of 11% and a 7% increase in expenses. Average loans up 10% y/y (mortgages up 2.6% q/q, cards up 8.1% q/q, business up 4.2% q/q). NIM up 15bps q/q (higher rates) and non- interest revenue up 6% y/y (higher service charges, card spending).
Wealth Management PTPP up 10% y/y, AUA flat y/y. Revenue up 8% y/y, with non- U.S. flat y/y and U.S. up 18% (including CityNational). Expenses up 8% y/y (higher comp, tech-costs). CityNational NII up 24% y/y (margin up 31bps q/q).
Capital Markets PTPP down 52% y/y reflecting 33% decline in revenue. Global markets revenue down 7% y/y (lower debt, equity origination, FICC trading) and Corp. & Investment Banking revenue down 52% y/y (negative marks on underwriting, much softer deal flow). Expenses down 18% y/y. Markets in leveraged lending have started to stabilize.
CET 1: 13.1% versus 13.2% L/Q; estimate 12.9%, reflecting contribution from earnings (less dividends) offset by higher RWA (business growth) and share repurchases. RY repurchased 10.4mm shares. 12mm remain in NCIB. Brewin Dolphin deal will reduce CET 1 by 40bps. Credit migration was minimal.