Royal Bank of Canada
(RY-T, RY-N) C$133.77 | US$98.41
Q4/22: Actual versus Estimate
Event
Royal reported Q4/22 results.
Impact: POSITIVE
Adjusted cash EPS of $2.78 (up 3% y/y) versus our estimate of $2.71 (consensus $2.69), benefited from a lower tax rate. PTPP up 10% y/y and 1-2% lower- than-our-forecast reflecting much higher-than-expected expenses (variable comp, acquisition). NII up 32% y/y (better-than-expected) reflecting an 11bps q/q increase in all-bank NIM (forecast +8bps) and 14% y/y growth in loans (better-than-expected). Operating-leverage was weak at 0.3% (forecast +5.3%). PCLs were in-line with our estimate. NIM up sharply in domestic banking and U.S. RY raised the quarterly dividend to $1.32, up 10% y/y (estimate: $1.33).
PCLs of $381mm ($255mm impaired; $126mm performing) versus our estimate of $391mm ($241mm impaired; $150mm performing). Impaired-loan PCLs up q/q mostly from Canada. Domestic PCLs up on personal lending and mortgages (still low, but clearly seeing signs of credit normalization). Strengthened performing reserve for increased macro uncertainty. ACL ratio up 1bp q/q at 50bps. New formations up materially in Canadian banking (all portfolios).
Canadian P&C PTPP earnings up 25% y/y reflecting revenue growth of 17% and an 8% increase in expenses. Average loans up 10% y/y (mortgages up 2.1% q/q, cards up 3.2% q/q, business up 4.4% q/q). NIM up 10bps q/q (RY deposit funded in Canada, unique to RY) and non-interest revenue up 6% y/y (higher service charges and FX).
Wealth Management PTPP up 54% y/y, AUA up 5% y/y. Revenue up 15% y/y, with U.S. up 27% (including CityNational) reflecting higher NII (rates), FX, and revenue from sweep accounts. International WM revenue up significantly from higher rates and Brewin acquisition. Expenses up 5% y/y (significant legal charge last year). CityNational NII up 45% y/y (margin up 30bps q/q).
Capital Markets PTPP down 39% y/y reflecting 1% increase in revenue. Global markets revenue up 12% y/y (FICC, FX trading) and Corp. & Investment Banking revenue down 5% y/y (no negative marks on leverage loans, much softer deal flow). Expenses up 40% y/y (true-ups of variable comp plans).
CET 1: 12.6% versus 13.1% L/Q; estimate 12.5%, reflecting contribution from earnings (less dividends) offset by business growth, Brewin acquisition (41bps), 7.9mm buybacks. Net credit migration minimal.