Royal Bank Canada misses 4Q expectations

Royal Bank (TSX:RY) saw its fourth-quarter net income dip two per cent to $2.54 billion.

TORONTO — Royal Bank (TSX:RY) saw its fourth-quarter net income dip two per cent to $2.54 billion, missing analyst expectations even as it raked in a record-high profit for the full fiscal year.

The bank’s quarterly profit, which amounted to $1.65 per diluted share, was down from $2.59 billion or $1.74 per share a year ago when the bank benefited from a lower effective tax rate.

Revenue for the three-month period ended Oct. 31 was $9.27 billion compared with $8.02 billion during the same period last year.

After adjustments, the bank said it earned $1.69 per share on a cash basis. Analysts had been expecting an average of $1.71 per share, according to Thomson Reuters.

“I’m not going to say that this company’s in real trouble, but I just don’t see a path where RBC can come anywhere close to historical profitability levels,” said Edward Jones analyst Jim Shanahan.

RBC was the second of the five big banks to report its fourth-quarter earnings results, following on the heels of Scotiabank (TSX:BNS), which reported on Tuesday.

CIBC (TSX:CM) and TD Bank (TSX:TD) will report on Thursday and Bank of Montreal (TSX:BMO) will wrap up the earnings parade on Dec. 6.

Shanahan said he expects “more of the same,” with the other lenders likely reporting single-digit loan growth on a year-over-year basis.

In the year ahead, he said the banking sector’s ability to grow earnings will continue to be constrained by low interest rates and a slowdown in consumer borrowing.

“With no earnings growth, how can they achieve greater profitability?” he said.

“There’s a limited ability to improve efficiency as they’re already extraordinarily lean. They really need a lot of revenue growth, and there’s just no visibility on that at all.”

The bank also reported $358 million in provisions for credit losses, up from $318 during the previous quarter, primarily due to low oil prices.

For the full fiscal year, RBC had net income of $10.46 billion, a record for the bank and up four per cent from $10.03 billion last year.

That annual profit amounted to $6.78 per diluted share compared with $6.73 per diluted share in fiscal 2015.

Revenue for the full year was $38.41 billion, up five cents from $35.32 billion last year.

During a conference call to discuss the bank’s results, RBC president and CEO Dave McKay said the bank is lowering its expectations for return on equity.

“Going forward, we’ve decided to revise our medium-term objective for ROE to 16 per cent plus, recognizing the pressure on returns in the market including persistently low interest rates and uncertainty on regulatory capital requirements,” McKay said.

“This new level continues to give us flexibility to grow our business, including abroad.”

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