RBC Misses Estimates as Bank Prepares for Bad Loans

(Bloomberg) -- Royal Bank of Canada missed estimates after setting aside more money than expected to cover possible loan losses amid a faltering economy even as income rose across most business lines.

Canada’s No. 1 lender earned C$3.12 per share on an adjusted basis in its fiscal second quarter, according to a statement Thursday, falling short of the C$3.18 average estimate of analysts in a Bloomberg survey. Provisions for credit losses totaled C$1.42 billion ($1.03 billion) for the three months through April, more than the C$1.26 billion analysts had forecast. 

As the Canadian economy weakens in the face of US tariff uncertainty, the country’s big banks are preparing by putting aside more money for loans that are still in good standing. Toronto-Dominion Bank, Bank of Nova Scotia, Bank of Montreal, National Bank of Canada and Canadian Imperial Bank of Commerce which have reported results over the past week, all increased their provisions for performing loans compared with the first quarter.

Royal Bank’s provisions for performing loans totaled C$568 million in the second quarter, up from C$68 million in the first three months of the fiscal year. Provisions for impaired loans declined to C$852 million from C$985 million in the first quarter.

“In a quarter hallmarked by macroeconomic uncertainty and market volatility, Team RBC continued to step up for our clients with the advice, insights and experiences they expect from us,” Chief Executive Officer Dave McKay said in the statement. 

Royal Bank, the last of the country’s large lenders to report quarterly results, acquired HSBC Holdings Plc’s Canadian assets in early 2024, and that’s expected to generate about C$740 million in annual cost savings by early next year. The combination of the two firms is also forecast to produce about C$300 million in revenue synergies by 2027, Royal Bank said at an investor day in March.

The lender didn’t unveil any major changes in strategy at that time, saying it would keep pursuing growth in Canada, look to expand fee-based revenue from its capital-markets and wealth-management businesses, and keep investing in technology, including artificial intelligence. 

(Corrects estimate figure in second paragraph.)

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