RBC reports $4.1B Q1 profit as wealth management net income increases 24%

Royal Bank of Canada topped expectations as it reported its first-quarter profit rose compared with a year ago, helped by strength in its personal and commercial banking and wealth management operations.

The bank said Thursday it earned net income of $4.1 billion or $2.84 per diluted share for the quarter ended Jan. 31, up from $3.8 billion or $2.66 per diluted share in the same quarter a year earlier.

Revenue totalled nearly $13.1 billion, up from $12.9 billion a year earlier.

RBC’s wealth management arm earned $795 million, a 24% increase from $641 million a year earlier, while its capital markets business earned $1.03 billion, down from nearly $1.07 billion.

“Looking forward, we will continue to expand our existing team of over 2,000 advisors in Canadian wealth management,” said Dave McKay, president and CEO of RBC, during the bank’s Q1 earnings call on Thursday.

“Our differentiated technology advantage and investment in expertise help drive strong advisor productivity, generating revenue for advisors that is over 20% above the Canadian industry average.”

Nadine Ahn, chief financial officer at RBC, attributed the bank’s Canadian wealth management, U.S. wealth management and RBC Global Asset Management revenue growth to “higher fee-based client assets, reflecting favourable equity markets and net sales.”

These factors were partially offset by higher compensation and staff-related costs. Overall, salaries and benefits were up 4%, she said, “as we continued to invest in sales capacity and back-end operations to support increasing client activity in our many growth verticals.”

RBC GAM generated positive net sales of more $5 billion this quarter, Ahn said. “However, Canadian retail sales were lower than the prior year, partly due to the redemptions out of fixed income funds — especially in December, which saw heightened market volatility.”

Provisions for credit losses amounted to $105 million for the quarter compared with $110 million in the same quarter last year.

On an adjusted basis, RBC says it earned $2.87 per diluted share for the quarter, up from an adjusted profit of $2.69 per diluted share a year ago.

The average analyst estimate had been for an adjusted profit of $2.73 per share, according to financial markets data firm Refinitiv.

“RBC’s first-quarter performance reflects the significant momentum we continue to build while facing change and uncertainty in the current operating environment,” McKay said in a statement.

Market volatility caused by geopolitical risks shouldn’t be enough to throw off rate increases and the underlying strength of the economy, he said on the earnings call after Russia attacked Ukraine overnight, pushing markets down and creating uncertainty on the potential fallout of the unprovoked aggression.

“Geopolitical risk tends to smooth out over time, but can be quite volatile in the short term,” McKay said.

“So I still expect the strength of the economy, the inflationary pressures that we talked about, economic capacity being used, that I would still expect some form of rate increase to continue to move forward and monetary policy to continue to tighten.”

RBC chief risk officer Graeme Hepworth said on the call that the bank has no direct or meaningful exposure to Russia or Ukraine because of the underlying risks, so the bank is more focused on the indirect impacts, such as higher commodity prices, that could result.

Already the action has helped briefly push oil to over US$100 a barrel for the first time since 2014, while natural gas prices are also rising.

“Those are things that are going to continue to fuel and exacerbate current risk concerns like inflation,” said Hepworth.

The geopolitical risk is only one of the economic challenges McKay highlighted, as supply chain disruptions, acute labour capacity shortages, and energy market imbalances also drive uncertainty, but he said the underlying economic drivers are still strong.

“As we move past the omicron peak, we can look to record household savings — over $200 billion in Canada alone — driving consumer spending on goods and services; renewed immigration driving demand for housing; increased business investment into just-in-case inventory strategies and building new digital capabilities.”

RBC’s personal and commercial banking business reported a profit of $1.97 billion, up from $1.79 billion a year earlier, helped by strength in its Canadian banking business including residential mortgage growth.

The bank’s investor and treasury services operations earned $118 million, down from $123 million a year ago, while RBC’s insurance operations earned $197 million, down from $201 million in the same quarter a year earlier.

Barclays analyst John Aiken said the bank did better than expected especially on capital markets-related revenues as trading rebounded 40% and advisory fees were up 7%. Canadian retail banking also saw gains with average loans up 9.7% from a year earlier, offsetting a slight decline in net interest margins.

“The results were quite clean and set the bank up for a solid run for the remainder of the year as anticipated rate increases should fuel further revenue growth, offsetting any potential easing in volumes.”