The Royal Bank of Canada is the fourth bank to boost its dividend this week as the company’s net income reached $4.3 billion in its second quarter on strong growth in the personal and commercial banking segments, as well as the wealth management and insurance divisions.
RBC’s net income rose six per cent year-over-year, seeing adjusted diluted cash earnings of $2.99 per share in the three months ending April. Bloomberg analysts had been expecting a profit of $2.69 a share. The company added it would be raising its dividend seven per cent to $1.28 per share.
The bank’s personal and commercial banking segment grew 17 per cent to $2.23 billion from the second quarter last year on lower credit loss provisions and higher net interest income from strong Canadian banking volume growth.
The wealth management side grew 10 per cent to $750 million from higher fee-based client assets from net sales and market appreciation. The insurance side of the business grew 10 per cent to $206 million year-over-year.
In a press release accompanying the results, RBC president and chief executive officer Dave McKay said the bank’s second-quarter performance was defined by a diversified business model, risk and capital management, as well as strategic investments.
“Revenues were modestly lower year-over-year largely due to moderating capital markets revenue given unfavourable market conditions,” McKay said during the Thursday morning conference call. “This was partly offset by strong client-driven volume growth in Canadian banking and City National and solid wealth management client activity.”
Scott Chan, analyst at Canaccord Genuity, wrote in a Thursday morning client note that RBC’s total revenues were down three per cent on a consolidated basis and the company’s core earnings per share came out modestly below consensus. That said, Chan noted that RBC’s earnings beat was driven by better credit.
RBC’s investor and treasury services were relatively flat as higher technology costs ate away at some of the higher client deposit revenue, seeing its net income reach $121 million. The capital markets division slumped 26 per cent year-over-year with lower global markets revenue stemming from a drop in fixed income and equity trading.
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Barclays senior analyst and head of research John Aiken wrote in his client note for Scotiabank’s second quarter results that he was expecting more banks to report lower capital markets revenues amid slowing market growth.
Another issue the banks will have to contend with for the rest of the year is a less certain macroeconomic backdrop as well as slowing demand in business lines like residential mortgage loans.
RBC shares slumped after the opening bell Thursday before rebounding. By midday the stock was down slightly at $128.47.