By Robb M. Stewart


Royal Bank of Canada's earnings were up strongly in the latest quarter thanks to strength in its capital markets business and a boost from personal and commercial banking that more than made up for increased credit-loss provisions and a hit costs tied to the acquisition of HSBC Canada.

The bank, the country's largest by market value and one of the biggest in North America, recorded net income of 3.95 billion Canadian dollars ($2.88 billion), or C$2.74 a share, for the three months to April 30, up from C$3.68 billion, or C$2.60, a year earlier.

Excluding items such as impairment losses and acquisition costs, adjusted per-share earnings came in at C$2.92, beating the C$2.75 mean estimate of analysts polled by FactSet.

Second-quarter revenue was up 14% to C$14.15 billion, ahead of the C$13.63 billion expected.

Toronto-based Royal Bank at the end of March completed a $10.1 billion deal to buy the Canadian assets of HSBC, bolstering its personal and commercial banking operations and adding roughly 130 branches. At the time the deal was unveiled in late 2022, the Canadian bank projected C$740 in annual pretax expense savings and total acquisition and integration costs of some C$1 billion.

The inclusion of HSBC Canada decreased net income by C$51 million, which Royal Bank said reflecting C$145 million after-tax of initial credit-loss provisions on purchased performing financial assets. The deal also brought some C$282 million in transaction and integration costs for the quarter.

Royal Bank's overall provision for credit loss increased C$320 million year-over-year to C$920 million, greater than the C$892 million analysts expected the bank to set aside for possible defaults. The bank's provision on performing loans rose 41% on-year, and the provision on impaired loans jumped 52% due to an increase in provisions in its Canadian retail banking and commercial portfolios.

Canada's biggest banks face a number of headwinds that continue, including high interest rates that have weighed on consumer and business spending and lifted borrowing costs and an unemployment rate that has also been ticking higher for more than a year.

The bank said the quarter saw higher revenue in its capital markets business, with higher net interest income reflecting higher spreads and volume growth, as well as higher fee-based client assets reflecting market appreciation and net sales.

The bank said its capital position remained strong, though its common equity Tier 1 ratio at 12.8%, was down 2.1 percentage points on the prior quarter with the addition of HSBC Canada.


Write to Robb M. Stewart at robb.stewart@wsj.com


(END) Dow Jones Newswires

05-30-24 0650ET