RBC said its net income in the quarter ended July 31 fell 17 percent year over year to $3.58 billion. On an adjusted basis, it earned $2.55 per share. Analysts had expected $2.67 in adjusted earnings per share. “While the market is likely to punish this failure regardless of the source, especially considering [RBC’s] The valuation premium is headed to reports, we note that this result included a significant benefit called margin expansion,” Scotiabank analyst Meny Grauman said in a note to clients on Wednesday. It has a Sector Outperform (equivalent to Buy) recommendation at RBC and a 12-month price target of $144.00. Unlike Bank of Nova Scotia, which opened earnings season on Tuesday battered by investors amid concern about its international division and falling profitability, RBC widened its net interest margin to 1.52% from 1.45% in the previous quarter. However, its bottom line was weighed down by provisions for credit losses of $340 million, almost all of which were posted to its Canadian banking division. Instead, it freed $342 million from its forecasts in the previous quarter. the previous year, it freed up $540 million of those funds earmarked for potentially bad loans. In a statement, RBC said the fiscal third-quarter guidance was the result of “adverse changes in our macro environment.” RBC’s personal and commercial banking profit fell 4% year over year to $2.02 billion, mainly due to an increase in provisions. The unit’s net income was also held back by non-interest expenses, which totaled $2.13 billion in the period. Those earnings charges were partially offset by a 10% year-over-year jump in loans from Canadian banking operations. The erosion of earnings from core banking was a drop in the bucket compared to the collapse of earnings from capital markets activities. RBC said the unit’s net income fell 58 percent year-over-year to $479 million, which it attributed mainly to $385 million in write-downs on U.S. loan originations.Also, the recent dip in trading activity was seen in results as Corporate and investment banking revenue halved to $625 million.
