Royal Bank Q4 profit up as CEO warns of decline in economic growth

Photo: The Canadian Press

Three promising COVID-19 vaccine candidates may have spurred optimism from investors, but Royal Bank of Canada's chief executive is warning the country is not rid of its pandemic troubles yet.

Dave McKay told analysts Wednesday that the economy could still suffer some blows as the globe grapples with uncertainty around how soon people will be injected with Pfizer, Moderna and AstraZeneca's vaccines.

"The economy has rebounded well to date," he said on a call to discuss the bank's fourth-quarter earnings.

"But given the emergence of the second wave of COVID-19 in our core markets, we expect economic growth to slip over the next couple of quarters and project Canadian economic growth to end 2020 down over 5 per cent."

McKay's warnings came as his bank beat analyst expectations and managed to report higher fourth-quarter profits than those prior to the pandemic.

The bank said it earned nearly $3.25 billion or $2.23 per diluted share for the quarter ended Oct. 31, up from nearly $3.21 billion or $2.18 per diluted share a year earlier.

On an adjusted basis, RBC says it earned $2.27 per diluted share for its latest quarter, up from an adjusted profit of $2.22 per diluted share a year ago.

Analysts on average had expected an adjusted profit of $2.05 per share, according to financial data firm Refinitiv.

Revenue totalled $11.09 billion, down from $11.37 billion in the same quarter last year.

RBC's successes were largely due to its ability to use gains in its capital markets business to offset lower interest rates, client deposit revenue and. results in its personal and commercial banking and wealth management businesses.

Looking at its full year, the bank's personal and commercial banking sector saw earnings slip by 21 per cent and in wealth management they fell by 13 per cent, but RBC saw growth in the insurance and investor services areas.

Given the uncertainty of the pandemic, the bank was keen to keep spending in line as much as possible.

Expenses fell 4 per cent year over year and in most areas remained "relatively flat or down from last year," McKay said.

The bank also took the quarter as a chance to ease up on the amount of money it reserves to cover bad loans.

After putting away $1.11 billion in the second quarter and $675 million in the third quarter, McKay said the bank only had to dedicate $427 million for provisions for credit losses in the latest quarter.

That was down from $499 million a year ago and followed a strategy also being used at Bank of Nova Scotia and Bank of Montreal, which announced Tuesday that they too had reduced their provisions for credit losses.