RBC Reports Strong First-Quarter Despite Oilpatch Concerns

February 25, 2015 Updated: February 25, 2015

TORONTO—Royal Bank increased its first-quarter profit as its Canadian banking and trading operations showed growth and it managed to turn around its struggling Caribbean business.

The bank also raised its quarterly dividend by two cents to 77 cents per share. Based on the bank’s stock price Wednesday, Feb. 25, it will have an annual yield of nearly 4 percent.

RBC reported a profit of $2.456 billion of $1.65 per share in the first quarter, up 17 percent from a year earlier. Revenue totalled $9.64 billion, up from $8.46 billion a year ago.

RBC’s Canadian banking arm earned $1.22 billion, up $83 million or 7 percent from a year ago, thanks to strong growth in fee-based revenue.

President and chief executive Dave McKay said that after two years of restructuring its Caribbean operations—including selling its Jamaican banking operations last year—the business returned to profitability during the quarter.

“While there are ongoing economic headwinds, we believe our Caribbean business can continue to deliver strong performance,” McKay said. The bank is hopeful that the economic recovery in the U.S. will boost tourism to the region.

Despite posting what analysts described as solid results, the bank warned that economic conditions are posing challenges for the industry. All of the country’s top lenders are closely monitoring the price of oil, which is hovering at around half of its highs of last summer.

RBC said it is stress testing its portfolio of oil and gas related loans, and has created watch lists of companies that will face hardship if crude prices don’t recover soon. The bank is also stress testing its consumer loans for scenarios such as rising unemployment and a drop in home prices.

Analysts had been expecting investment banking revenues to fall during the quarter as business from the oilpatch dries up, but RBC has managed to buck the trend. Its capital markets business, which includes investment banking and trading, posted a profit of $594 million—up $89 million or 18 percent compared with the same quarter last year.

The Bank of Montreal, which reported its earnings Tuesday, Feb. 24, saw its capital markets revenues drop by 20 percent from a year ago, but analysts said the decline was not as dramatic as they had predicted.

“Within a low-rate environment we will have to be even more diligent about managing costs and driving efficiencies,” McKay said.

TD Bank and CIBC report on Thursday, Feb. 26. Scotiabank will report on March 3.