Royal Bank of Canada

Royal Bank of Canada delivered a mixed set of results for the previous quarter with revenues above the analyst consensus. However, it failed to meet the earnings expectations of Wall Street. Net interest income increased by 16% over the previous year, owing to good client-driven growth in Canadian banking and wealth management, as well as higher interest rates. Capital Markets had another solid quarter despite a challenging climate for global investment banking fee pools. Global Markets and Corporate Investment Banking contributed equally to revenue, reflecting the segment’s well-diversified business model. This quarter’s overall bank performance reflected the strength and diversity of RBC’s leading client franchises, as well as its robust balance sheet. However, evolving client deposit preferences, expenditures, and credit loss provisions all lead to increased business costs. Besides, the entrenched benefits of their structural low-beta core deposit business persisted this quarter, indicating the latent impact of recent interest rate increases. NIM also benefited from asset mix changes, such as increased credit card revolving balances and robust commercial growth. While mortgage spreads have widened slightly from historically low levels, mortgage lending remains highly competitive. The bank also established a climate research arm to help cut emissions, initially focusing on agriculture. We give the Royal Bank of Canada a ‘Buy’ rating with a revised target price.