Canada’s largest bank, Royal Bank of Canada (RBC), surpassed analysts’ expectations for third-quarter profit, demonstrating strong performance through cost-cutting measures and higher interest rates. However, the bank warned of potential layoffs in the future as it continues to address elevated expenses. RBC’s CEO, Dave McKay, had previously announced plans to slow down hiring after overshooting their targets by thousands of employees.
The bank reported a one percent decrease in full-time employees compared to the previous quarter, with an anticipated further reduction of one to two percent. Barclays analyst John Aiken commended RBC for effectively managing expenses and improving its overall efficiency ratio.
Conversely, Toronto-Dominion Bank, the country’s second-largest bank, fell short of Bay Street estimates for quarterly profit due to increased expenses and reserve funds set aside for unpaid loans.
RBC’s earnings were also impacted by a C$306 million charge related to the termination of its First Horizon acquisition. Despite these challenges, the bank’s retail business saw a five percent growth in earnings, benefiting from the Bank of Canada’s ten interest rate hikes since March of last year.
TD, on the other hand, experienced a one percent decline in income from its Canadian personal and commercial banking segment and a nine percent decrease in its U.S. retail unit. TD CFO Kelvin Tran addressed the potential impact of higher interest rates on consumers, stating that they remain resilient for now, but the bank is monitoring the situation closely.
Both banks set aside more money for bad loans compared to the previous quarter, reflecting the financial challenges faced by consumers amidst the high cost of living.
In terms of financial performance, RBC’s net interest income increased by 6.7 percent to C$6.29 billion, while TD saw a 3.5 percent rise to C$7.29 billion. RBC’s adjusted earnings per share of C$2.84 exceeded analysts’ estimates of C$2.71, while TD’s adjusted earnings per share of C$1.99 fell slightly below the estimated C$2.04.
Overall, RBC’s results were positively influenced by a low tax rate resulting from the Canada Recovery Dividend implemented in the 2023 budget.
It is important to note that the information mentioned in this article was reported by Nivedita Balu in Toronto, Sri Hari N S, and Pritam Biswas in Bengaluru. The article also underwent editing by Shilpi Majumdar and Mark Potter.
In addition to the financial news, the article features trending stories related to COVID-19 and an RBC Small Business Summit video.
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