By Nichola Saminather
(Reuters) - Royal Bank of Canada (TO:RY) became the latest Canadian lender to post disappointing quarterly earnings, driven by a dearth of deals and higher loan loss provisions and expenses, dragging its stock down nearly 2%.
As TD (TO:TD) and Canadian Imperial Bank of Commerce ( CIBC ) (TO:CM) prepare to unveil quarterly earnings Thursday, wrapping up the 2019 fiscal reporting season, the picture emerging is of a sector battling higher bad debt provisions, margin pressure in the United States and a sluggish environment for deals, making it the worst year for earnings growth since the financial crisis.
RBC , Canada's biggest lender by market value, said fourth-quarter adjusted earnings from its capital markets unit fell 12% due to lower investment banking and trading revenues, which resulted in the bank missing analyst estimates.
"While the bank's core Canadian banking business continues to perform in line with our expectations, other segments were very noisy in the quarter due to numerous factors (i.e. a challenging environment and the timing of deal closings for Capital Markets," analysts at Credit Suisse (SIX:CSGN) wrote in a note.
In contrast, smaller rival National Bank of Canada (TO:NA) withstood the challenges dogging the rest of the industry, reporting a 7% increase in income from its financial markets business.
Across the industry, capital markets businesses have struggled as global economic uncertainty has led to sluggish dealmaking and security issuances.
National Bank "is strong in the trading business, always have been," Robert Sedran, an analyst at CIBC Capital Markets, said by email. "Even in down quarters, they often outperform."
Smaller Montreal-based lender Laurentian Bank of Canada (TO:LB) posted a 20% decline in adjusted income from a year ago, missing analyst estimates, as earnings from its core Canadian business slid and expenses rose.
Royal Bank shares were down 2% by midday, on track for their lowest close in almost two months. National Bank rose 1.6%, set for a record, while Laurentian shares dropped 1.9%. The Toronto stock benchmark gained 0.2%.
Royal Bank's 41% jump in loan-loss provisions was bigger than expected and surpassed National Bank's 22% rise, which was lower than estimates. Banks have been increasing provisions in anticipation of worsening economic conditions.
Royal Bank cut jobs in Europe and in Australia though the overall staff numbers were up. BMO on Tuesday surprised markets by announcing cuts to 5% of its workforce.
