The Royal Bank of Canada (RBC), the country’s largest financial institution, has signaled a potential economic downturn and announced plans to reduce its workforce. In its third-quarter financial report, which surpassed analysts’ expectations, RBC cited cost-cutting measures as a significant contributor to its performance.
Dave McKay, RBC’s Chief Executive Officer, highlighted expectations of slowed growth and reduced inflation influenced by delayed monetary policy effects, China’s economic deceleration, and heightened climate and geopolitical risks. “Our base case forecasts a softer economic outlook,” McKay stated during an analyst briefing.
As part of its cost management strategy, RBC revealed plans to decrease its workforce by approximately 1 to 2 percent. This decision follows an earlier comment by McKay in May about the bank exceeding its hiring targets. The bank reported a 1 percent reduction in full-time employees from the previous quarter and currently has 93,753 full-time staff.
Barclays analyst John Aiken noted RBC’s efficiency in expense management, contributing to its earnings surpassing expectations.
Toronto-Dominion Bank (TD), Canada’s second-largest bank, reported quarterly earnings below analysts’ forecasts. TD’s results were impacted by increased provisions for credit losses, higher expenses, and its U.S. business’s underperformance. TD allocated CA$766 million ($565 million) for potential credit losses, a significant increase from CA$351 million ($274 million) the previous year. Similarly, RBC’s provisions for credit losses rose to CA$616 million ($455 million), up from CA$340 million ($266 million).
The rising interest rates, which have been increased 10 times since March last year by the Bank of Canada to address persistent inflation, have benefited banks’ consumer lending profitability. RBC’s retail business earnings grew by 5 percent, while TD saw a 1 percent decline in its Canadian personal and commercial banking income and a 9 percent decrease in its U.S. retail sector.
Kelvin Tran, TD’s Chief Financial Officer, acknowledged the pressure of higher interest rates on consumers but noted their resilience.
TD also announced plans for a significant share repurchase program, following a previous buyback plan initiated in May and the cancellation of its $13.4 billion acquisition of First Horizon, which boosted the bank’s capital.
Both RBC and TD experienced growth in net interest income, with RBC’s rising by 6.7 percent to CA$6.29 billion ($4.6 billion) and TD’s increasing by 3.5 percent to CA$7.29 billion ($5.4 billion). RBC’s adjusted earnings per share of CA$2.84 ($2.09) exceeded the estimated CA$2.71 ($2), while TD’s CA$1.99 ($1.46) per share fell short of the forecasted CA$2.04 ($1.5).
TD’s earnings were also affected by a CA$306 million ($225 million) payment related to the terminated First Horizon deal.
Despite holding half of the market share among Canada’s six major banks, RBC and TD’s stocks have underperformed this year, with respective declines of about 5 percent and 6 percent, compared to a 2.55 percent gain in the broader market index. Following the report, RBC’s shares increased by 1.6 percent, while TD’s shares fell by over 2 percent.
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