Royal Bank of Canada Sees Weaker Fees but Strong Balance Sheet and Net Interest Income Growth in Q3

Wide-moat Royal Bank of Canada reported mixed fiscal third-quarter results. Adjusted earnings per share came in at CAD 2.55, representing a decline of 15% year over year as well as quarter over quarter. The biggest point of weakness was fees, particularly in the more market- and activity-sensitive investment banking, trading, and wealth businesses. This is a pattern we have already seen start to play out for the U.S. banks, and we expect to see similar trends as the rest of the Canadian banks report. On the positive side, balance sheet growth was exceptional, with loans up 3% quarter over quarter, and the bank's net interest margin expanded 7 basis points sequentially. This led to a 12% quarter-over-quarter increase in net interest income, far ahead of our expectations. While volume drove the majority of the increase in NII, higher U.S. interest-rate exposure and some decent gains in Canada for NIM should help NII continue to grow for the bank.