RBC's profits grow but wealth unit takes big hit

RBC enjoyed solid growth at the start of 2024, but its wealth profits were dragged down by the aftermath of last year's banking crisis.

From November 2023 through January 2024 — which RBC considers this year's first quarter — Canada's largest bank earned a net income of $3.6 billion, a 14% increase from the year before (all figures are in Canadian dollars, unless otherwise noted). Earnings per share jumped as well, rising 12% year-on-year to $2.50 per share.

"We've had a strong start to fiscal 2024," Dave McKay, RBC's CEO, said in a conference call with investors on Wednesday. "Amidst ongoing macroeconomic uncertainty, our balance sheet remains strong."

The story for RBC's wealth management unit, however, was more complicated. Net income for the department was $606 million, a 27% drop from the same quarter last year. 

In a statement, RBC said this was "mainly due to the cost of the FDIC special assessment." The Federal Deposit Insurance Corporation, which insures deposits in U.S. banks, charged RBC $159 million to help shore up its insurance fund after the failure of Silicon Valley Bank and other lenders last year.

Nadine Ahn, RBC's chief financial officer, said this made a significant dent in the wealth unit's profits.

"Results benefited from higher rates, solid volume growth, increased non-interest revenue, and a lower effective tax rate," Ahn said. "These tailwinds, however, were more than offset by higher expenses, including the cost of the FDIC special assessment."

In other ways, the wealth division appeared to be thriving. Assets under administration rose to "nearly $1.6 trillion," McKay said, including $800 billion in the U.S. — 12% more than the year before, and a new record. In particular, RBC enjoyed an increase in fee-based client assets, which buttressed the wealth unit's bottom line. 

"Our results benefited from higher fee-based revenue in wealth management, including strong flows in our advisory businesses and solid performance in asset management," McKay said.

But for this quarter, at least, those strengths were not enough to overcome the FDIC fee, as well as other obstacles. The firm's statement also cited "higher variable compensation commensurate with increased commissionable revenue, higher staff costs and professional fees" and "lower net interest income" as reasons for the decline in profits.

Nevertheless, Ahn and McKay expressed confidence in the division's "underlying performance," and in RBC's overall direction.

"As our first-quarter results show, RBC has the right strategy in place to grow today while also generating long-term value for shareholders," McKay said. "Underpinned by our balance sheet strength, prudent approach to risk management and diversified business model, we delivered solid, client-driven volume growth and a continued focus on expense control."

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