Royal Bank's Results 'Disappointing' - Desjardins

| About: Royal Bank (RY)

Bank Week was a busy one for analysts, but Desjardins got around to weighing in on the last major financial to report, Royal Bank (NYSE:RY), on Monday.

The results were "disappointing," analyst Michael Goldberg said in his note.

RBC posted its first loss since 1993 on a C$1-billion goodwill writedown on Friday.

He said:

Royal continues to suffer the impact of significant losses in its US bank subsidiary, RBC Bank, where business conditions continue to weaken. If not for exceptional trading results and active securitization, its earnings would have been even worse.

And while overall operating profit was up 72% year-over-year and 25% quarter-over-quarter, Mr. Goldberg noted that RBC's Capital Markets segment accounted for this spike and without it the bank's profits would actually be down.

Elsewhere, RBC's Canadian banking segment was found to be "sluggish" while international banking fared even worse.

"International banking reflects disastrous results in US retail banking," he said.

With the bank's U.S. operations absorbing a separate C$1-billion goodwill impairment charge on top of U.S. credit losses of C$507-million in the last quarter, "RBC Bank has been running at a significant loss over the past four quarters," Mr. Goldberg said.

The bank's deteriorating credit rating is of concern for Mr. Goldberg as well, as both loan loss provisions and non-performing loan formations both accelerated faster than expected. Provisions are up to C$974-million from C$747-million last quarter, while overall NPL formations jumped to C$1.8-billion from C$1.1-billion from the previous quarter.

"Credit quality in its Canadian banking and its corporate lending has held up, but it may also weaken in a soft economic environment," he said.

Mr. Goldberg maintains his Hold rating on Royal Bank, but has dropped target price to C$46.50 from C$50.

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Tagged: , Money Center Banks, Canada, Earnings
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