RBC first-quarter profit misses estimates as bad energy loans soar

Thu Feb 25, 2016 9:28am EST
 
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By John Tilak

TORONTO (Reuters) - Royal Bank of Canada (RY.TO: Quote) reported a weaker-than-expected profit on Wednesday as crashing oil prices spurred the lender to set aside more money to cover potential bad loans, and the company's stock price tumbled about 3 percent.

Canada's second-largest bank by assets, also hurt by weakness in its insurance and capital markets units, said both bad loans and provisions for credit losses in the energy sector jumped in the first quarter ended Jan. 31.

Gross impaired loans in the oil and gas industry almost doubled from the fourth quarter to C$310 million ($224.04 million). Those loans were just C$5 million in the year-earlier period.

Provisions for credit losses, the amount set aside to cover bad loans, tied to the energy sector reached C$106 million versus none a year earlier.

“We are starting to see the credit deterioration that the market has been anticipating for some time,” said Barclays analyst John Aiken, who said it was the first time since early 2013 that RBC missed profit estimates.

“It looks like they're putting more safety into the numbers than their peers may be doing.”

Chief Financial Officer Janice Fukakusa said in an interview the increase in provisions was mainly due to weakness in five clients, including four in the energy sector. Three were exploration and production companies and the other was a drilling firm.

RBC does not expect to be repaid the full amount on those loans, she said.   Continued...

 
A Royal Bank of Canada (RBC) logo is seen on Bay Street in the heart of the financial district in Toronto, January 22, 2015. REUTERS/Mark Blinch