Monday, December 05, 2011

RBC Q4 2011 Earnings

  
Scotia Capital, 5 December 2011

• RY cash operating EPS increased 17% YOY to $1.09 per share, above our expectations of $1.06 per share and IBES consensus at $0.98 per share. Earnings were driven by record Canadian Banking earnings.

• Operating ROE: 17.1%, RRWA: 2.35%, CET1: 7.7%(E).

Implications

• Canadian Banking earnings increased 18% YOY and 6% QOQ as the Retail NIM only declined 2 bps YOY and 1 bps sequentially with loan growth solid at 7%. RBC Capital Markets (RBCCM) earnings were resilient in a difficult market, unchanged from the previous quarter with trading revenue increasing slightly. FX and equity trading improved with interest rate and credit trading flat. RBCCM was likely the positive surprise against very bearish IBES estimates.

Recommendation

• We are increasing our 2012E and 2013E EPS by $0.10 each to $4.80 and $5.20 based on the resilient retail NIM and IFRS. We are increasing our one-year share price target to $63 from $57. Reiterate 1-SO based on above industry group profitability and capital, and substantial earnings leverage to some type of normalization in capital markets.
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