Scotia Capital, 29 August 2011
• RY cash operating EPS increased 13% YOY to $1.06, slightly below expectations of $1.08. Reported cash EPS was a loss of $0.09/share.
• Operating ROE: 17.0%, RRWA: 2.37%, CET1: 7.7%(E).
Implications
• Wholesale earnings declined 32% QOQ due to a larger-than-expected decline in trading revenue to $302M from $708M in Q2/11. Fixed income trading revenue collapsed to $71M from $396M in Q2/11.
• The disappointing Wholesale earnings were partially offset by strong earnings from Canadian Banking increasing 12% YOY to $855M (compares to BMO 2%, NA 6%). Wealth Management earnings were up 24% YOY on an adjusted basis.
Recommendation
• Our 2011E EPS is unchanged at $4.50; however, the estimates have been moved to a continuing operations basis. Thus, on a net basis, Q4/11E EPS would have been reduced $0.07 to reflect the difficult market environment in August and weakness generally expected in Q4. We are also reducing our 2012E EPS to $5.00 from $5.15. One-year share price target is unchanged at $70. Maintain 1-Sector Outperform.
;
• RY cash operating EPS increased 13% YOY to $1.06, slightly below expectations of $1.08. Reported cash EPS was a loss of $0.09/share.
• Operating ROE: 17.0%, RRWA: 2.37%, CET1: 7.7%(E).
Implications
• Wholesale earnings declined 32% QOQ due to a larger-than-expected decline in trading revenue to $302M from $708M in Q2/11. Fixed income trading revenue collapsed to $71M from $396M in Q2/11.
• The disappointing Wholesale earnings were partially offset by strong earnings from Canadian Banking increasing 12% YOY to $855M (compares to BMO 2%, NA 6%). Wealth Management earnings were up 24% YOY on an adjusted basis.
Recommendation
• Our 2011E EPS is unchanged at $4.50; however, the estimates have been moved to a continuing operations basis. Thus, on a net basis, Q4/11E EPS would have been reduced $0.07 to reflect the difficult market environment in August and weakness generally expected in Q4. We are also reducing our 2012E EPS to $5.00 from $5.15. One-year share price target is unchanged at $70. Maintain 1-Sector Outperform.
