Royal Bank of Canada (RY) Q3 FY25 earnings call: guidance and Q&A

Is the bank overearning, and what is the appetite for capital build vs. deployment given the strong ROE and CET1 ratio?

Management believes the strong Q3 results are sustainable, driven by disproportionate client flow capture and a resilient economy. They are comfortable with the CET1 ratio potentially creeping up, as they can earn a strong ROE on it. Capital will continue to be returned via buybacks and dividends, with organic growth investments and potential inorganic opportunities in wealth management also considered, but with a high bar for accretion and integration complexity.

“I'm okay letting it creep up. We will continue to return capital to shareholders through share buybacks. We have that strong capital generation and dividend increases.”

asked by Ebrahim Poonawala · answered by David McKay

Update on City National's progress and future profitability levers, specifically regarding expenses.

City National is making good progress on platform remediation and is now actively recruiting. Expenses are expected to come down on an absolute basis as the bank progresses through 2026, after peaking in 2025 due to building out the platform and strengthening defense lines.

“For City National, we are viewing that on an absolute basis. And you have heard us talk before about the costs related to remediation being fully loaded. And what we're seeing is that those costs are already starting to come down, and we're expecting to see that to continue as we progress into 2026.”

asked by John Aiken · answered by Katherine Gibson

Were there any abnormal market dynamics or marks contributing to the strong trading results, particularly in FICC?

There was nothing particularly abnormal. Strong FICC results were broad-based across credit, repo, FX, rates, and commodities. While credit spread tightening helped, it was a modest benefit. Equity revenue also saw a significant uplift due to strategic investments and market share capture in a constructive environment.

“I wouldn't say there was anything particularly abnormal in terms of marks or anything. If you step back and you look at the results, we had very strong results in FICC that was up about 35%.”

asked by Gabriel Dechaine · answered by Derek Neldner

Given performing provision releases, favorable macro outlook, but rising retail delinquencies and fast-growing HELOCs/credit cards, what is the outlook for peak loan losses?

The bank is in an elevated part of the credit cycle but moving towards more stability. Unsecured retail products are nearing peak PCL levels, while mortgages still face refinancing headwinds but show resilience. Wholesale impairments will remain elevated into 2026, particularly in Canadian commercial, but are more balanced with U.S. strength and specific Capital Markets issues not expected to repeat. Overall, the acceleration in credit deterioration is slowing.

“I think what we try to guide to a little bit is we're kind of in that range now, and we would expect to persist in that range now. And so it's not going to be some singular magical quarter where we hit that peak and then instantly it comes down quick off of that.”

asked by Gabriel Dechaine · answered by Graeme Hepworth

Does the current uncertainty outweigh the strong fundamentals, impacting the bank's willingness to pursue inorganic opportunities?

The bank feels very good about its results and their sustainability, driven by client activity. While trade uncertainty causes caution for future commitments, the bank has strong organic growth opportunities. Inorganic growth is considered, particularly in wealth management in the U.S. and Europe, but with a very high bar for accretion and integration complexity, recognizing the focus required for M&A vs. organic momentum.

“I think what you're seeing, Sohrab and the real strength of our results this year and this quarter is how distracting and how complicated it is to do M&A. And it takes the entire management team to land an HSBC and it takes you away from kind of full focus and attention on your current business. And now you're seeing the RBC management team fully focused on the franchise in front of us and growing the franchise, and these are the results.”

asked by Sohrab Movahedi · answered by David McKay

How much did Royal Bank 'overearn' this quarter, and what factors should analysts consider for Q4 projections?

Management did not quantify 'overearning' but pointed to full-year guidance for NII (mid-teens growth), expenses (mid- to high single-digit growth), and tax rate (20-22%). They noted Q4 seasonality in Capital Markets and a negative impact from actuarial assumption updates in Insurance. Corporate support is expected at the lower end of its loss range. Dave McKay later suggested Q4 results would be closer to Q3's $5.5 billion than current consensus.

“I would expect we can produce results in the next quarter that are closer to what we achieved than where consensus was.”

asked by Mario Mendonca · answered by David McKay

Is Royal's retail credit book different from peers, given their more affluent client base, and does this explain a more stable outlook compared to peers anticipating continued deterioration?

The bank's retail franchise benefits from a strong client base, consistently producing strong credit results, particularly in cards. This client quality, combined with robust underwriting and credit processes, contributes to a more stable outlook. While the credit cycle remains difficult, the acceleration of deterioration is slowing, and the bank is taking actions to manage the front book and optimize outcomes.

“When we look at our retail franchise, we absolutely do have a very strong client base there, and that has always produced, I think, very strong results for us from a credit perspective.”

asked by Mario Mendonca · answered by Graeme Hepworth

Beyond HSBC synergies, what other factors contributed to the substantial efficiency improvements in Canadian Personal and Commercial Banking?

In Personal Banking, efficiency improvements stemmed from strong general expense management and cost discipline, balancing growth investments with cost control, alongside robust revenue growth from client acquisition and business consolidation. In Commercial Banking, similar strong cost discipline and continued investment in product, platform, and coverage contributed, in addition to achieving 100% of HSBC cost synergies and some PPA tailwinds.

“I think the team has done very good job of just general expense management control. You saw that reflected in the results that we have there. So in addition to the HSBC synergies, we're seeing good cost discipline as we think about balancing both the growth that's necessary in the platform and driving that growth and the spend that we need to drive that growth, but as well as making sure that we are disciplined in our costs.”

asked by Matthew Lee · answered by Erica Nielsen