Canada’s largest bank RBC warns of weaker economy and plans job cuts | Business and Business News

RBC warned of slowing domestic growth, including slowing wage growth, lower job vacancies and a rise in unemployment.

The Royal Bank of Canada (RBC) warned of a weaker economy ahead and plans to cut about 1,800 jobs after Canada’s biggest bank beat analysts’ estimates for the third quarter on Thursday thanks to cost-cutting measures.

Chief Executive Dave McKay forecast slowing growth and lower inflation due to the lagged impact of monetary policy combined with a slowdown in China and heightened climate and geopolitical risks.

“We are seeing signs of a slowdown in labor markets, reflected in slowing wage growth, lower job vacancies and a spike in Canadian unemployment. Consequently, our base case forecasts a weaker economic outlook,” he told analysts.

“The operating environment is changing faster than it has been in over a decade.”

McKay said in May the lender would slow the hiring rate after it surpassed thousands. The bank said the number of full-time employees fell 1 percent from the previous quarter and it expects further job cuts of about 1 to 2 percent. As of July 31, the Bank had 93,753 full-time employees.

“The bank has done a commendable job of managing expenses and improving its overall efficiency ratio,” said Barclays analyst John Aiken, citing the lender’s profit increase.

The country’s second-largest bank, Toronto-Dominion Bank (TD), however, missed analysts’ estimates for quarterly profit, which was impacted by higher spending, poor funds to cover unpaid loans and weakness at its US operation.

TD has set aside CA$766 million (US$565 million), up from CA$351 million (US$274 million) a year ago, while RBC has set aside CA$616 million (US$455 million) for credit losses , down from CA$340 million (US$266 million) as consumers struggle to make payments amid the high cost of living.

The Bank of Canada has hiked interest rates 10 times since March last year in a bid to fight stubborn inflation, boosting the profitability of banks’ consumer businesses as they benefit from higher loan yields.

This helped boost RBC’s retail earnings by 5 percent. However, TD’s Canadian retail business revenue declined 1 percent and its US retail division fell 9 percent.

“The higher interest rate would put pressure on the consumer. But what we’ve seen so far is that they remain resilient… but we continue to monitor them very closely,” Kelvin Tran, TD’s chief financial officer, said in an interview.

Underperforming stocks

TD also plans to buy back 90 million shares after the company launched a 30 million share buyback program in May shortly after it completed a $13.4 billion acquisition of a First Horizon deal, giving the bank a capital boost procured.

Net interest income – the difference between what banks earn on loans and what banks pay out on deposits – rose 6.7 percent to CA$6.29 billion (US$4.6 billion) at RBC and by 3, at TD 5 percent to CA$7.29 billion (US$5.4 billion).

RBC reported adjusted earnings of CA$2.84 ($2.09) per share, beating analyst estimates of CA$2.71 ($2) per share, according to Refinitiv data.

Results also benefited from a low tax rate due to the Canada Recovery Dividend introduced in the 2023 budget.

TD’s adjusted earnings of CA$1.99 (US$1.46) per share came in below the estimate of CA$2.04 (US$1.5).

The bank’s earnings were also impacted by a CA$306 million (US$225 million) payment related to the completion of the First Horizon acquisition.

RBC and TD combined account for half of the market share among Canada’s big six banks, with market caps of CA$168 billion (US$124 billion) and CA$151 billion (US$111 billion), respectively.

Still, its shares have underperformed, falling about 5 and 6 percent respectively so far this year, while the broader index is up 2.55 percent.

RBC shares rose 1.6 percent while TD fell over 2 percent.