Royal Bank of Canada's Strong End to Fiscal Year

Royal Bank of Canada (RBC) concluded its fiscal year on a positive note with better-than-expected results. However, the bank faced a setback in its U.S. wealth management business, which affected its overall earnings.

Adjusted Earnings Surpass Expectations

RBC reported adjusted earnings of 2.78 Canadian dollars per share, exceeding the projected C$2.62 according to analysts surveyed by Bloomberg. This impressive performance drove an increase of 0.8% in the U.S.-traded shares of the bank's stock, reaching $91.14 during midafternoon trading on Friday. (Conversion: 1 Canadian dollar = 0.74 U.S. dollar)

Gains Offset by Expenses Related to City National Bank

Although RBC witnessed growth in fee-based income from its overall wealth management business in the fourth quarter, these gains were offset by ongoing expenses associated with City National Bank. RBC acquired City National in 2015, and investments made to strengthen the institution continued to impact RBC's net income.

In the fourth quarter, RBC's overall wealth management division recorded a net income of C$240 million, representing a significant decrease of C$607 million or 74% compared to the previous year. RBC attributed this decline primarily to its investments in fortifying City National.

Aiming for Enhanced Profitability

RBC CEO David McKay acknowledged that City National had not reached its full potential during the year. However, he expressed optimism and outlined their strategy moving forward:

"We recognize City National operated well below its full potential this year. Looking forward, our focus is on enhancing City National's profitability following outsized volume growth over the years building on the relative stability of deposits and retention of clients and advisors through 2023."

RBC remains determined to leverage the stability it has achieved in client relationships and deposits to propel City National's profitability in the coming years.

City National: "The Bank to the Stars"

City National has gained recognition as "the bank to the stars," providing a wide range of wealth management and private-banking services to affluent clients, including celebrities from the entertainment industry. However, the bank faced challenges amidst the regional banking crisis earlier this year, which led to the downfall of Silicon Valley Bank and First Republic Bank. As a result, capital infusions were necessary, and RBC took measures to reduce its workforce.

RBC acknowledged impairments on specific assets and initiated a cost program that resulted in higher-than-usual severance packages in the most recent quarter for City National, according to McKay, the representative of RBC.

RBC's U.S. wealth management business, inclusive of City National, concluded the quarter with an impressive $177 billion in assets under management. This represents an 11% increase from the previous year-end figure of $159 billion.

Despite the charges incurred and staff reductions at City National, McKay remains optimistic about the bank's future in the United States.

"We have strong confidence in our leading wealth and asset management franchises, positioning us well to capture increased investment activity," he stated.

RBC has actively sought out experienced U.S. advisors, often enticing them away from major wirehouses.