RY Q3 2025: 17.7% ROE, Maintains ≥16% Target
- Sustainable High ROE & Capital Generation: Management highlighted a 17.7% ROE in Q3 and maintained guidance of at least 16% going forward, emphasizing strong client activity and robust capital generation that underpins profitability and shareholder returns.
- Promising City National Growth: Executives detailed significant progress at City National, citing successful remediation efforts, cost reduction initiatives, and strong client acquisitions, which are expected to boost scalability and margin expansion.
- Effective Cost Discipline & Synergy Realization: Throughout the Q&A, management underscored disciplined expense management and the full realization of HSBC cost synergies, reinforcing the bank’s ability to drive efficiency and capture additional revenue opportunities, even amid uncertainties.
- Persistent Trade Uncertainty: There remains uncertainty around tariffs and the ongoing Kuzma trade negotiations, which could dampen client investment and slow the conversion of commercial lending pipelines, thereby negatively impacting future revenue growth.
- Elevated Credit Risks in Retail: Concerns were raised about rising delinquencies and increased provision requirements in retail portfolios, particularly with products such as credit cards and HELOCs, which could lead to higher future losses and pressure on profitability.
- Slower Commercial Lending Growth: Despite some historical loan growth, caution among commercial clients—exacerbated by ongoing tariff and fiscal uncertainties—may result in slower pipeline activations and subdued growth in the commercial lending book going forward.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Net Interest Income (NII) Growth | FY 2026 | high single-digit to low double-digit range for FY 2025 | mid-teens growth for FY 2026 | raised |
Net Interest Margin (NIM) | FY 2026 | no prior guidance | Expected to benefit from favorable product mix for FY 2026 | no prior guidance |
Core Expense Growth | FY 2026 | upper end of mid-single-digit range for FY 2025 | mid to high single-digit range for FY 2026 | no change |
Taxes | FY 2026 | no prior guidance | Adjusted non-effective tax rate expected in the range of 20% to 22% for FY 2026 | no prior guidance |
Provisions for Credit Losses (PCL) | FY 2026 | no prior guidance | PCLs expected to persist at current levels into FY 2026 | no prior guidance |
Operating Leverage | FY 2026 | positive operating leverage for FY 2025 | Strong all-bank operating leverage expected for FY 2026 | no change |
Capital Markets Revenue Growth | Q4 2025 | no prior guidance | Mid-single-digit revenue growth expected for Q4 2025 | no prior guidance |
Commercial Banking Loan Growth | Q4 2025 | no prior guidance | Q4 2025 loan growth projected at 1% to 1.5% sequential growth | no prior guidance |
Insurance | Q4 2025 | no prior guidance | Actuarial assumptions review expected to yield lower earnings in Q4 2025 | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Trade Uncertainty & Tariff Risks | Q1 earnings highlighted rising geopolitical and trade policy uncertainty with potential economic impacts. Q2 discussions detailed tariff impacts, supply chain disruptions, and introduced a “trade disruption downside scenario”. | Q3 continues to emphasize trade uncertainty with renewed tariff threats, geopolitical risks, and caution over business investments despite some signs of reduced tensions. | Persistent caution with consistent reference to trade policy risks; sentiment remains wary with new emphasis on specific tariff threats (e.g., China’s canola levy). |
Credit Risk, Provisioning, and Loan Quality | In Q1 and Q2, the bank discussed rising impaired loans and increased provisions in light of macroeconomic stresses and tariff uncertainties, noting challenges across commercial and wholesale portfolios. | Q3 reports improved resilience in the retail portfolio with stabilization in early delinquencies, yet continues to face elevated PCLs in wholesale sectors amid ongoing trade uncertainty. | Consistent risk management concerns with slight moderation in retail risk quality; overall cautious tone remains as exposures in wholesale persist. |
Net Interest Income & Margin Sensitivity | Q1 emphasized strong NII growth driven by favorable spreads, deposit mix, and an upward revised guidance, while Q2 focused on deposit growth and stable NIM performance despite competitive pressures. | Q3 highlights continued NII expansion, with benefits from a favorable deposit mix and moderate margin sensitivity, underpinned by solid product mix improvements. | A positive progression with sustained growth in NII; improved deposit mix and strategic pricing are bolstering margins compared to earlier periods. |
City National Growth & U.S. Subsidiary Performance | Q1 noted modest City National performance with challenges (e.g., wildfire-related provisions) and Q2 reported growing adjusted earnings with moderate progress in the U.S. region. | Q3 shows significant improvement with City National’s adjusted earnings surging (81% YoY, 58% QoQ) and robust overall U.S. subsidiary performance driven by improved efficiency and stronger client engagement. | Marked improvement and accelerated growth; the U.S. segment, particularly City National, exhibits a strong rebound from prior challenges. |
Investment Banking Pipeline & Deal Flow Recovery | Q1 reflected strong client dialogue and robust investment banking activity despite tariff uncertainty, while Q2 described a temporary slowdown from tariff fears followed by a recovery in flow financing and strategic M&A discussions. | Q3 points to increased optimism and higher transaction levels, with a recovering pipeline driven by robust client engagement, even as trade-related uncertainties remain a background concern. | An upward recovery from the earlier tariff-induced slowdown; sentiment is shifting more positive as deal flow picks up. |
Sustainable High ROE & Capital Generation | Q1 reported solid ROE figures (around 16.8%-17.2%) with strong capital generation and share repurchases, while Q2 set an 18% ROE target within three years amid continued capital generation despite acquisition-related adjustments. | Q3 delivered record earnings with ROE surpassing 17%, strong capital generation (77 bps added) and an active capital deployment strategy including share buybacks, reinforcing a bullish future outlook. | Consistently positive outlook with an upward trajectory; performance metrics and capital deployment strategies indicate a strong, sustainable ROE moving forward. |
Effective Cost Discipline & Synergy Realization | Q1 discussions focused on progress toward achieving $740 million in cost synergies from HSBC Canada and effective expense management, while Q2 reiterated synergy realization and maintained disciplined expense growth despite integration costs. | Q3 confirms full realization of cost synergies (e.g., $740 million annualized savings) and emphasizes disciplined expense management across segments, contributing significantly to operating leverage improvements. | A steady improvement in efficiency with progressively realized synergies and maintained cost discipline; the focus on operating leverage has strengthened over time. |
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ROE & Capital
Q: Is ROE near 17%?
A: Management noted their quarter achieved 17.7% ROE, affirming their guidance of at least 16%. They emphasized strong client flows and a 77 bps capital build that underpin sustainable growth, even with tariff uncertainties in play. -
City National
Q: Update on City National progress?
A: They highlighted strong progress in platform remediation and cost reduction at City National, with significant client acquisition and improved earnings paving the way for future profitability. -
Credit Quality
Q: What is the retail credit outlook?
A: Management expects retail credit metrics to stabilize as early delinquencies normalize. They cited robust underwriting standards and a balanced portfolio as key factors, expecting peak losses to extend into 2026. -
Inorganic Growth
Q: Open to inorganic opportunities?
A: While focusing on organic growth, management remains open to accretive inorganic opportunities if terms are compelling, carefully weighing integration costs against organic momentum. -
Commercial Lending
Q: How will commercial lending perform?
A: Guidance remains at 1–1.5% sequential growth, with improved business sentiment and robust pipelines despite lingering uncertainties, suggesting cautious but steady expansion.
Research analysts covering ROYAL BANK OF CANADA.