WRAPUP 1-Royal Bank of Canada, BMO profits halved amid billions of dollars in loan-loss provisions

Royal Bank of Canada and Bank of Montreal on Wednesday reported disappointing quarterly profits that more than halved from a year earlier as they set aside billions of dollars to cover future loan losses driven by the coronavirus pandemic.

Both lenders posted more than six-fold increases in loan-loss provisions, driving earnings across most of their businesses lower, and sending their returns on equity into the single digits. Royal Bank, the nation's biggest lender, reported adjusted earnings of C$1.03 per share for the three months ended April 30, missing estimates for C$1.58, as provisions jumped to C$2.8 billion, from C$426 million a year earlier.

BMO, the fourth-biggest bank, posted an adjusted profit of C$1.04 per share, compared with expectations for C$1.22. The spike in provisions points to banks' expectations for a surge in loan losses triggered by the economic hit from the novel coronavirus outbreak. On Tuesday, Bank of Nova Scotia and National Bank of Canada also reported steep declines in profits but beat expectations.

Royal Bank posted profit declines across most of its major business lines, including personal and commercial, wealth management and capital markets, while BMO said it is trading and investment banking division swung to a loss. As credit downgrades and drawdowns on credit facilities increased, Royal Bank saw a 30-basis-point decline in its common equity tier 1 (CET1 ratio), the measure of a bank's capital strength, to 11.7% of risk-weighted assets from the earlier quarter. BMO's CET1 ratio fell to 11% from 11.4%. The minimum requirement is 9%.

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