Canadian lender RBC beats profit estimate on lower than expected provisions

By Nivedita Balu and Prakhar Srivastava

Aug 27 (Reuters) - Royal Bank of Canada RY.TO on Wednesday topped analysts' profit estimates as the country's biggest lender set aside a smaller than expected sum of money to cover potential loan losses.

Shares of Canada's largest publicly listed company by market capitalization surged nearly 6% and hit a record high of C$204.6 in early trading on the Toronto Stock Exchange.

RBC, along with Bank of Montreal BMO.TO and Bank of Nova Scotia BNS.TO, has benefited from smaller provisions compared to last quarter as some of the Canada-U.S. trade tensions that pushed lenders to build their reserves eased.

While U.S. President Donald Trump and Canadian Prime Minister Mark Carney have so far not reached a trade deal, Canada's economy has held up better than expected as most goods are entering the U.S. tariff-free under the U.S.-Mexico-Canada Agreement (CUSMA).

"I'm feeling very good about our results and the strength of those results and the sustainability," CEO Dave McKay told investors on a call.

"We always do put out that caution that things can change and there's still that big uncertainty around CUSMA and tariff negotiations that I think hold investors and hold commercial clients from investing capital," he added.

Still, the bank remains open to growth opportunities, specifically RBC's wealth business in the United States and Europe. The bar is, however, high, McKay said, while noting last year's $10 billion acquisition of HSBC Canada.

RBC recorded loan loss provisions - reserves set aside against the risk of bad loans - of C$881 million ($637.62 million), lower than analysts' average estimate of C$1.07 billion, according to LSEG data.

That helped adjusted profit of C$3.84 per share beat the average estimate of C$3.32.

The bank released money it had set aside in its wealth management segment, largely for loans in U.S. subsidiary City National Bank's automotive sector, it said.

Net income from capital markets jumped 13% and from wealth management was 15% higher.

"While (RBC) did benefit from lower than forecast provisions, that was only part of the story," Jefferies analyst John Aiken said, noting "solid performances" across segments.

"We believe the results not only support RBC's current premium valuation, but will likely garner continued outperformance."

($1 = 1.3817 Canadian dollars)