Canada's RBC beats quarterly profit estimates, pushing shares to record high

By Nivedita Balu and Pritam Biswas

Dec 3 (Reuters) - Royal Bank of Canada topped analysts' estimates for fourth-quarter earnings on Wednesday, powered by the strength of its capital markets segment, prompting the lender to raise its return on equity forecast.

RBC, Canada’s No.1 bank, forecasts return on equity above 17% for fiscal 2026, compared to its previous forecast of 16% disclosed during its investor day earlier this year, and increased its quarterly dividend by 6%.

Shares in the bank, Canada's largest publicly listed company, rose as much as 1.9% to hit a record high of C$220.26 ($157.87) in early trading.

"It is a growth story, (it is) a capital return story through dividends," CEO Dave McKay said.

Still, McKay said there was a "little bit of conservatism" given the Canadian economy has not normalized yet, markets are elevated and Canada and the U.S. have not reached a trade agreement to remove tariffs on sectors including steel and aluminum.

Canada's biggest banks have bet on fee-based, high-margin businesses to drive expansion at a time loan growth in personal and commercial banking segments has stalled due to economic uncertainty.

They are also now betting on Canadian Prime Minister Mark Carney's increased defense spending and nation-building projects, from pipelines to airports, to boost the Canadian economy.

That would support their domestic business, which has faced challenges amid a sluggish housing market and elevated unemployment.

"The challenge is the country's ability to get these projects approved by all stakeholders in a timely and efficient way," McKay said.

"While the operating environment remains fluid and complex, there is a lot of hard work yet to be done by governments and the private sector."

McKay said RBC, among Canada's well-capitalized banks, will focus on organic growth and shareholder returns as it waits for the right timing to explore M&A and other expansion opportunities in the U.S., a key growth market for the bank.

The capital markets segment's net income rose 45.3%, powered by higher trading revenue and a rise in M&A activity. The wealth segment’s earnings rose 32.5%.

Adjusted net income in the fourth quarter ended October 31 rose 25% to C$5.55 billion. On a per share basis, it earned C$3.85, beating analysts' estimates of C$3.53, according to LSEG data.

"A strong quarter overall," Scotiabank analyst Mike Rizvanovic said in a note.

National Bank of Canada's NA.TO adjusted earnings of C$2.82 were also 20 Canadian cents higher than analysts' estimates, fueled by its capital markets segment. Peer Bank of Nova Scotia BNS.TO also topped earnings on Tuesday.

($1 = 1.3944 Canadian dollars)