Canada's No.1 lender RBC posts rare profit miss, CIBC beats

By Nivedita Balu and Arasu Kannagi Basil

May 29 (Reuters) - Royal Bank of Canada RY.TO missed analysts' quarterly profit estimates on Thursday as it set aside larger than expected sums of money for potential loan defaults in an uncertain economy brought on by U.S. tariffs.

The miss is RBC's first in two years and contrasts with peer Canadian Imperial Bank of Commerce CM.TO, which topped estimates as its earnings from the capital markets unit rose 20%.

Shares of RBC, Canada's largest bank, were down about 3.3% in Toronto while those of CIBC were marginally lower.

All Canadian banks have set aside large funds to cover potential loan defaults, as the changing economic outlook is expected to be challenging for borrowers.

U.S. President Donald Trump's trade policies have created tremendous uncertainty for Canada's economy. Investors hope newly elected Prime Minister Mark Carney will establish pro-business policies and initiate more positive trade talks.

"We cannot say for certain where global trade policies will settle but are cautiously optimistic about the path forward," RBC's CEO Dave McKay said.

Executives told analysts a U.S. trade court blocking most of Trump's tariffs in a sweeping ruling on Wednesday maintains that uncertainty in various elements, including allocating capital from mortgages right through to M&A.

"We are not shaking the overall uncertainty level because of that ruling last night but it helps for renegotiation of USMCA that we expect to happen in the coming six months," McKay said.

He added that RBC was not projecting a recession in Canada or the United States, but the uncertainty was dampening confidence in certain parts of the North American economy, including housing.

Canaccord Genuity analyst Matthew Lee noted that RBC was playing it "extra safe" as the lender implemented a downside "trade disruption scenario" to its credit model.

RBC's provision for credit losses jumped 55% to C$1.42 billion in the second quarter, higher than analysts' estimate of C$1.13 billion, according to LSEG data.

Adjusted profit rose 8% to C$4.53 billion ($3.28 billion). On a per share basis, RBC earned C$3.12, missing the estimated C$3.19.

CIBC's provisions rose C$91 million to C$605 million. Earnings of C$2.05 per share surpassed analysts' average estimate of C$1.89.

($1 = 1.3821 Canadian dollars)