Royal Bank of Canada (TSX:RY) Disappoints and Bank of Nova Scotia (TSX:BNS) Impresses

The final results are in and Canada’s Big Banks end the year on a low note with mixed fourth quarter and year-end results.

| More on:
edit Four girl friends withdrawing money from credit card at ATM

Image source: Getty Images

Most of Canada’s Big Five banks announced fourth quarter and year-end results this week. It was a decidedly mixed quarter and the narrative of a challenging macro environment continues.

Despite the narrative, 2019 was a decent year for the banks and they continue to reward investors with capital gains and hefty dividends. Of the Big Five, two banks stood out: the Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) and Royal Bank of Canada (TSX:RY)(NYSE:RY).

The most disappointing bank

Somewhat surprisingly, Royal Bank of Canada has been the most disappointing of the Big Five. In the fourth quarter, it missed on both the top and bottom lines.

Earnings of $2.18 missed by $0.06 and revenue of $11.37 billion missed by $280 million, marking the second consecutive quarter in which Royal Bank missed earnings estimates and the first time it has missed twice in a row in more than five years.

On the year, earnings per share jumped by 5%, posting average volume growth of 6% in loans and 10% in deposits in its Canadian Banking segment.

On the flip side, the segment’s provision for credit losses jumped by 22% and its PCL on impaired loans ration increased by 4 basis points. In total, PCL on loans jumped from $172 million to $505 million as a result of an uptick in PCL across all segments. It exited the year with a 0.31% PLC ratio on loans, up from 0.23% in 2018.

On the day of earnings, Royal Bank’s stock dropped by 2.08% despite a broader stock market rally. Although it was a disappointing quarter, it’s important to note that RBC has been one of the best-performing banks in 2019 with gains of 12.10% thus far.

The real issue however, is that RBC has commanded a premium because it has outperformed. In the last two quarters, it has showed weakness, which its shareholders aren’t accustomed to. That Royal Bank Chief Executive Officer David McKay warned that “The next couple of years are likely to be challenging,” didn’t help.

Although it remains one of the best in class, some of its smaller peers may outperform in 2020.

The least disappointing bank

Full disclosure: Choosing a winner among the Big Five was difficult. All of them suffered from macro-economic headwinds and each posted less than impressive quarterly results. That said, I believe Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) has been the best bank this past year.

Previously, the company announced its intentions to streamline international operations and it has embarked on an ambitious divestiture program in which it is ridding itself of non-core assets. It’s a strategy that was welcomed by the markets, and after years of underperformance, Scotiabank shareholders finally have something to cheer about.

In the fourth quarter, it was one of only two banks to either meet or beat estimates. Adjusted earnings of $1.82 per share and revenue of $7.97 billion were both in line with estimates, representing growth of 2.8% and 7% over the fourth quarter of 2018.

Although it doesn’t seem like much, these were among the top growth rates among the Big Five. In fact, it’s one of only two to post adjusted EPS growth year over year and revenue growth was more than double the average.

In 2019, it has been the best-performing bank with a yearly return of 13.26% as investors have welcomed the more streamlined approach. Now that the company’s repositioning is nearing an end, it looks to be a strong contender to also be one of the top-performing banks of 2020.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor mlitalien has no position in any of the stocks mentioned. The Motley Fool recommends BANK OF NOVA SCOTIA. Bank of Nova Scotia is a recommendation of Stock Advisor Canada.

More on Dividend Stocks

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

edit Woman in skates works on laptop
Dividend Stocks

3 No-Brainer Stocks to Buy Under $30

These three stocks all offer a huge deal for investors looking for dividends, as well as growth that will last.

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »