Investors began panicking, as three banks collapsed across the border in the United States. The pressure of rising interest rates seems to have gotten to the U.S. banking sector. Further news about banks made investors wary, as Credit Suisse, Switzerland’s second-largest bank, saw its major investor refuse to inject more money.
March 2023 saw Canadian bank stocks decline in valuation as well. As of this writing, Royal Bank of Canada (TSX:RY) stock is down by 8.44% from its February 2023 high. Trading at an over 10% discount from its 52-week high, many investors might wonder: is it a good time to buy more shares of RBC stock, or should they be worried about their existing holdings in the bank stock?
Let’s discuss the situation to determine what might be the better approach right now.
Canada’s largest financial institution
Royal Bank of Canada is one of Canada’s oldest and largest financial institutions. Founded in 1864, it also has significant international banking operations. It generates around 60% of its revenue through domestic markets, 24% from its operations in the U.S., and 16% from other international markets.
With a rich history and long track record for reliability and wealth growth, RBC has grown organically and through acquisitions in the 159 years that it has been around. It is currently acquiring HSBC Canada — a move that will add over 780,000 new retail and commercial customers and 130 more branches under its banner.
The $13.5 billion acquisition deal is a result of political pressure from the west and China forcing HSBC to sell its Canadian arm, benefiting RBC in the process.
In terms of its operations, Royal Bank of Canada’s revenue increased by 15% in its January-ending quarter. However, its net income declined by 22%, owing to higher provision for credit losses (PCL) and a weaker performance by the insurance segment. RBC has increased its PCL to $532 million, reflecting a massive surge from $105 million a year ago.
The banking crisis across the border has impacted RBC stock’s share prices on the stock market. However, its solid risk control tactics can help it confidently weather the storm and come out stronger on the other side.
Foolish takeaway
Recessions and economic downturns show how strong various publicly traded companies truly are. Those with sound management, solid fundamentals, and strong long-term growth outlooks survive. Weaker companies get battered or collapse completely in such market environments.
Royal Bank of Canada stock has weathered several economic crises in almost 160 years, and it looks well positioned to continue doing so.
The current weakness in the macroeconomic environment might just pull RY stock further down before it posts a recovery. However, I feel investors should not wait on the sidelines for too long. It remains to be seen how long the recession will last.
RBC has proven time and time again that it can sustain itself through periods of economic uncertainty. If you have a long investment horizon, it might be just the perfect time to add more RY stock shares to your portfolio.
