RBC, TD, CIBC Beat Profit Forecasts on Capital Markets Strength

Royal Bank of Canada, TD Bank, and CIBC all reported third-quarter profits that topped analyst estimates, largely driven by strong performance in their capital markets divisions. The results on Thursday concluded a surprisingly resilient earnings season for Canada’s six largest banks, all of which beat Bay Street forecasts despite ongoing geopolitical and trade-related uncertainties.

Capital Markets Drive Earnings Beat

A surge in deal-making, higher trading income from market volatility, and a revived IPO market fueled significant growth in the banks' wholesale and investment banking segments. The lenders' diversified business models, which include significant wealth management operations, also contributed to the strong results.

Key performance highlights include:

• Royal Bank of Canada (RBC): The bank reported adjusted earnings of C$4.28 per share, beating the LSEG estimate of C$4.08. Its capital markets net income rose 16% to C$1.54 billion, while its wealth management segment saw a 32% profit increase.
• TD Bank (TD): TD posted adjusted earnings of C$2.77 per share, significantly above the C$2.47 average estimate. Its wholesale banking segment, which includes capital markets, recorded an 87% jump in net income.
• CIBC: The bank's adjusted net income was C$2.73 per share, 20 Canadian cents above analyst forecasts. Capital markets income at CIBC climbed 34%, aided by lower provisions for credit losses.

"These results reflect three forces working together: diversified business model, strong client activity, and a favorable market backdrop," RBC CEO Dave McKay said in a call with analysts.

Navigating Economic Headwinds

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The strong performance comes amid trade tensions between Canada and the United States. However, bank executives expressed confidence in their ability to manage the risks, citing strong balance sheets and sizable reserves built up over the past two years.

TD Bank’s CFO Kelvin Tran told Reuters the bank is monitoring the situation carefully but feels "very comfortable with the reserve we have." CIBC noted that businesses it considers most sensitive to tariffs represent less than 1% of its total loan portfolio.

Market Reaction and Outlook

Analysts noted the strong performance, with Jefferies analyst John Aiken calling TD's report the "strongest beat of the quarter." Aiken also said RBC's 17.9% return on equity (ROE) justified its premium valuation. Canadian banks are trading at an average of about 15 times forward earnings, their highest multiple since 2010, according to the report.

Looking ahead, TD Bank signaled continued confidence in its U.S. operations, announcing plans to open 100 new branches in the region by 2028. In Thursday's trading, shares of TD rose about 1%, while RBC and CIBC were down approximately 1%.