The
The Los Angeles-based unit of Royal Bank of Canada reported its strongest quarter in more than a year, but executives warned of bumpiness ahead.
"Looking forward, our efforts to enhance expense and capital efficiency, and deepen client relationships, should allow City National to achieve more normalized profitability as we exit 2025," Katherine Gibson, RBC's interim chief financial officer, said during a call with analysts.
"However, the path to normalized profitability may not be linear from quarter to quarter," she added.
City National ran into trouble last year — racking up $285 million of losses over six months — as a result of higher deposit costs, larger provisions for credit losses and unrealized securities losses. And it has been spending on compliance in the wake of
RBC, which allowed City National to run relatively independently for several years following the bank's acquisition in 2015, has indicated recently that
During RBC's most recent quarter, which ran from February to April, the Toronto-based company's non-interest expenses rose by 8% from the same period a year earlier, which it attributed partly to investments in City National's "operational infrastructure."
Still, City National recorded quarterly net income of $44 million, aided by an 11% year-over-year increase in net interest income and an improved net interest margin.
"City National appears to be on the right track," John Aiken, an analyst at Jefferies, wrote Thursday in a research note. He added that "continued execution should provide incremental improvements in future quarters."
RBC CEO Dave McKay spoke earlier this year about the need to control costs at City National, and on Thursday, he raised the possibility that the Canadian parent company might sell what he characterized as "non-core" parts of the U.S.-based bank.
The goal is to achieve a return on assets that is comparable to those of peer banks, McKay said. In order to meet that goal, City National will need to reduce its "very significant cost structure," he said.
"And that will happen, we hope, over the next roughly 18 months," he added.
City National's parent company, meanwhile, reported quarterly net income of $4 billion, which was up 7% from the same period last year. Shares in RBC rose by 5.4% on Thursday.
The Canadian company became the latest lender to make new disclosures about its exposure to
RBC said that its capital markets unit has $2.9 billion of exposure to the multifamily sector, which is well under 1% of its total loans and acceptances, and that 32% of that portfolio is classified as impaired.
The Canadian bank also said that its U.S. multifamily loan portfolio, which totals $8.3 billion, is generally performing well, but that there are pockets of weakness on rent-controlled properties, pointing specifically to New York and San Francisco.
"Today, impairments and losses have been in our capital markets portfolio on rent-controlled properties in San Francisco," RBC Chief Risk Officer Graeme Hepworth said during the company's earnings call. "Following a deep dive into our remaining $1.9 billion performing capital markets exposure to the sector, we remain comfortable with the risk, and we are not expecting any additional impairments at this time."
