This big acquisition will pay off

Article Excerpt

Royal Bank recently completed its acquisition of HSBC’s Canadian operations. While big and complex acquisitions like this add risk, particularly if technical disruptions prompt HSBC clients to switch to a rival bank, we’re confident the deal will spur Royal’s profits higher over the next few years. ROYAL BANK OF CANADA $140 is a buy. The bank (Toronto symbol RY; Conservative Growth and Income Portfolios, Finance sector; Shares outstanding: 1.4 billion; Market cap: $196.0 billion; Price-to-sales ratio: 3.4; Dividend yield: 3.9%; TSINetwork Rating: Above Average; www.rbc.com) is Canada’s largest by market cap. It has over 17 million clients in Canada, the U.S. and 27 other countries. In its fiscal 2024 first quarter, ended January 31, 2024, loan-loss provisions jumped 52.8%, to $813 million from $532 million a year earlier. That’s due to concerns that rising interest rates and inflation will lead to higher loan defaults. The higher provisions cut Royal’s earnings before unusual items in the quarter by 5.0%, to $4.01 billion from $4.22 billion. Due to…