The cuts come as heightened interest rates put pressure on expected economic activity despite resilient consumer spending.
“Our base case forecasts a softer economic outlook,” chief executive Dave McKay told a conference call with investors and financial analysts.
“We expect slowing growth and lower inflation due to the lagging impact of monetary policy combined with a slowdown in China and elevated climate and geopolitical risks.”
Given the outlook, the bank has heightened its focus on expense control, said McKay, including slower discretionary spending and moderating hiring.
Early job reductions were done largely through natural attrition, but cuts will ramp up this quarter now that the bank has regulatory approvals in place to move forward, he said.
The cuts come after McKay said last quarter that the bank had overhired by the thousands. The bank added about 6,100 full-time equivalent employees in 2022 over the year before, and 3,000 the first two quarters of this year.
In the third quarter the company reduced its employee base by about 2,400, though some two-thirds of that was the result of a partial sale of its RBC Investor Services, leaving RBC with 93,753 full-time equivalent employees in its most recent quarter.
Despite the cuts, the overall higher employee numbers, along with rising pay, meant costs were up 17%, chief financial officer Nadine Ahn said.
She said the bank has had nearly $70 million in severance costs over the last two quarters with more expected in the next one, before RBC starts to see expense benefits from the cuts next year.
The focus on costs come as the bank reported expenses were up 23% in the quarter from last year, about 10% of which was related to acquisitions and foreign exchange. Leaving that aside, non-interest expenses were up 13%, driven by higher staff-related costs and professional fees.
Despite the higher costs, the bank reported a net income of $3.87 billion or $2.73 per diluted share for the quarter ended July 31, up from $3.58 billion or $2.51 per diluted share in the same quarter last year.
Revenue totalled $14.49 billion, up from $12.13 billion a year earlier.
Provisions for credit losses amounted to $616 million, up from $340 million in the same quarter last year.
On an adjusted basis, RBC says it earned $2.84 per diluted share in its latest quarter, up from $2.55 a year earlier.
The average analyst estimate had been for a profit of $2.71 per share, according to figures compiled by financial markets data firm Refinitiv.
The bank beat expectations based in part thanks to lower-than-expected credit loss provisions, as well as a lower tax rate, Scotiabank analyst Meny Grauman wrote in a note to clients.
He said efforts to cut expenses, including through fewer full-time equivalent employees, should help bank performance.
“Operating leverage remains an issue at this bank, but we certainly are seeing tangible proof that [Royal Bank] is working to address this by lowering FTE [full-time equivalent employees].”
The bank also benefited from a slight rise in net interest margins in Canadian banking, as the client flow into term deposits like guaranteed investment certificates slowed.
Banks have seen their margins squeezed as customers move more money into the term products that are more expensive for banks, but RBC has long touted its low-cost deposit base to help offset the trend. The bank said that last quarter its margins also benefited from strong growth in credit card balances.
RBC’s net interest margin rise of 0.03 percentage points to 2.68% for Canadian banking surprised to the upside compared to consensus expectations of a 0.02 dip, said Grauman.
“That is something that we and the Street have been looking to see for a while as [Royal Bank’s] strong domestic deposit franchise appears to finally be shinning through.”