RBC profit rises, boosts payout

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GRANT ROBERTSON — BANKING REPORTER
Globe and Mail Update
Last updated Friday, May. 27, 2011 6:57AM EDT

Profit at Royal Bank of Canada (RY-T59.15----%) rose 13 per cent in the second quarter, driven by Canadian banking and wealth management earnings, however RBC missed analysts’ expectations.

Canada’s largest bank made $1.51-billion, or $1.00 a share in the quarter, compared to $1.33-billion, or 88 cents a share a year ago. Revenue rose 2 per cent to $7.13-billion, the bank said Friday. Analysts, on average, expected RBC to make $1.11 a share in the quarter.

Provisions for credit losses, or the amount of money banks set aside to cover bad loans, fell to $344-million, from $504-million a year ago, as the economy continued to improve.

RBC also increased its quarterly dividend by 8 per cent, to 54 cents. It is the first increase in nearly four years for RBC, after banks put dividend hikes on hold to preserve capital during the recession. Analysts had predicted the bank was poised to raise its payout to investors either this quarter or next.

“Earning over $1.5-billion in the second quarter and more than $3.3-billion for the first half of the year reflects the diversity of our business model and the strength of our businesses with Canadian banking, wealth management and insurance showing strong revenue and earnings growth,” RBC chief executive officer Gordon Nixon said in a statement.

However, a loss at RBC’s international banking division, which includes its struggling U.S. retail banking operations, and a drop in earnings at its capital markets unit, lead RBC to miss analysts’ forecasts for the quarter.

Capital markets net income dropped 19 per cent to $407-million, as trading revenue fell, a trend seen across the banking sector during the quarter. Higher costs stemming from new regulations and the bank’s efforts to expand its capital markets business around the world also contributed to the drop in earnings.

Meanwhile, RBC’s international banking division posted a loss of $23-million, a slight improvement on a loss of $27-million a year ago, partly due to lower income at its Caribbean banking operation, RBC said.

Despite those two weak spots, the bank’s profit was overwhelmingly fuelled by RBC’s large personal and commercial banking division in Canada. Earnings for the retail banking business in Canada rose 16 per cent to $851-million, due mostly to lower loan loss provisions and higher lending volumes.

“Canadian banking continued to underpin our results, generating over half of our earnings,” Mr. Nixon said.

RBC’s wealth management division, also a major focus for the bank, saw its net income more than double to $220-million, up $130-million from last year, after the bank acquired U.K.-based BlueBay Asset Management late last year.

Excluding several accounting and tax adjustments, net income for the wealth management division rose $34-million or 23 per cent from a year ago as the bank saw higher fee revenue from clients and increased transaction volumes.

RBC’s insurance division made $146-million in the quarter, up 36 per cent, due to investment gains and lower claims, the bank said.