Royal Bank Falls as Rivals’ Profits ‘Stood Out’ More (Update1)

Dec. 4 (Bloomberg) -- Royal Bank of Canada, the country’s largest lender by assets, fell the most in five weeks after posting fourth-quarter net income that failed to exceed analysts’ estimates while smaller rivals’ results “stood out.”

Royal Bank fell C$1.50, or 2.6 percent, to C$55.98 at 4:10 p.m. in Toronto Stock Exchange composite trading, its biggest drop since Oct. 27.

The bank today reported profit in the period ended Oct. 31 rose 10 percent to C$1.24 billion ($1.17 billion), or 82 cents a share, from C$1.12 billion, or 81 cents, a year earlier. Toronto-based Royal Bank said it earned C$1.06 a share excluding one-time items, matching the median estimate of 12 analysts surveyed by Bloomberg News.

“Expectations have grown so high, particularly coming into the quarter, that just meeting estimates is almost a bit of a negative,” Craig Fehr, an analyst with Edward Jones & Co. in St. Louis, said in an interview. “While things seem to be improving, it’s not all roses from here.”

Toronto-Dominion Bank and Canadian Imperial Bank of Commerce yesterday posted quarterly profit that exceeded analysts’ estimates. Bank of Montreal, the country’s fourth- biggest bank, on Nov. 24 reported a 16 percent increase in profit that topped estimates.

Royal Bank’s profit was driven by earnings from Canadian consumer lending and wealth management. Revenue rose 47 percent to C$7.46 billion, helped by trading and advisory fees generated by a rebound in equity markets.

‘Results Were Solid’

“The results were solid, as one would expect from Royal, but the problem being that several of its competitors reported quarters which stood out much more,” Barclays Capital analyst John Aiken said in a note to clients.

Royal Bank set aside C$883 million for bad loans, up 43 percent from a year earlier.

Canadian consumer-banking profit rose 6.1 percent to C$717 million, as personal loans, residential mortgages and deposits increased.

Earnings from the RBC Capital Markets investment banking unit fell 3.9 percent to C$561 million from a year earlier, when the firm had a C$542 million reduction in reserves for claims tied to failed energy trader Enron Corp. Trading revenue was C$1.28 billion, compared with a C$58 million trading loss a year earlier.

“Canadian banking and capital markets drive Royal Bank, as a lion’s share of their earnings are generated there,” said Todd Johnson, who helps manage C$140 million including bank shares at BCV Asset Management in Winnipeg. “As long as those two are doing very well, Royal’s results are going to be pretty solid.”

RBC Bank

International consumer banking, which includes Raleigh, North Carolina-based RBC Bank, had a sixth straight quarterly loss after setting aside more money for bad loans during the economic slump and from provisions tied to Caribbean mutual funds. Losses narrowed to C$125 million from C$206 million a year earlier.

Wealth management, which includes mutual fund sales, rose 39 percent to C$161 million from a year ago, while insurance rose 76 percent to C$104 million.

Royal is the sixth Canadian bank to report results. Bank of Nova Scotia, the third-biggest, reports on Dec. 8.

To contact the reporter on this story: Doug Alexander in Toronto at dalexander3@bloomberg.net

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