Royal Bank fell C$1.74, or 3.4 percent, to C$48.95 at 4:10 p.m. trading on the Toronto Stock Exchange, the biggest drop in three months.
Net income for the third quarter ended July 31 fell 18 percent to C$1.28 billion ($1.21 billion), or 84 cents a share, from a record C$1.56 billion, or C$1.05, a year earlier, the Toronto-based bank said today in a statement. Revenue dropped 13 percent to C$6.83 billion.
Royal Bank joins Bank of Montreal, Canadian Imperial Bank of Commerce and National Bank of Canada in posting a decline in capital markets and trading as stocks fell amid Europe’s sovereign debt crisis. The profit decline was the biggest since the lender reported a loss in the second quarter of 2009.
“This was not a good trading quarter for the banks,” Keith McLean, co-manager of GMP Investment Management’s C$300 million Diversified Alpha Fund in Toronto. “We kind of knew in advance that this wasn’t going to be a pretty month for trading, but it was even worse than expectations.”
Royal Bank said adjusted profit was 87 cents a share, lower than the C$1.02 a share average estimate of 13 analysts surveyed by Bloomberg News.
Earnings from the RBC Capital Markets investment-banking unit fell 64 percent to C$201 million from C$562 million a year earlier, as falling trading revenue in Europe outpaced higher fees from corporate and investment banking.
Royal Bank also recorded a pretax loss of C$100 million tied to its U.S. subprime mortgage assets hedged with insurer MBIA Inc. and a C$73 million loss tied to its bank-owned life insurance contracts.
“Concerns over the global economic recovery, European sovereign debt crisis, U.S. regulatory reform and volatility resulted in significantly lower client activity, tightening spreads and higher funding costs,” Royal Bank said in the statement.
Trading revenue across the bank fell 93 percent to C$125 million, compared with a record C$1.74 billion a year earlier, on declines in global fixed-income, U.S.-based equity and money- market businesses.
“This came in well below our expectations and will likely still be a surprise to the market,” John Aiken, an analyst at Barclays Capital, wrote in a note today.
The Canadian benchmark Standard & Poor’s/TSX Composite Index fell 4.1 percent in the three-month period.
“RBC is a very strong company for corporate finance work and for trading; this has been a difficult quarter for those activities,” said Douglas Davis, chief executive officer of Davis-Rea Ltd. in Toronto, which manages about C$380 million including Royal Bank shares. “I think the banks will have a couple more quarters of flat growth because of the cooling-out that’s going on.”
Royal Bank’s Canadian consumer-banking earnings rose 14 percent to C$766 million, driven by mortgages, personal loans and deposits, as well as lower provisions for credit losses.
International banking, which includes Raleigh, North Carolina-based RBC Bank, narrowed its loss to C$76 million from C$95 million on falling provisions. It was the ninth straight quarterly loss for the international unit.
“We have experienced the slowdown in loan demand that I think all banks in the Southeast have experienced,” Barbara Stymiest, group head of strategy, treasury and corporate services, said in a Bloomberg Television interview. “We continue to look for improved results coming both from our management actions and from an improving environment.”
Wealth management, which includes mutual funds sales, rose 10 percent to C$185 million from a year earlier. Insurance fell 8.4 percent to C$153 million.
Royal Bank has hired Goldman Sachs Group Inc. to sell a U.S. insurance unit, according to people with knowledge of the matter. The business is likely to fetch less than $1 billion in a sale, the people said this month. Stymiest said the bank is reviewing options for the unit.
Royal Bank set aside C$432 million for bad loans, 44 percent less than a year earlier.
National Bank, the country’s sixth-biggest bank, today reported profit that fell for the first time in six quarters on lower fees from capital markets. Net income dropped 11 percent to C$271 million, or C$1.56 a share, from C$303 million, or C$1.78, a year earlier, the Montreal-based bank said in a statement.
National Bank’s adjusted profit of C$1.57 a share beat the average estimate of 14 analysts polled by Bloomberg by five cents, driving the stock higher by C$2.35, or 4.2 percent, to C$58, the biggest gain in 15 months.
“Credit was better than expected,” wrote Andre-Philippe Hardy, an analyst at RBC Capital Markets in Toronto, who rates National Bank shares a “sector perform.”
Canadian Imperial said yesterday that profit rose 47 percent to C$640 million, or C$1.53 a share. Bank of Montreal said Aug. 24 that profit rose 20 percent to C$669 million, or C$1.13 a share. CIBC, the No. 5 lender, beat analysts’ estimates while Bank of Montreal, the No. 4 lender, missed.
Bank of Nova Scotia, the third-biggest bank, reports Aug. 31, followed by Toronto-Dominion Bank, the second largest, on Sept. 2.
To contact the reporter on this story: Doug Alexander in Toronto at email@example.com