Royal Bank of Canada Raises Payout as Profit Misses Estimate

Royal Bank of Canada (RY), the country’s largest lender, raised its dividend for the first time in almost four years after second-quarter profit climbed 13 percent, missing analysts’ estimates.

Profit for the period ended April 30 rose to C$1.51 billion ($1.54 billion), or C$1 a share, from C$1.33 billion, or 88 cents, a year earlier, the Toronto-based bank said today in a statement. Revenue rose 2.4 percent to C$7.13 billion.

Royal Bank is the third Canadian lender to miss estimates in the quarter, joining Toronto-Dominion Bank and Canadian Imperial Bank of Commerce, after lending margins narrowed and trading and capital markets declined. The bank’s net interest margin, the difference between what it charges for loans and pays in deposits, fell to 1.55 percent from 1.69 percent a year earlier.

“Banking is going to be more of a ‘show me’ industry now,” said Tony Demarin, chief investment officer at Winnipeg, Manitoba-based BCV Asset Management, which oversees C$300 million including banks. “The revenue growth is certainly not as strong as it was and loan growth is slowing down.”

Excluding one-time items, Royal Bank said it earned C$1.03 a share, missing the C$1.13 a share average estimate of 15 analysts surveyed by Bloomberg News.

Shares Fall

Royal Bank fell C$1.79, or 3 percent, to C$57.36 at 4 p.m. trading on the Toronto Stock Exchange, the biggest drop since Dec. 3. The stock had risen 9.6 percent this year, compared with an 8.2 percent increase for the 10-company Standard & Poor’s/TSX Banks Index.

Royal Bank benefited from a 16 percent increase in Canadian lending, and higher earnings in wealth management and insurance, helping offset lower profit from capital markets and a loss in international operations. The lender set aside C$344 million for bad loans in the quarter, down from C$504 million a year earlier.

“The miss was largely the result of significantly greater drop off in capital markets revenues than had been anticipated,” John Aiken, an analyst at Barclays Capital, said today in a note.

The bank raised its dividend 8 percent to 54 cents a share, the first increase since August 2007. National Bank of Canada also raised its payout this quarter.

Canada Lending

Canadian consumer-banking earnings rose to C$851 million, from C$736 million, as mortgages, personal loans and credit-card balances grew and provisions fell.

Earnings from the RBC Capital Markets investment-banking unit fell 19 percent to C$407 million as lower trading offset higher fees from advising companies on stock sales and arranging takeovers.

Trading revenue across the bank fell to C$609 million, from C$958 million a year earlier, dragged down by interest rate and credit trading, as well as foreign exchange and commodities.

Royal Bank Chief Executive Officer Gordon Nixon said today in a conference call with analysts that he anticipates a “moderate improvement” in trading this year compared with 2010 as economic, market and regulatory environments stabilize. Nixon said he expects trading revenue will range from C$700 million to C$900 million a quarter.

International banking, which includes Raleigh, North Carolina-based RBC Bank, narrowed its loss to C$23 million from C$27 million. It was the 11th quarterly loss in three years for the unit, driven down by losses at its U.S. consumer lender.

Break-Even

Chief Financial Officer Janice Fukakusa said today in an interview on Bloomberg Television that the bank is focused on returning its international unit “to break-even to slightly profitable” by the end of the fiscal year on Oct. 31.

“With respect to the U.S. bank, yes we have been losing money, mostly related to provisions for credit losses,” Fukakusa said. “We’re very committed to turning around that bank and we’re seeing some very good progress there.”

Royal Bank, which put the money-losing RBC Bank unit up for sale this year, has drawn interest from lenders including BB&T Corp. (BBT) and PNC Financial Services Group Inc. (PNC), according to people with knowledge of the matter.

“Although I will not comment on speculation with respect to RBC Bank, we do remain focused on turning around these operations and we are making good progress,” Nixon said on the call.

RBC Bank has posted 11 consecutive quarterly losses as of March 31, according to Federal Deposit Insurance Corp. filings. The U.S. consumer lender has posted losses totaling about $3.1 billion since 2007, FDIC data show.

Profit from wealth management, which includes mutual funds sales, more than doubled to C$220 million from C$90 million. Insurance earnings rose 36 percent to C$146 million.

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

To contact the editors responsible for this story: David Scanlan at dscanlan@bloomberg.net David Scheer at dscheer@bloomberg.net

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