Royal Bank of Canada Operating Profit Rises Excluding Loss From U.S. Sale

Royal Bank of Canada, the country’s largest lender, said consumer lending and investment banking led to a 13 percent increase in third-quarter operating profit, excluding a loss from the sale of its U.S. consumer bank. The results missed analysts’ estimates.

Royal Bank had profit from continuing operations of C$1.57 billion ($1.59 billion), or C$1.04 a share, in the quarter ended July 31, compared with profit of C$1.38 billion, or 92 cents, in the year-earlier period, the Toronto-based lender said today in a statement. The net loss was C$92 million, including C$1.57 billion in costs from selling RBC Bank.

Profit from the RBC Capital Markets investment-banking unit was lower than analysts including John Aiken of Barclays Capital expected, as trading missed estimates. The Standard & Poor’s/TSX Composite Index dropped 3.7 percent in the quarter.

Capital markets had “a weak quarter predicated on a significant drop in trading revenues and weakness in commissions,” Aiken said today in a note to clients. “Advisory fees were quite strong and provided a partial offset.”

The company said it earned C$1.06 a share excluding items such as the RBC sale, missing the C$1.08 a share estimate of 13 analysts surveyed by Bloomberg.

“Royal’s miss on wholesale earnings was generally expected given the weakness in capital markets,” said Bob Decker, a money manager at Aurion Capital Management in Toronto who oversees about C$5.5 billion. “Market conditions weakened significantly in the August timeframe, so I think investors will take a wait- and-see attitude on this bank until the year-end numbers are released.”

U.S. Loss

The lender estimated in June it would post a loss of C$1.6 billion from the sale of its money-losing RBC Bank unit to PNC Financial Services Group Inc., which included a C$1.3 billion write-off. PNC agreed to pay $3.62 billion in cash and stock to buy the Raleigh, North Carolina-based bank and credit-card assets in a deal expected to be completed in March.

Royal Bank fell 1 percent to C$50.76 yesterday on the Toronto Stock Exchange. The stock has fallen 3 percent this year, compared with the 2.8 percent decline of the eight-company S&P/TSX Commercial Banks Index.

Revenue rose 2 percent to C$6.79 billion. Provisions for loan losses fell to C$275 million, from C$277 million a year earlier.

Canadian banking profit rose 12 percent to C$855 million, from C$766 million, on lending growth and lower provisions for credit losses.

Money Management

Wealth management fell 3.2 percent to C$179 million, while insurance earnings dropped 5.9 percent to C$144 million.

Profit at the investment-banking business rose 38 percent to C$277 million, from C$201 million a year earlier, on higher trading and fees.

Revenue from trading rose 46 percent to C$337 million from the year-earlier period, on interest-rate contracts and equities.

International banking, including Caribbean banking and its RBC Dexia partnership and excluding the U.S. RBC Bank, fell 14 percent to C$31 million from a year earlier.

Royal Bank is the first Canadian bank to miss analysts’ estimates this quarter. Bank of Montreal, the fourth-biggest bank, said Aug. 23 that profit rose 19 percent to C$793 million, or C$1.27 a share, driven by higher investment-banking earnings. Montreal-based National Bank of Canada, the sixth-biggest lender, yesterday said profit rose 15 percent.

Bank of Nova Scotia reports results Aug. 30, followed by Canadian Imperial Bank of Commerce on Aug. 31 and Toronto- Dominion Bank on Sept. 1.

(Royal Bank of Canada (RY) will hold a conference call to discuss third-quarter results at 8 a.m. Toronto time at +1-416- 340-2217 or +1-866-696-5910 pass code 1853457, or at www.rbc.com/investorrelations/ir_events_presentations.html.)

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

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