Royal Bank of Canada, the country’s largest lender by assets, reported fourth-quarter profit that unexpectedly fell on lower trading fees and higher expenses.
Net income for the period ended Oct. 31 fell 9.4 percent to C$1.12 billion ($1.12 billion), or 74 cents a share, from C$1.24 billion, or 82 cents, a year earlier, the Toronto-based bank said today in a statement. Revenue fell 3.4 percent to C$7.2 billion.
Royal Bank is the third Canadian lender to post a decline in profit for the period, as rising costs for compensation and marketing and falling trading revenue reduced earnings. Royal Bank’s trading income fell by half in the quarter, led by fixed-income and interest rates.
Royal Bank said adjusted earnings were 84 cents a share, trailing the C$1.01 a share average estimate of 14 analysts surveyed by Bloomberg News. The bank has missed estimates for five straight quarters.
“This strikes me as a pretty big miss,” said Ian Nakamoto, director of research at MacDougall MacDougall & MacTier Inc. in Toronto, which manages about C$4 billion including banks.
Royal Bank fell 52 cents to C$55.72 yesterday on the Toronto Stock Exchange. The stock has fallen 1.2 percent this year, compared with a 7.5 percent gain for the 10-company Standard & Poor’s/TSX Banks Index.
The shares, the worst performing this year among the country’s biggest banks, will face “significant pressure” with the results, said John Aiken, an analyst at Barclays Capital.
“The market will once again have to reset its expectations for the bank,” he said in a note today.
Royal Bank set aside C$432 million for bad loans, about half the amount from a year earlier. Non-interest expenses rose 5.9 percent to C$3.8 billion.
Earnings from the RBC Capital Markets unit fell 34 percent to C$373 million from C$561 million a year earlier on declines in sales and trading. Trading revenue across the bank fell 48 percent to C$656 million.
Canadian consumer banking earnings rose 6.7 percent to C$765 million on increased lending and lower loan-loss provisions. International banking, which includes Raleigh, North Carolina-based RBC Bank, posted a loss of C$157 million, the 10th consecutive money-losing quarter for the unit.
“Royal Bank has to demonstrate that they can actually get a bang for their buck in the U.S.,” said David Baskin, president of Baskin Financial Services in Toronto, which manages C$370 million including banks. “They really have to show that they can get their act together in the United States.”
Insurance fell 74 percent to C$27 million, after taking a C$116 million loss on the October sale of its U.S. life insurance business, Liberty Life Insurance.
Wealth management rose 8.7 percent to C$175 million from a year earlier. Royal Bank said it had net income of C$5.22 billion for the year, up 35 percent driven by record earnings in Canadian banking.
Royal Bank is the fourth Canadian lender to report fourth-quarter results. National Bank of Canada, the country’s sixth-biggest bank, posted profit that beat analysts’ estimates and raised its dividend 6.5 percent. Yesterday, Toronto-Dominion Bank and Canadian Imperial Bank of Commerce reported lower profits as trading income declined.
Bank of Nova Scotia, the third-biggest bank, reports results today. Bank of Montreal, the fourth-largest lender, releases earnings Dec. 7.
(Royal Bank will hold a conference call to discuss fourth-quarter results at 8 a.m. Toronto time. Dial +1-866-689-5910 passcode 1853457 or +1-416-340-2217 for the call, or go to www.rbc.com/investorrelations/ir_events_presentations.html)