Royal Bank of Canada said fourth-quarter profit unexpectedly fell, missing analysts’ expectations for the fifth-straight period, while smaller rival Bank of Nova Scotia reported earnings that topped estimates.
Royal Bank, the country’s largest bank by assets, said profit for the period ended Oct. 31 dropped 9.4 percent to C$1.12 billion ($1.12 billion), or 74 cents a share. Scotiabank, the third-largest bank, said profit climbed 21 percent to C$1.09 billion, or C$1 a share.
Rising costs for compensation and marketing and falling trading revenue reduced profit at Royal Bank as well as competitors Toronto-Dominion Bank and Canadian Imperial Bank of Commerce last quarter. Royal Bank’s trading income plunged by half, while its international unit posted its 10th-straight quarterly loss.
“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, the worst-performing Canadian bank stock this year, fell C$2.47, or 4.4 percent, to C$53.25 in 4 p.m. trading on the Toronto Stock Exchange, the biggest drop since May 2009. Scotiabank rose C$1.66, or 3.1 percent, to C$55.63, the biggest gain in more than 14 months.
Adjusted earnings at Royal Bank were 84 cents a share, trailing the C$1.01 a share average estimate of 14 analysts surveyed by Bloomberg News.
The Toronto-based lender 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.
International banking, which includes Raleigh, North Carolina-based RBC Bank, posted a loss of C$157 million. The unit may post quarterly profits in fiscal 2011, said James Westlake, who oversees the unit.
Chief Executive Officer Gordon Nixon said he tweaked his bank’s goals for 2011 to be an “undisputed leader” of financial services in Canada and a “leading provider” of capital markets and wealth-management services globally. Last year, the bank’s goals included growth in U.S. consumer and commercial banking.
“Our aspiration is not to build a global retail banking operation,” Nixon said today in a conference call. “If you look at what we’re going to do in China and India and South America and Europe, it’s going to be geared towards wealth management and capital markets.”
Insurance profit fell 74 percent to C$27 million, led by a C$116 million loss from the October sale of its U.S. unit, Liberty Life Insurance. Wealth management earnings 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.
Scotiabank said profit from domestic consumer banking, which includes asset management, climbed 13 percent to C$567 million because of higher revenue from mutual funds and other products. Scotiabank will report asset management as a separate unit beginning next quarter, after the lender announced last week it plans to buy DundeeWealth Corp. for about C$2.3 billion.
Expanding in asset management is “where they wanted to go for a long, long time,” said John Kinsey, who helps manage C$1 billion at Caldwell Securities Ltd. in Toronto. “Now they’re going to take the gloves off and just get at it.”
International banking, which includes operations in about 50 countries including Mexico, Thailand and Peru, climbed 28 percent to C$363 million, led by a recent acquisition in Puerto Rico and growth in Chile and the Caribbean. Investment-banking profit dropped 23 percent to C$273 million.
“While not a stand-out quarter, relative to what we have seen from the Big 5 banks that have reported to date, Scotia’s results will likely be very well received,” Aiken said today.
The bank set aside C$254 million for loan-loss provisions, a 39 percent decline from a year ago. Before one-time items, Scotiabank said it earned C$1.02 a share. That beat the C$1-a-share average estimate of 14 analysts surveyed by Bloomberg News.
Scotiabank also increased its dividend payout ratio to a range of 40 percent to 50 percent of profit, Chief Executive Officer Richard Waugh said on a conference call. Waugh said the move allows the bank more “flexibility” in paying dividends. The previous range was 35 percent to 45 percent of earnings.
For the full year, Scotiabank earned a record C$4.24 billion, or C$3.91 a share. The lender said today it expects earnings per share growth of 7 percent to 12 percent in 2011, and a return on equity of 16 percent to 20 percent.
Bank of Montreal, the fourth-largest lender, will be the last of Canada’s six largest banks to release earnings Dec. 7.