Royal Bank of Canada, the first Canadian lender to report fourth-quarter results, said profit rose 22 percent on higher trading and investment-banking fees, beating analysts’ estimates.
Net income for the period ended Oct. 31 was C$1.91 billion ($1.93 billion), or C$1.25 a share, up from C$1.57 billion, or C$1.02, a year earlier, the Toronto-based lender said today in a statement. Revenue rose 12 percent to C$7.52 billion.
Royal Bank, Canada’s largest lender by assets, benefited from a surge in fixed-income trading and gains in its RBC Capital Markets investment bank. Analysts and investors expect Canadian banks to offset slower growth in consumer lending and mortgages with fees for arranging stock sales, trading and advising on takeovers.
“The capital markets seem to have been good,” John Kinsey, who helps manage about C$1 billion including bank shares at Caldwell Securities Ltd. in Toronto. “That’s a good thing for the banks and I think it’s made up for some weakness in other areas.”
The company said it had profit excluding some items of C$1.27 a share, beating the C$1.26 a share average estimate of 15 analysts surveyed by Bloomberg News.
Royal Bank rose 0.5 percent to close at C$58.61 in Toronto.
“The capital-markets exposure of Royal has been a love-hate relationship with the market for a while,” John Aiken, an analyst with Barclays Plc in Toronto, said in an interview. “But it looks like we’re in an environment now where the market is happy to see growing earnings, regardless of where it comes from.”
Royal Bank set C$362 million aside for bad loans, up from C$276 million in the year-earlier period and C$324 million in the third quarter. Royal Bank pared its workforce by 762 employees, or 1 percent, to 74,377 employees from the third quarter, with the biggest decline in Canada, according to financial statements.
Personal and commercial banking profit rose 9.2 percent to C$1.03 billion from C$947 million a year ago as balances from loans and deposits increased. Net interest margins narrowed to 2.82 percent in the quarter, from 2.97 percent in the third quarter and 2.84 percent in the year-earlier period.
Earnings from capital markets more than tripled to C$410 million from C$125 million a year ago, largely driven by fixed-income trading, the bank said. Underwriting and advisory fees rose 35 percent to C$375 million from a year ago.
Trading revenue across the bank more than tripled to C$625 million from C$167 million a year ago, the company said.
Wealth-management earnings rose 16 percent to C$207 million, while insurance fell 3 percent to C$194 million, the firm said.
Royal Bank had record annual profit of C$7.54 billion, or C$4.93 a share for the year ended Oct. 31, up 17 percent from C$6.44 billion, or C$4.19 a share, the lender said.
The bank met its medium-term goals for earnings-per-share growth, return on equity and dividend payouts. Chief Executive Officer Gordon Nixon said today in a conference call that Royal Bank will maintain its goals for 2013 despite “headwinds” for the industry.
“There’s no question that financial-services companies will continue to face headwinds,” Nixon, 55, said. “In addition to regulatory changes, I believe the economic headwinds will continue until there is more improvement in the global economy and we see resolutions to both the European sovereign-debt issues as well as the U.S. issues, particularly the imminent fiscal cliff situation.”
Nixon reiterated interest in pursuing asset-management acquisitions, though he said a “less friendly regulatory environment” and heightened capital requirements make mergers and acquisitions a challenge.
“When you look at potential M&A activity, it has to be financed with a lot of core equity to ensure that we continue to comply with the capital requirements going forward,” Nixon said.
Royal Bank is also looking to U.S. consumer and retail businesses for expansion, considering areas such as the payments system and online banking, even after selling its North Carolina-based RBC Bank to PNC Financial Services Group Inc. in March.
“We do think there is an opportunity to sort of look at the U.S. market from a different perspective,” Nixon said. “There are still some pretty attractive opportunities, at least in our view, for us to conservatively continue to take advantage of our strength” and expand the firm’s international business, he said.
Canada’s eight-biggest lenders are expected to report fourth-quarter profit growth of 17 percent, led by Bank of Nova Scotia and Bank of Montreal, Scotia Capital analyst Kevin Choquette said in a Nov. 20 note to clients.
Bank of Montreal, Canada’s fourth-biggest lender, reports results on Dec. 4, followed by Canadian Imperial Bank of Commerce, Toronto-Dominion Bank and National Bank of Canada on Dec. 6. Bank of Nova Scotia, the third-largest lender, reports Dec. 7.