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RBC--------TORONTO: Royal Bank of Canada's quarterly profit rose 22 percent on a sharp jump in fixed income trading revenue and steady loan growth, suggesting the long-awaited slowdown in Canadian consumer lending has yet to materialize.


RBC, Canada's largest bank and the first Canadian lender to report year-end results, said on Thursday it earned C$1.9 billion, or C$1.25 a share, in the fourth quarter ended Oct. 31.


That compared with a year-earlier profit of C$1.6 billion, or C$1.02 a share.


Excluding certain items, the bank earned C$1.27 a share, just ahead of analysts' average estimate of C$1.26, according to Thomson Reuters I/B/E/S.


"It was a solid quarter, but I think we're characterizing it as unspectacular," said John Aiken, an analyst at Barclays Capital Markets, noting that credit quality weakened in the quarter, with loan loss provisions rising 31 percent to C$362 million.


Capital markets income more than tripled to C$410 million, benefiting from fixed-income trading results that compared with an abnormally weak quarter a year earlier. Among Canadian banks, RBC has the largest capital markets-related business.


Personal and commercial banking income rose 9 percent to C$1.0 billion, as a 7 percent rise in loan volumes more than offset higher expenses.


The loan growth came despite concerns that lending might slow because of a cooling housing market and record-high Canadian consumer debt levels.




Expectations for a sharp slowdown in mortgage and consumer lending growth have risen over the past year as Canadians have dealt with record debt levels and as government moves to tighten mortgage standards have started to cool the red-hot housing market.


RBC's results confirm that a slowdown in lending will likely be a 2013 story, said Peter Routledge, an analyst at National Bank Financial.


"We're still waiting for it. If we do have a real slowdown in the housing market, it'll come later than anyone expected," he said.


Speaking on a conference call, RBC Chief Executive Gordon Nixon acknowledged the strong loan growth will be difficult to duplicate going forward.


"While we anticipate that the strong growth in consumer lending that we experienced this year will moderate, we continue to have good momentum in the higher-margin commercial business," he said.


While loan growth was steady, the interest margins on the loans narrowed to 2.82 percent from 2.97 percent in the third quarter, as expiring loans were renewed at rock-bottom interest rates.


Wealth management income rose 16 percent to C$207 million, while the bank's insurance segment saw income slip 3 percent to C$194 million.


For the year, the bank earned a record C$7.5 billion, up 17 percent from 2011.


RBC's results kick off what is expected to be a strong quarterly reporting period for Canadian banks, with year-over-year profit gains of around 15 percent expected, due largely to stronger capital markets-related revenue.


Bank of Montreal, Canada's No. 4 bank, will report next Tuesday, followed two days later by Toronto-Dominion Bank and Canadian Imperial Bank of Commerce, the country's No. 2 and No. 5 banks, respectively.


Shares of RBC, which last month agreed to buy the Canadian auto finance arm of Ally Financial in a $4.1 billion deal, closed at C$58.35 on Wednesday.


Aiken said he doubted the results would have much of an impact on the bank's stock valuation.


Copyright Reuters, 2012

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