Canada's RBC reports higher profit, but capital markets weigh

TORONTO: Royal Bank of Canada reported a stronger fourth-quarter profit on Wednesday as gains at its core personal and commercial banking and wealth management businesses offset weakness at its capital markets arm.

Canada's largest bank reported net income of C$2.3 billion ($2.02 billion), or C$1.57 a share on a fully diluted basis, for the fourth-quarter ended Oct. 31, compared with C$2.1 billion, or C$1.39 a share, a year earlier.

The bank said cash diluted earnings per share were C$1.59.

Analysts had expected adjusted earnings of C$1.58 per share, according to a Thomson Reuters survey. While results were roughly in line with expectations, they were seen providing some relief for investors after Bank of Montreal reported lower-than-expected earnings on Tuesday on weakness at its capital markets arm.

Those results also weighed on RBC shares because both banks have large capital markets divisions.

RBC earnings "were much stronger than BMO's, both on a headline basis as well as factoring in the fact that (RBC) managed to earn through a significant increase in provisions related to its Caribbean operations and weak capital markets," Barclays Capital analyst John Aiken said in a note to clients.

"Given that (Royal) was the second worst performer yesterday, we would expect some relative outperformance against the group."

RBC said on Nov. 21 it was shutting down its international client wealth management business in the Caribbean, along with some international advisory businesses in Canada and the United States.

RBC on Wednesday said personal and commercial banking net income rose 8 percent from a year earlier to C$1.15 million, helped by loan and fee-based revenue growth. Wealth management net income rose 41 percent to C$285 million, as market gains and net sales lifted assets under management.

But the bank was hit by weakness at its capital markets arm, where net income fell 14 percent from last year to C$402 million.

The business was hurt by lower trading results, including "lower revenue and costs associated with the exit of certain proprietary trading strategies in compliance with the Volcker Rule, as well as challenging market conditions in the latter half of the quarter."