RBC hit by capital markets profit decline

Royal Bank of Canada reported a worse-than-expected decline in fourth-quarter profits on Wednesday, reflecting lower earnings from its capital markets business and an increase in loans to oil firms turning bad.
Earnings per share fell to C$1.65, down from C$1.74 in the same period last year and short of the C$1.71 average forecast given by analysts, according to Thomson Reuters I/B/E/S Estimates.
Barclays analyst John Aiken said he expected the market to be disappointed with the miss, especially as rival Bank of Nova Scotia beat market expectations on Tuesday.
"The softness incurred in Capital Markets may be a disappointment against what US peers reported in their third quarter," he said.
US banks had seen an improvement in the performance of their capital markets divisions during the last quarter benefiting from rising fixed income, currency and commodities (FICC) revenues.
RBC said its overall net income fell by 2 percent to C$2.54 billion ($1.90 billion). The bank said it had seen strong earnings in its wealth management division, boosted by the acquisition of Los Angeles-based City National and record earnings at its investor and treasury services business.
Profits at its personal and commercial banking and insurance businesses were little changed from the same period a year ago but earnings at its capital markets business fell 13 percent. RBC said its capital markets performance last year benefited from a lower tax rate.
Canada's biggest lender set aside C$358 million to cover the cost of loans that borrowers cannot repay, up from C$318 million the previous quarter. The bank said its gross impaired loans totaled C$3.9 billion, up C$1.6 billion from a year ago, largely due to higher impaired loans to the oil and gas industry.
Like other Canadian and US lenders, RBC had seen an increase in delinquent loans to oil and gas companies due to declining energy prices.
Although oil prices have partially recovered since falling to a 13-year low of $26 a barrel in February, they remain more than 50 percent below where they were in the middle of 2014.
The bank's Core Tier 1 ratio, a key measure of its financial strength, improved by 30 basis points compared with the last quarter, and stood at 10.8 percent.