UPDATE 2-Royal Bank of Canada raises dividend as profit edges higher

Wed Feb 26, 2014 10:48am EST

* Profit of C$1.47/share excluding items vs. C$1.43 estimate

* Capital markets income drives results

* Hikes dividend by 6 percent to C$0.71 a share

By Cameron French

TORONTO, Feb 26 (Reuters) - Royal Bank of Canada reported a higher quarterly profit on Wednesday and raised its dividend by 6 percent after surging capital markets income more than offset charges from a restructuring of Caribbean operations.

Canada's largest bank earned C$2.09 billion ($1.89 billion), or C$1.38 a share, in the first quarter ended Jan. 31, up from C$2.05 billion, or C$1.34 a share, a year earlier.

Excluding charges of C$60 million from the sale of Jamaican operations and C$32 million for a restructuring in the Caribbean, the bank earned C$1.47 a share, topping analysts' expectations of C$1.43.

The results build on slightly higher-than-expected profits this week by rivals Bank of Montreal and National Bank of Canada in a quarter that has shown steady growth in consumer lending volumes in spite of worries of a housing slowdown.

"(Loan) volume growth in Canada continues to do well, even though we would think the volume growth would be down," said Ian Nakamoto, director of research at MacDougall, MacDougall and MacTier.

"(The banks) are fairly well diversified among different loan categories," Nakamoto said. "I think they're quite cautious towards who they lend to."

RBC's capital markets income rose 9 percent to C$505 million, while loan-loss provisions decreased by 16 percent to C$292 million from a year earlier.

"The beat against expectations appears to be from lower provisions and better-than-anticipated capital markets revenues, largely trading," Barclays Capital analyst John Aiken said in a note.

Income from investor and treasury services, which includes financial custodial and management for corporate clients, climbed 34 percent to C$106 million.

Personal and commercial banking income slipped 3 percent to C$1.07 billion but would have risen 5 percent without the items from the Jamaican operations sale and Caribbean restructuring.

The bank said in January that it would sell its Jamaican banking operations to Sagicore Group Jamaica Ltd, but it did not have any plans to divest other assets in the Caribbean.

Personal and commercial income benefited from the acquisition of auto lender Ally Canada in early 2013, RBC said.

Asked on a conference call about the bank's plans for further acquisitions, RBC Chief Executive Officer Gordon Nixon said the interest was there, but availability was lacking.

"We've looked at a tremendous number of opportunities in the wealth management space over the last year or so," he said. "The ability to execute is more challenging than the stated opportunities; a combination of price levels and performance levels."

Nixon will step down in August after 13 years as CEO. He will be replaced by Dave McKay, who heads RBC's personal and commercial banking business.

The bank said it was raising its quarterly dividend by 4 Canadian cents per share to 71 Canadian cents, which Nakamoto said was more than he had expected.

RBC shares were up 3 Canadian cents at C$72.73 in morning trading. The stock rose 19 percent in 2013, mirroring the strong performance of other Canadian banks, and is up slightly more than 2 percent so far in 2014.

Toronto-Dominion Bank and Canadian Imperial Bank of Commerce will release their quarterly results on Thursday.

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