* Three of Canada's top banks top estimates as domestic lending profit drives beats
* Wholesale banking a weak spot
* TD, RBC boost dividends
* Shares of all three banks rise in early trading
By Cameron French
TORONTO, Aug 29 Three of Canada's biggest banks posted better-than-expected third-quarter results on Thursday, pushing their shares higher as surprisingly strong retail lending and wealth management income offset weakness in investment banking and trading profits.
Royal Bank of Canada and Toronto-Dominion Bank , the country's top two banks, both announced dividend hikes, while No. 5 lender Canadian Imperial Bank of Commerce said it would buy back as much as 2 percent of its stock over the next 12 months.
The results close out a Canadian bank earnings period that had Canada's top six banks all exceed estimates on the back of domestic lending profits that churned higher in spite of worries that a cooling housing market would slow growth to a trickle.
"These aren't 'knocking out of the park' numbers, but they are better than my expectations," said Tom Lewandowski, a St. Louis-based analyst for Edward Jones.
While loan growth has slowed slightly over the past year as the country's housing market has begun to cool, it has not slowed to the extent feared by many analysts.
Likewise, while rock-bottom mortgage rates have pressured lending margins, the banks have been able to blunt that impact by refocusing on higher-margin businesses, such as credit cards and auto lending.
The results also affirm the wisdom of recent efforts by the banks to diversify their revenue bases, as TD saw profit surge at its U.S. retail banking unit, while RBC was buoyed by strong results at its wealth management division, which it has been expanding particularly in Europe.
BEATING ESTIMATES, RAISING DIVIDENDS
Excluding a favorable income tax adjustment and other small items, RBC earned C$1.48 a share, topping analyst's estimates of C$1.38, according to Thomson Reuters I/B/E/S.
TD's profit excluding items was also better than expected at C$1.65 a share versus expectations of C$1.55. CIBC's EPS excluding items was C$2.29, ahead of expectations of C$2.15.
About one hour into trading, TD was up 2.2 percent at C$89.52 on the Toronto Stock Exchange, while RBC was up 1.2 percent at C$65.26 and CIBC was up 1.9 percent at C$81.98.
RBC raised its quarterly dividend 6 percent to 67 Canadian cents, while TD boosted its payout by 5 percent to 85 Canadian cents a share.
STRONG RETAIL, WEAK WHOLESALE
On a net basis RBC earned C$2.30 billion ($2.19 billion), or C$1.52 a share, in the fiscal third quarter ended July 31, compared with C$2.24 billion, or C$1.47 a share, a year earlier.
Earnings at RBC's retail bank climbed 7 percent to C$1.2 billion, helped by higher lending volumes and by the acquisition of Ally Financial Inc's Canadian auto finance and deposit arm in February, a deal which nearly doubled the bank's commercial auto lending business.
Wealth management income jumped 51 percent to C$236 million.
Weighing on the result was the bank's capital markets wing, whose income slid 10 percent to C$388 million on lower investment banking activities and a drop in fixed-income trading revenue. RBC attributed the decline in part to market concerns ahead of the expected scaling back of monetary stimulus by the U.S. Federal Reserve.
Wholesale banking was also a weight for TD, which saw overall net profit decline due to a previously announced C$418 million insurance charge for higher provisions in its auto lending unit as well as losses from floods in Alberta and Ontario during the summer.
"Our wholesale quarter was a little bit softer, but all-in, the remainder of the business (outside of insurance) was very good," Chief Financial Officer Colleen Johnston said in an interview.
Net income fell 10 percent to C$1.53 billion, or C$1.58 a share, from C$1.70 billion, or C$1.78 a share, a year earlier.
But retail bank earnings rose 13 percent to C$973 million in Canada and jumped 57 percent to C$445 million in the United States, helped by the acquisition earlier this year of Target Corp's $5.9 billion U.S. credit card portfolio.
Stymied by slim growth prospects in Canada, TD began building its U.S. bank from scratch in 2004 and now boasts more than 1,300 branches spread along the Eastern Seaboard.
"We note that while both Canadian and U.S. retail core earnings were up (at TD)... it is the momentum on the U.S. side that investors have been waiting for and we anticipate will be welcomed by the market," Barclays Capital analyst John Aiken said in a note.
CIBC's net income rose 6 percent to C$890 million, or C$2.16 a share, from a profit of C$841 million, or C$2.00 a share.
Much more domestically focused than RBC or TD, CIBC's retail and business banking division saw profit rise 7 percent to C$638 million, while wealth management profit jumped 34 percent to C$102 million.
Profit from its wholesale banking division climbed 10 percent to C$217 million. (Editing by Chizu Nomiyama)