(Adds executive comments, updates share price)
By Lynne Olver
TORONTO Aug 24 Strong results in domestic
banking, capital markets and wealth management, and lower
taxes, propelled Royal Bank of Canada (RY.TO) to a 19 percent
increase in third-quarter profit, the country's largest bank
said on Friday.
Royal Bank also raised its dividend by 9 percent, to 50
Canadian cents a share, and executives gave assurances on a
conference call that the bank had little involvement in
troubled segments of the U.S. and Canadian debt markets.
But in a repeat of last quarter, Royal's decent financial
results paled in comparison to the numbers put out by its
smaller rival, Toronto-Dominion Bank (TD.TO), and its stock
Royal Bank shares were down 0.6 percent at C$55.08 late
Friday afternoon, while most bank stocks on the Toronto Stock
Exchange were higher.
"They weren't quite as strong as the TD results," said Tom
Kersting, an analyst at retail brokerage Edward Jones.
Although Royal is a good performer, "we just think the
shares are fully valued and reflect a lot of the positive
prospects," Kersting added.
Amid global volatility in credit markets, Royal Bank said
it does not originate U.S. subprime mortgage loans, and has
"minimal exposure" of about C$1.1 billion to U.S. subprime
residential mortgage-backed securities and collateralized debt
obligations, which is less than 0.2 percent of the bank's total
assets. All of the securities are investment grade.
"We don't hold any subprime residential mortgage backed
securities that have been downgraded, or are on negative
watch," said the bank's chief risk officer, Morten Friis, on a
Royal described its underwriting commitments to leveraged
buyouts, and its exposure to hedge funds, as minimal. No single
LBO commitment exceeds C$250 million, Friis said.
The bank also said it has "nominal exposure" to Canada's
nonbank-sponsored asset backed commercial paper (ABCP) market,
which seized up last week when many nonbank ABCP issuers failed
to refinance maturing notes.
Concerns that started with the U.S. subprime mortgage
meltdown spilled over to unrelated high-quality debt markets,
Royal Bank President and Chief Executive Gord Nixon said on the
"We have enjoyed robust capital markets conditions for an
extended period of time and now credit markets are experiencing
a correction," he said.
But the bank's businesses are diversified, and Canadian
economic indicators are strong, Nixon noted.
"Our outlook remains positive," he said.
In the three months ended July 31, Royal earned C$1.395
billion ($1.33 billion), or C$1.06 a share. That compared with
profit of C$1.18 billion, or 90 Canadian cents a share, a year
On a cash basis, which excludes the amortization of
intangibles, the bank earned C$1.08 a share.
The mean analyst estimate was for profit of C$1.03 a share,
excluding items, according to Reuters Estimates.
"Canadian banks are boring, and boring is really good at
this stage of the credit cycle," said Gavin Graham, chief
investment officer at Guardian Group of Funds.
"The Canadian economy continues to do really well, so if
you happen to be the biggest retail bank in Canada, thank you
RBC, or the second-biggest, hello TD, then you will do pretty
well," Graham said.
Royal said its return on equity was 24.4 percent in the
latest quarter, up from 23.1 percent a year ago.
In the Canadian banking segment, which includes global
insurance, net income climbed 6 percent to C$699 million. Its
global insurance profit rose, despite a decline in revenue, due
to favorable disability claims experience.
Capital markets profit was up 19 percent at C$360 million,
thanks to higher underwriting and advisory revenue, better
foreign exchange and equity trading results, and gains on
credit derivative contracts. But fixed income trading results
fell, as credit spreads widened and market activity dwindled,
Its wealth management unit saw quarterly profit increase 30
percent to C$177 million.