Royal Bank of Canada beat analysts' estimates for the fiscal third quarter as its City National purchase in the U.S. bolstered wealth management and capital markets earnings surged. Canada's largest lender raised its dividend 2.5% to 83 cents a share.
Profit for the period ended July 31 was C$2.66 billion ($2.06 billion) or C$1.72 a share after excluding gains from selling an insurance unit, up 7.5% from C$2.48 billion, or C$1.66, a year earlier, the bank said Wednesday. Adjusted profit, which excludes some items, was C$1.76 a share, beating the C$1.71 average estimate of 14 analysts surveyed by Bloomberg.
"Our results this quarter reflect the strength and diversity of our leading client franchises and geographies that we operate in," Chief Executive Officer David McKay, 52, said in a conference call with analysts. "We achieved these results particularly as the operating environment continues to present challenges for us and our clients."
Royal Bank joins Bank of Montreal in topping analysts' estimates for the quarter as the acquisition of Los Angeles-based City National contributed to record revenue of C$10.3 billion and bolstered earnings at the money-management unit. Fixed-income trading revenue also surged, helping the RBC Capital Markets business.
"Results were solid, with the only weakness coming from its insurance operations and the beat was largely generated by much better than anticipated provisions for credit losses," John Aiken, an analyst with Barclays Plc, said in a note to clients. "Capital markets had an exceptionally strong quarter, as trading remained strong."
Royal Bank set aside C$318 million for bad loans, up 18% from C$270 million a year earlier, though lower than the C$460 million recorded in the second quarter. Aiken had forecast provisions of C$400 million.
The Toronto-based lender posted a C$235 million net gain from selling a Canadian home and auto insurance business to Aviva Plc in July, helping Royal Bank's insurance division avoid declining profit on lower earnings from U.K. annuity contracts and higher claims costs of C$10 million from wildfires in Fort McMurray, Alberta in May. Overall net income rose 17% to a record C$2.9 billion, or C$1.88 a share, when including the gain.
Canadian banking, Royal Bank's biggest unit, increased profit 3.6% from a year earlier to C$1.28 billion while wealth-management earnings jumped 36 percent to C$388 million. Earnings for RBC Capital Markets rose 17% to C$635 million, lifted by higher fixed-income trading revenue and lower taxes.
Royal Bank has gained 11% this year, and rose 1.7%Tuesday to C$82.23 in Toronto.
Bank of Montreal beat analysts' estimates on Tuesday as profit rose 4.4% in the quarter, lifted by higher earnings in U.S. banking and a surge in trading revenue. Toronto-Dominion Bank, Canada's second-largest lender, and fifth-ranked Canadian Imperial Bank of Commerce are set to report Thursday, followed by Bank of Nova Scotia on Aug. 30 and National Bank of Canada on Aug. 31.