Royal Bank of Canada said fiscal fourth-quarter profit rose 11% as a jump in trading revenue and a lower tax rate helped counter slowing earnings growth from Canadian banking and declines across other key businesses.
Net income for the period ended Oct. 31 rose to a record C$2.59 billion ($1.94 billion), or C$1.74 a share, from C$2.33 billion, or C$1.57, a year earlier, the Toronto-based lender said Wednesday in a news release. Adjusted profit, which excludes some items, was C$1.77 a share, topping the C$1.64 average estimate of 14 analysts surveyed by Bloomberg.
RBC Capital Markets helped drive profit growth in the quarter on trading, lower taxes and favorable foreign-exchange trends. That offset declining earnings in wealth management, insurance and the bank's investor and treasury services units.
Profit from personal and commercial banking rose 10% to C$1.22 billion, aided by a return to profit in Caribbean and U.S. banking from a year-earlier loss, the company said. But earnings in Canadian personal and commercial banking, Royal Bank's largest operation, rose 1.4 % from a year earlier, the slowest pace in more than two years.
"We face industry headwinds" in 2016, Chief Executive Officer Dave McKay said in the release. Record yearly earnings reflect "the strength of our diversified business model and our ability to execute our growth strategy in a changing environment," he said.
RBC said it had a "lower effective tax rate reflecting net favorable tax adjustments in corporate support." Revenue fell 4.3% from a year earlier to $8.02 billion. The lender set aside C$275 million for bad loans, down 20% from C$345 million last year.
"There is always a quarter in which this bank has a low tax rate to reflect the truing up of prior years -- but not this low," said Rob Sedran, an analyst with CIBC World Markets. "On balance, this looks more like a notional miss."
Capital markets profit rose 38% to C$555 million a year earlier, when the firm was hurt by a plunge in fixed-income trading and costs tied to exiting some proprietary trading strategies to comply with regulations. While trading revenue rose, underwriting and advisory fees fell 18 % to C$350 million from the year-earlier period.
At RBC Capital Markets, "revenues were decent again this quarter, much better than some weaker numbers we have seen elsewhere," Jason Bilodeau, an analyst with Macquarie Capital Markets in Toronto, said in an e-mailed note. Canadian consumer banking was "maybe a bit light," he said.
Royal Bank saw a 38% jump in trading revenue across the bank from a year ago to C$649 million, led by equities.
Profit from wealth management fell 11% to C$255 million a year earlier, hurt by a C$38 million restructuring cost mostly tied to its U.S. and international business and sale of its RBC Suisse business, the company said. A year earlier, the firm took a C$18 million charge for exiting the Caribbean and closing international private banking offices in the U.S. and Canada.
Insurance income fell 12% to C$225 million due to changes in Canadian tax legislation, the bank said, while investor and treasury services income fell 22% to C$88 million as widening credit spreads and unfavorable market conditions hurt results.
Royal Bank had 1,375 fewer full-time employees at the end of October from the end of July, a 1.9% reduction to its workforce that now stands at 72,839. That follows the trend of job cuts at other Canadian banks amid slowing domestic growth and a shift toward digital banking.