RBC U.S. expansion paying dividends

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Royal Bank of Canada continues to benefit from its takeover of City National Bank in 2015, with contributions from the Los Angeles-based "bank to the stars" helping fuel a surge in wealth management earnings.

RBC, the largest lender by assets in Canada, posted first-quarter profit that beat analysts’ expectations on higher wealth management earnings.

CEO David McKay has been focusing on expanding in private wealth and commercial banking in the U.S., where the economy is outperforming Canada.

Overall net income for the period ended Jan. 31 rose 24% to C$3.03 billion ($2.31 billion), or C$1.97 a share, from C$2.45 billion, or C$1.58, a year earlier, the Toronto-based bank said Friday in a news release. Profit excluding some items was C$1.87 a share, beating the C$1.76 average estimate of 14 analysts surveyed by Bloomberg. The bank increased its quarterly payout by 4.8% to 87 cents a share.

Revenue rose 2% to C$9.55 billion, missing analysts’ C$9.7 billion estimate. Royal Bank set aside C$294 million for bad loans, down 28%. Provisions for credit losses eased from a year earlier when an energy slump fueled a rise in soured oil-and-gas loans. Excluding the gain from the payments business sale, Royal Bank said profit rose 7% to C$1.38 billion.

"Royal Bank’s solid beat was driven by lower provisions and stronger trading," Barclays Plc analyst John Aiken said in a note to clients, adding that the size of the beat and a better-than-anticipated dividend increase should help lift Royal Bank shares Friday.

Canadian banking profit jumped 26% to C$1.55 billion from a year earlier, while wealth management earnings, which includes contributions from City National, advanced 42% to C$430 million. Net income from capital markets increased 16% to C$662 million, on higher trading and investment banking fees and lower provisions.

Jennifer Tory, group head of personal and commercial banking, will become chief administrative officer, Royal Bank said separately. Neil McLaughlin, who is executive vice-president of business financial services, will take on Tory’s role effective May 1.

Royal Bank is the second Canadian lender to report quarterly results, after Canadian Imperial Bank of Commerce yesterday posted profit that beat estimates and raised its dividend. The country’s remaining banks report results next week.

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