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RBC Q3 profits jump 73% on "strong momentum", hikes dividend 5%

Published: 22:37 30 Aug 2012 AEST

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Royal Bank of Canada (TSE:RY), the nation's biggest bank, said Thursday its third-quarter earnings rose 73 per cent thanks to higher loan volumes and fixed income trading, prompting the bank to raise its quarterly dividend.

The bank, also known as RBC, raised its quarterly dividend by 5 per cent to 60 cents per share, a surprise to many investors.

For the fiscal third quarter ended July 31, RBC earned $2.2 billion, or $1.47 per share compared with a year-earlier profit of $1.3 billion, or 83 cents. Excluding items, net income was $1.98 billion, up 18 per cent from last year due mainly to record earnings in Canadian banking and strong performance from the capital markets division.

Total revenue grew to $7.76 billion, up from $6.90 billion a year earlier.

Analysts had expected earnings per share of $1.18 on revenue of nearly $7.22 billion, according to Thomson Reuters.

"RBC had a record quarter with earnings of over $2 billion, driven by exceptional growth in our Canadian retail franchise and strong investment banking results, demonstrating the earnings power of RBC and the strength of our diversified business model," RBC's President and CEO Gordon M. Nixon said.

"RBC has strong momentum and continues to extend its leadership positions across key businesses by focusing on our clients and executing our disciplined, long-term strategy."

Total provisions for credit losses was $324 million compared to $320 million last year. The bank said that Canadian banking net income was a record $1.13 billion, up $239 million compared to last year.

Net interest income increased 14 per cent, mainly due to strong volume growth across most businesses in Canadian Banking and higher trading related net interest income.

RBC said overall return on equity in the quarter was 22.7 per cent, up from 14.5 per cent in July 2011.

The bank said Canadian Wealth Management revenue was flat as higher average fee-based client assets resulting from net sales and capital appreciation were offset by lower transaction volumes. Net income was down 8 per cent mainly due to lower transaction volumes reflecting continued investor uncertainty.

U.S. & International Wealth Management revenue increased by 5 per cent. 

Global Asset Management revenue decreased 5 per cent mainly due to lower performance fees partially offset by higher average fee-based client assets resulting from capital appreciation and net sales.

Total assets under administration as at July 31 was $562.2 billion, up from $525.3 billion last year.

For RBC's capital markets operations, net income in the quarter increased $227 million, primarily due to higher fixed income trading results reflecting improved market conditions. Higher corporate and investment banking results driven by strong client growth in our lending and loan syndication businesses also contributed to the increase. 

Total capital markets revenue increased $606 million or 53 per cent.

In the second quarter, Royal Bank of Canada completed an acquisition that negatively affected profits. The bank said the acquisition of the remaining half of advisory firm RBC Dexia left a $202 million dent in earnings.

In March, Moody's debt rating agency placed Royal Bank under review for a possible downgrade, but did not put the bank's covered bond ratings on review.

The Royal Bank has said it does not believe it deserves to be among a group of the world's largest banks whose credit ratings have been placed under review by Moody's because of their exposure to the global capital markets business.

RBC is the country's largest bank by assets and market capitalization and has 77,000 employees serving more than 18 million clients. The bank has operations across North America and in 52 other countries.

Looking ahead, the bank said it expects Canadian economic growth of 2.1 per cent this year, lower than the previous estimate of 2.6 per cent, reflecting lower than expected consumer spending and business investment in the first calendar half of 2012. 

Due to renewed economic uncertainty, reflecting deteriorating economic conditions in certain European countries, RBC expects the Bank of Canada to maintain the overnight rate at 1.0 per cent until early 2013, which will continue to pressure interest margins.

 

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