* Earnings come in just above Wall Street estimate
* Loan-loss provisions jump 31 percent
* Analysts expect loan growth to slow next year
* Bank eyes wealth mgmt acquisitions
* CEO sees more international revenue
By Cameron French
TORONTO, Nov 29 Royal Bank of Canada's
quarterly profit rose 22 percent on a sharp jump in fixed-income
trading revenue and steady loan growth, suggesting the
long-awaited slowdown in Canadian consumer lending has yet to
The bank, Canada's largest, also is exploring "strategic"
wealth management acquisitions, and is seeking to significantly
boost its share of international revenue, its chief executive
RBC, Canada's largest bank and the first Canadian lender to
report year-end results, earned C$1.9 billion ($1.92 billion),
or C$1.25 a share, in the fourth quarter ended Oct. 31. That
compared with a year-earlier profit of C$1.6 billion, or C$1.02
Excluding certain items, the bank earned C$1.27 a share,
just ahead of analysts' average estimate of C$1.26, according to
Thomson Reuters I/B/E/S.
"It was a solid quarter, but we're characterizing it as
unspectacular," said John Aiken, an analyst at Barclays Capital
Markets, noting that credit quality weakened in the quarter,
with loan loss provisions rising 31 percent to C$362 million.
Capital markets income more than tripled to C$410 million,
benefiting from fixed-income trading results that compared with
an abnormally weak quarter a year earlier. Among Canadian banks,
RBC has the largest capital markets-related business.
Personal and commercial banking income rose 9 percent to
C$1.0 billion, as a 7 percent rise in loan volumes more than
offset higher expenses.
The bank's shares were up 0.5 percent at C$58.61 on the
Toronto Stock Exchange, moving roughly in line with other
Canada's banks have long been hampered by a lack of domestic
growth opportunities, and recent signals that Canada's housing
markets are slowing have only made more clear the need to find
other avenues of growth.
RBC has wealth management and investor services businesses
in Europe and a large investment banking presence in both Europe
and the United States, but the bank still earned two-thirds of
its revenue from Canada in 2012 versus one-third from
RBC CEO Gordon Nixon would like to see that split move to
50/50, which might be a possibility within five years, he said
on a conference call. Such growth would include expansion of the
bank's wealth management business, he said.
"The wealth management area (is) one area where if we did
find the right strategic opportunity, we'd certainly be prepared
and we'd like to find the right strategic opportunity," he said.
RBC has already made sizeable buys on the wealth management
size, adding Phillips, Hager & North in 2008 for $1.4 billion
and buying BlueBay Asset Management in 2010 for $1.5 billion.
However, Nixon said a major buy would be challenge due to
increasingly stringent capital requirements, such the Basel III
RBC sold its U.S. retail bank last year, but it still has a
large U.S. wholesale banking operation.
Nixon said a proposal by a top U.S. Federal Reserve Governor
Daniel Tarullo to subject foreign banks operating in the United
States to the same tough oversight rules as their U.S. rivals
would not have much impact on the bank.
SLOWDOWN IN 2013?
While Canadian banks are looking at international markets
for growth, it is still Canadian lending that makes up the
biggest chunk of their revenue.
Expectations for a sharp slowdown in mortgage and consumer
loan growth have risen over the past year as Canadians have
dealt with record debt levels and as government moves to tighten
mortgage standards have started to cool the red-hot housing
But RBC's strong results in the quarter confirm that a
slowdown in lending will likely be a 2013 story, said Peter
Routledge, an analyst at National Bank Financial.
"We're still waiting for it. If we do have a real slowdown
in the housing market, it'll come later than anyone expected,"
Dave McKay, group head of RBC personal and commercial
banking, acknowledged Canada's housing sector is primed to cool,
though he said he expects the bank to outperform its peers on
the lending side.
"I think obviously you'll see a slowing, (but) I think the
industry will be positive and you should see roughly 3-4 percent
growth in the industry going forward," he said on the call.
While loan growth was steady during the quarter, the
interest margins on the loans narrowed to 2.82 percent from 2.97
percent in the third quarter, as expiring loans were renewed at
rock-bottom interest rates.
RBC's results kick off what is expected to be a strong
quarterly reporting period for Canadian banks, with
year-over-year profit gains of around 15 percent expected, due
largely to stronger capital markets-related revenue.
Bank of Montreal, Canada's No. 4 bank, will report
next Tuesday, followed two days later by Toronto-Dominion Bank
and Canadian Imperial Bank of Commerce, the
country's No. 2 and No. 5 banks, respectively.
Bank of Nova Scotia, the country's third-largest
bank, releases results on Dec. 7.