Net income falls to $1.86 billion in Q1
A general view of the Royal Bank of Canada offices in Toronto Thursday. — Photo by The Canadian Press
Royal Bank of Canada raised its dividend six per cent Thursday even as it reported a drop in first quarter earnings as a record performance in Canadian banking failed to offset weakness in several other divisions.
Canada’s biggest bank said Thursday its quarterly dividend would rise three cents to 57 cents per share as it said it remained optimistic about the bank’s ability to adapt to tougher regulations, a challenging economic environment and lower interest rates.
“Our outlook for RBC for this year, for the year ahead, remains optimistic, we are confident that RBC has positioned itself to grow and prosper even through what is a challenging environment,” RBC’s president and CEO Gordon Nixon told investors at its annual general meeting Thursday.
However, Royal Bank’s net income fell five per cent to $1.86 billion, or $1.21 per share, versus $1.95 billion or $1.27 per share, at the same time last year.
The results beat analyst expectations on a cash diluted basis of $1.25 per share, compared to consensus expectations of $1.13, according to Thomson Reuters.
Royal Bank said profits were down as business growth in Canadian Banking and Insurance, and stable credit quality were offset by lower earnings in its capital markets operations. Its international and wealth management operations also suffered.
Rivals TD Bank and Bank of Montreal have also reported their capital markets divisions, hard hit by weak confidence in volatile stock markets, were a drag on first quarter earnings.
TD Bank, which also reported first quarter results and raised its dividend Thursday said first-quarter net income dropped five per cent to $1.48 billion, or $1.55 per share, a decline from $1.56 billion, or $1.67, a year ago.
Bank of Montreal, which reported a slowdown in capital markets earlier this week, has also cut about 60 jobs in the division to keep staffing in line with demand.
At RBC, the capital markets operation recorded net income of $448 million, a decrease of $189 million from a year ago, largely due to lower trading results and lower origination activity compared to record earnings in the previous year.
Canadian banking net income was a record $994 million, up seven per cent from the same quarter of 2011, on the back of solid growth in home equity products, improved credit quality and improved business deposits and business loans.
Provisions for credit losses — the amount set aside to cover bad loans — fell to $243 million during the first quarter compared to $272 million in the quarter a year earlier.
Nixon noted there has recently been increased attention on the potential fallout from high housing prices and record consumer debt levels.
However, he said the bank is comfortable with its retail portfolio as home affordability continues to be “reasonable” in most markets, and consumer debt service ratios remain within historical average range.
Income in its wealth management division fell 12 per cent from the quarter a year earlier to $188 million, pushed down by lower volumes and higher costs.
“Wealth management continues to be impacted by low interest rates and challenging markets although we saw improving investor confidence towards the end of the quarter,” Nixon said.
International banking income fell to $24 million, less than half of what the division earned in the quarter a year earlier due to spread compression and challenging economic conditions in its Caribbean banking operations.
Banking analyst John Aiken said earnings were higher than he expected, but the dividend increase was a surprise.