RBC stock drops on lending worry, but TD gains

Thu May 24, 2012 5:36pm EDT
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By Cameron French

TORONTO (Reuters) - Concerns about lending growth and European exposure pushed Royal Bank of Canada's (RY.TO: Quote) shares down nearly 3 percent to a 2012 low on Thursday, while rival Toronto-Dominion Bank (TD.TO: Quote) rose slightly after its quarterly profit topped estimates.

RBC, Canada's biggest bank, reported a 7 percent drop in second-quarter net profit due to an acquisition-related charge, but its core profit rose 5 percent and its adjusted earnings per share were C$1.17, just shy of analysts' average estimate of C$1.18.

Investors took a dim view of the results, however, nervous about the bank's relatively large C$39.5 billion ($38.5 billion) exposure to Europe and concerned that its performance will suffer as the market environment becomes more uncertain.

"(Profit) was supported by very strong capital markets and in this environment there are concerns about the sustainability of those revenues," said Barclays Capital analyst John Aiken. Overall revenue was lower than expected, analysts said.

Profit gains at Canadian banks in recent quarters have been underpinned by robust consumer loan growth, particularly in mortgages. But bank executives say they're beginning to see a weakening of that growth due to Canadians' reluctance to add to already high debt levels.

"I'd say loan growth is slowing down," Colleen Johnston, TD's chief financial officer, told Reuters. She cited recent moves by the Canadian government to tighten regulations on mortgage lending to try to avoid a housing bubble.

"I think we're starting to see the tapping on the brakes in terms of the market and we think that's exactly the right outcome," Johnston said.

Despite the signs of slowdown, TD's quarterly profit rose 20.7 percent. Adjusted EPS was C$1.82 a share, ahead of expectations of C$1.78.   Continued...