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TORONTO (Reuters) - Royal Bank of Canada on Friday reported a bigger-than-expected increase in quarterly earnings, driven by strong results from its wealth management and capital markets divisions.
Canada's largest bank also boosted its quarterly dividend, as widely expected, by roughly 6 percent to 75 Canadian cents a share.
Shares in the bank hit a lifetime high of C$82.15 early on Friday before easing 1.2 percent to C$80.67 on a negative day on the Toronto Stock Exchange.
"Overall the results are better than what we expected," said
Morningstar analyst Dan Werner, noting executives on its conference call "tried to temper the analyst community a little bit in terms of expectations."
RBC reported net income of C$2.38 billion ($2.17 billion), or C$1.59 a share, for the third quarter ended July 31, compared with C$2.29 billion, or C$1.51 a share, a year earlier.
The increase came despite a slight drop in profit from RBC's core personal and commercial banking business after the sale of its Jamaica operations.
When RBC announced the sale to Sagicor Group Jamaica Ltd in January, it said it expected to lose about C$60 million from the transaction, partly due to a goodwill writedown.
Excluding charges from the Jamaica sale and other one-time items, the company reported earnings of C$1.64 a share, topping the analysts' average estimate of C$1.56, according to Thomson Reuters I/B/E/S.
"While we are decidedly positive on the results, naysayers will question the sustainability of the trading revenues and insurance earnings," Barclays analyst John Aiken said in a note.
RBC, which named former Rio Tinto Alcan head Jacynthe Côté to its board on Friday, is the first Canadian bank to announce its third-quarter results. Toronto-Dominion Bank, Bank of Nova Scotia, Bank of Montreal and National Bank of Canada are set to report next week.
Aiken said RBC's capital markets unit generated a stand-out performance which will be difficult for its peers to emulate.
The bank said net income from that unit rose 66 percent to a record C$641 million due to increased trading activity, along with strong growth in lending and loan syndication.
Capital markets accounted for 27 percent of RBC's earnings in the period, prompting questions about whether it would consider unshackling the unit it has in some ways constrained.
The bank has in the past said it plans to keep its earnings from the typically volatile capital markets segment at or under 25 percent to avoid analyst concerns about earnings volatility.
On Friday, McKay stressed the 25-percent figure was more a guideline than a cap and said it would not hamstring the bank's ambitions or the growth of the division.
"We look at opportunities to grow in all of our businesses and we remain confident that we can continue to grow capital markets and still remain within our longer-term strategic guidelines," he said.
(1 U.S. dollar = 1.0952 Canadian dollar)
Reporting by Euan Rocha; Editing by Lisa Von Ahn and James Dalgleish