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TORONTO (Reuters) - Royal Bank of Canada's (RY.TO) shares jumped nearly 4 percent on stronger-than-expected fourth-quarter earnings, while Bank of Nova Scotia (BNS.TO) came under pressure despite also topping analysts' estimates.
Strong loan growth and insurance profits drove RBC to a fourth-quarter profit of C$1.6 billion ($1.58 billion), up 43 percent from a year ago, despite a drop in capital markets-related income.
"A great quarter for Royal, much better than we thought," said Peter Routledge, an analyst at National Bank Financial.
Scotiabank earned C$1.24 billion, up 10.7 percent on the year, due largely to its acquisition of DundeeWealth, which boosted wealth management returns.
But like Toronto-Dominion Bank (TD.TO) and Canadian Imperial Bank of Commerce, (CM.TO) which topped estimates with quarterly results only to see their shares fall on Thursday, Scotiabank stock received a rough ride in early trading.
Routledge said the stock move underscores the uncertainty surrounding the banks, which despite record profits this year, are facing a cloudy future due to low interest rates, high consumer debt levels, and Europe's debt crisis.
"It's all macro right now," he said.
Both banks acknowledged the difficulties ahead, as Scotiabank said it expected earnings per share growth of 5-10 percent for 2012, below the 7-12 percent target range the bank had set for 2011.
RBC Chief Executive Gordon Nixon said the bank was scaling back its European fixed-income trading operation due to the unit's falling profits.
However, he said the bank had no plans to significantly pull back from Europe, where it was been expanding its capital markets and wealth management business over the past year.
"When there is more clarity around European sovereign debt issues and the state of the global economy, we believe improved market conditions will result in a more stable trading environment," he said on a conference call.
Indeed, he said the bank would consider making acquisitions in the wealth management space and said RBC had had "ongoing discussions" with Franco-Belgian lender Dexia. DEXIA.UL Nixon has said in the past that RBC is considering buying out Dexia's share of the RBC Dexia joint venture.
RBC has C$37 billion in "gross drawn" exposure to Europe - exposure calculated on a similar basis to that of U.S. banks - 60 percent of it in the United Kingdom, and with minimal exposure to troubled Italy, Spain, and Ireland, officials said, adding that they are comfortable with the exposure.
Royal, Canada's largest bank earned C$1.6 billion, or C$1.07 a share, up from C$1.12 billion, or 74 Canadian cents a share.
On a continuing operations basis, which excludes its recently sold U.S. retail bank and Liberty Life Insurance unit, profit was C$1.63 billion, up from a C$1.37 billion.
Excluding items, EPS was C$1.11, topping analysts' expectations of 98 Canadian cents.
"They look like big numbers and it seems to be fairly broad-based ... Insurance revenues were strong, the tax rate was a little lower than we were looking for," said Robert Sedran, an analyst at CIBC World Markets.
RBC's Canadian banking unit saw income rise 18 percent to C$904 million, as loan volumes grew, while the banks' net interest margin remained relatively stable year-over-year, in contrast to narrower margins at its rivals.
RBC's capital markets income, which was a strong point for TD and CIBC, declined 25 percent to C$278 million due to weak bond trading results, the bank said.
About 90 minutes into trading, RBC's shares were up 3.4 percent at C$48.65, while Scotiabank was down 1.6 percent at C$49.44.
Scotiabank, Canada's No. 3 lender, earned C$1.24 billion, or C$1.07 a share, up from C$1.12 billion, or C$1.00 a share.
Excluding items, the bank earned C$1.10 a share, just ahead of analysts' expectations for a profit of C$1.08 per share.
Profit was driven by a 33 percent rise in global wealth management income following its purchase of Canada's DundeeWealth earlier this year.
Scotiabank paid C$2.3 billion for the 82 percent of DundeeWealth that it did not already own, making the bank Canada's No. 5 wealth manager.
International banking income rose 10 percent, while domestic banking profit climbed 4 percent.
Scotia Capital, the bank's wholesale banking wing, saw profit fall by 16 percent.
($1 = $1.02 Canadian)
Reporting By Cameron French; editing by Rob Wilson