May 30, 2013 / 4:48 PM / 4 years ago

WRAPUP 1-RBC, CIBC profits rise, shares fall on growth doubts

4 Min Read

* RBC profits meet estimates, CIBC beats

* Canadian lending profits pressured by rates, housing

* CIBC says planning alternative to Aerogold card as talks drag on

* RBC shares down 2 pct, CIBC down 0.9 pct

By Cameron French

TORONTO, May 30 (Reuters) - Royal Bank of Canada and Canadian Imperial Bank of Commerce posted second-quarter results that met or beat analyst estimates, but shares of both companies declined on uncertainty about future growth.

Shares of RBC, Canada's largest lender, were off 2 percent after it reported profits that were up 26 percent rise from a messy year-before quarter but down from the bank's blockbuster first quarter of 2013.

"It was an in-line quarter ... but we did see some weakness in Canadian banking," National Bank Financial analyst Peter Routledge said, pointing to narrower interest margins and sluggish loan growth.

"It's something we've seen from Royal's peers for several quarters now, and Royal's always avoided it. So, I guess gravity caught up with them."

RBC earned C$1.94 billion ($1.87 billion), or C$1.27 a share, in the second quarter ended April 30, up from a year-earlier profit of C$1.53 billion, or 99 Canadian cents a share.

Excluding a restructuring charge, the bank earned C$1.31 a share in the latest quarter, matching analysts' estimates, according to Thomson Reuters I/B/E/S.

CIBC, Canada's fifth-largest bank, earned C$876 million, or C$2.12 per share, up from C$811 million, or C$1.90 per share. The bank said the increase driven by gains in wholesale banking, which consists of trading, investment banking and corporate lending.

That result topped analysts' estimates of a profit of C$2.08 a share, and CIBC also surprised with a modest 2.1 percent dividend increase.

But the bank's shares were down 0.9 percent just before midday. One analyst said uncertainty around the future of the bank's lucrative Aerogold flight rewards card was a weight on the stock. The partnership under which CIBC offers the card is up for renewal this year.

Disappointing Quarter

The results cap off what has been on the whole a disappointing quarter for Canada's banks, which are feeling the bite of Canada's cooling housing market and rock-bottom interest rates, which squeeze the profit margins on loans.

"The low interest rate environment is catching up with them a little bit," said Tom Lewandowski, a St. Louis-based analyst at Edward Jones.

Both RBC and CIBC benefited from lower loan-loss provisions during the quarter, and RBC's profit was helped by its acquisition in February of auto lender Ally Financial, which boosted loan volumes.

RBC's personal and commercial banking income rose 12 percent to C$1.1 billion, while wealth management income climbed 6 percent to C$225 million.

Income from RBC's capital markets division, which the bank has been expanding in the United States and Europe in recent years, rose 4 percent to C$386 million.

CIBC's retail banking income rose 9 percent to C$604 million, while wholesale banking income rose 51 percent to C$198 million.

Aerogold Uncertainty

Speaking on a conference call, CIBC executives suggested they may give up the partnership that underpins their popular Aerogold travel rewards credit card.

The bank has been in contract renewal talk with rewards company Aimia, the bank's partner on the card.

CIBC hinted last quarter that the two sides may not come to an agreement before the deal expires at the end of 2013. On Thursday CEO Gerry McCaughey said the bank was going ahead with a plan to create an alternative rewards card in event the partnership is not renewed.

"Our primary objective is to ensure that one way or another we offer our clients a market leading travel credit card," he said.

The bank will spend about C$50 million over the next four quarters to develop the card, even as it continues talks with Aimia, McCaughey said.

CIBC does not disclose its profits from its Aerogold card.

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