May 24, 2012 / 5:03 PM / 6 years ago

WRAPUP 1-TD Bank profit applauded, but doubts hit RBC

* RBC ex-items EPS C$1.17 vs Street view C$1.18

* RBC takes C$202 mln loss on Dexia JV acquisition

* TD ex-items EPS C$1.82 vs estimated C$1.78

* RBC shares down 2.2 pct, TD up 1.2 pct

By Cameron French

TORONTO, May 24 (Reuters) - Steady loan growth in Canada and the United States pushed core profits higher at Canada’s two biggest banks - Royal Bank of Canada and Toronto-Dominion Bank - but RBC’s shares fell due to weaker-than-expected revenue and concerns about its European exposure.

Shares of RBC, Canada’s biggest bank, were down 2.2 percent just before midday on Thursday after it reported a 5 percent rise in adjusted profit from continuing operations, and adjusted earnings per share of C$1.17, just shy of the consensus analyst estimate of C$1.18.

TD’s stock, in contrast, was up 1.2 percent after it reported a 20.7 percent rise in net profit and adjusted EPS of C$1.82 a share, ahead of expectations of C$1.78.

Analysts said the performance of both banks was generally strong, but noted that RBC’s gain was in part due to cost controls and stronger-than-expected capital markets profits, which are generally considered less reliable.

RBC’s overall revenues were about 2.4 percent below consensus, said Stonecap Securites analyst Brad Smith.

On a net basis from continuing operations, RBC’s profit actually retreated by 7 percent to C$1.56 billion ($1.52 billion), but that was due to a C$202 million charge related to RBC’s recent buyout of the remaining 50 percent of a joint venture with Franco-Belgian lender Dexia.

The Dexia JV acquisition expands RBC’s presence in Europe, where the bank has built a sizeable capital markets and wealth management business.

RBC officials said on a conference call they were comfortable with the bank’s net European exposure of C$39.5 billion and said they had a contingency plan in place in the event of a euro zone breakup.

“This is the bank that has the most global exposure,” said Edward Jones analyst Tom Lewandowski.

“I think the ultimate result here will be immaterial exposure, but they do have it and that’s difference with the other Canadian banks,” he said.

RBC’s Canadian banking income rose 5 percent to C$937 million due to stronger loan and deposit volumes, while capital markets income climbed 11 percent to C$449 million, spurred by higher trading and investment banking revenue.


TD earned C$1.69 billion, or C$1.78 a share, in its second quarter ended April 30, up from a profit of C$1.40 billion, or a C$1.50, a year earlier.

Excluding amortization and acquisition-related items, the bank earned C$1.82 a share. Analysts expected C$1.78, according to Thomson Reuters I/B/E/S.

“With half of the Big 6 (Canadian banks) now reporting second quarter results, TD’s earnings are the strongest that we have seen,” Barclay’s Capital analyst John Aiken said in a note.

Income from TD’s flagship Canadian banking unit rose 10.2 percent to C$808 million, while its U.S. retail banking unit earned C$356 million, up 20 percent on a net basis.

Colleen Johnston, the bank’s chief financial officer, said that despite the stronger profit, the bank has begun to see a slowdown in Canadian mortgage lending growth, a development that has been expected due to the high debt loads of Canadian consumers and concerns about a housing bubble.

“I’d say loan growth is slowing down,” she told Reuters.

“Our continuing view is that the Canadian housing market is probably over-valued by 10 to 15 percent or so, but our base case would call for soft landing.”

TD’s wealth and insurance business, which includes the bank’s 45 percent stake in brokerage TD Ameritrade, climbed 15.5 percent to C$365 million.

Wholesale banking income, which includes trading an investment banking, rose 4.8 percent to C$197 million.

RBC and TD’s results follow Bank of Montreal’s stronger-then-expected results, reported on Wednesday.

Bank of Nova Scotia, Canadian Imperial Bank of Commerce and National Bank of Canada all report next week.

$1=$1.03 Canadian Reporting By Cameron French; Editing by Peter Galloway

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