RBC lifts profit, helped by wealth management strength

TORONTO (Reuters) - Royal Bank of Canada RY.TO on Wednesday reported a rise in third-quarter profit, helped by double-digit growth at its wealth management business which offset a weaker showing in its capital markets unit. Net income at Canada's biggest lender, excluding one-off items such as a gain on the sale of its home and auto insurance business last year, increased to C$2.8 billion ($2.2 billion) for the quarter to June 30, 5 percent higher than a year earlier.

FILE PHOTO - A Royal Bank of Canada (RBC) sign is seen outside of a branch in Ottawa, Ontario, Canada, May 26, 2016. REUTERS/Chris Wattie/File Photo

Earnings per share reached C$1.89 compared with an average analyst forecast of C$1.87, according to Thomson Reuters I/B/E/S data. A year earlier, RBC posted an EPS of C$1.72.

The bank has beaten market expectations in every quarter so far this year.

RBC shares rose 1.4 percent to $93.27.

Canadian banks are expected to benefit from rising interest rates, but their shares have slowed their advance on concerns the housing market was vulnerable to a sudden fall.

Canadian authorities have introduced a number of measures over the past 18 months to curtail rampant increases in home prices, including foreign buyers’ taxes in Toronto and Vancouver.

Top Canadian bankers have been supportive of the policies, preferring a “soft landing” where prices stabilize gradually instead of a “hard landing” where they fall quickly.

“We are encouraged by the existing measures and the effect they’ve had in creating a more sustainable (housing) marketplace,” RBC Chief Executive Dave McKay told analysts on a conference call.

McKay said he supported further proposals by Canada’s banking regulator including tougher tests on riskier mortgages.

Chief Financial Officer Rod Bolger said in an interview the planned new rules should help achieve a stabilization in home prices.

“It will reduce the risk of a hard landing,” he said.

In the third quarter, net income including one-time items rose by 6 percent to C$1.4 billion at RBC’s retail business. At its wealth management unit, it increased by 25 percent to C$486 million, helped by robust earnings at City National, a U.S.-based bank which the bank acquired last November.

RBC said net income from its capital markets business, including one-off items, fell 4 percent to C$611 million. The bank reported a decline in fixed-income trading activity, reflecting less volatility in that market.

It announced a 5 percent increase in its quarterly dividend to C$0.91 per share, above the average analyst forecast of C$0.89, according to Thomson Reuters I/B/E/S data.

($1 = 1.2571 Canadian dollars)

Reporting by Matt Scuffham; Editing by Keith Weir, David Holmes and W Simon