TORONTO — Burgeoning trading revenues powered Royal Bank (TSX:RY) to a record third-quarter profit, as Canada’s biggest bank shrugged off a spike in loan loss provisions and soundly beat Bay Street expectations.
Toronto-based Royal said Thursday it earned profits of $1.6 billion or $1.05 per share up 24 per cent from a year-earlier $1.3 billion or 92 cents per share. The bank produced a strong performance at its capital markets division, which offset weakness in international banking and a sharp rise in provisions for credit losses.
Cash net income for the three months ended July 31, which excludes certain one-time items, totalled $1.21, well above estimates of 92 cents per share from analysts at Thomson Reuters.
Overall loan loss provisions surged more than 40 per cent to $770 million, a $436-million increase over year-earlier levels as the recession produced rising consumer and corporate bankruptcies.
“Global capital markets continued to improve from last quarter and we have seen some signs of recovery in the general economy,” Royal Bank chief executive Gordon Nixon said on a conference call with analysts.
“Of course, higher unemployment levels have had an impact on loan portfolios and the low-interest environment in keeping pressure on retail margins.”
Royal’s stock reflected the strength of its earnings, rising more than six per cent to $56.57 in heavy trading on the Toronto Stock Exchange.
Meanwhile, TD Bank Financial Group (TSX:TD) reported a decline in third-quarter profits Thursday and warned of trouble ahead as difficult economic conditions weakened the performance of some of the bank’s U.S.-based operations.
“It’s unlikely that this level of earnings can be maintained,” admitted TD chief executive Ed Clark in a conference call Thursday.
“But we do have an excellent business that continues to perform well and produce solid returns on capital with very tight risk management.”
TD’s financial performance was “great” in the quarter, given the ongoing economic weakness around the world, said Clark.
“There probably aren’t many people on this call frankly, including me, who thought we’d be having this kind of performance in the midst of a recession,” he said.
“At the beginning of 2009, I would have found it hard to believe that by the third quarter I’d be talking about year-over-year increase on our earnings per share, even after issuing shares last year, but it certainly looks like we’re going to be there.”
The Toronto-based bank reported a profit of $912 million or $1.01 per share for the quarter ended July 31, down from year-earlier profits of $997 million or $1.21 per share.
The bank said adjusted earnings rose 17 per cent to $1.3 billion or $1.47 per share from $1.1 billion or $1.35 per share reported a year ago. The adjusted results beat the estimates of analysts surveyed by Thomson Reuters, who predicted earnings would come in at $1.23 per share.
TD said total quarterly revenue rose to $4.66 billion from $4.32 billion, while provision for credit losses declined to $557 million from $656 million.
TD’s Tier 1 capital ratio, a key metric measuring the amount of money held in reserve, stood at 11.2 per cent at quarter’s end.
TD shares were up just over $2 in late Thursday trading at $62.62.