TORONTO — Royal Bank (TSX:RY) profits strengthened to $1.6 billion in the fourth-quarter on improvement in most of its divisions, but Canada’s biggest bank faced turbulence in its trading operations affected by economic weakness in Europe.
“Our global fixed-income business continued to be impacted by challenging markets,” president and CEO Gord Nixon told analysts in a conference call.
“We did, however, take steps to reduce risk and scale of the business in response to a contraction in this market and we’re already seeing a benefit in this business from these actions.”
Canada’s biggest bank outperformed expectations from analysts, posting $1.09 per share of earnings, representing a profit increase of 43 per cent from a year ago when earnings were $1.12 billion or 91 cents a share.
On a cash basis, earnings were $1.11 per share, well above analyst predictions of 98 cents per share, according to a poll by Thomson Reuters.
Total revenue held relatively steady at $6.8 billion from $6.78 billion.
Nixon pointed to weakness in the capital markets division which faced a 25 per cent decline in profit to $278 million on “significantly lower” results from its fixed income trading, affected partly by weakness in the European economy.
“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,” Nixon said.
Canadian banking net income grew to $904 million from $765 million.
The international banking division turned around results with a $12 million profit from a year-ago loss of $7 million
One of Royal’s strongest areas of performance was in its net interest margins, which were flat at 2.73 per cent compared to 2.74 per cent in the previous quarter — the first of the banks so far this quarter that hasn’t reported declines in the amount of money it makes on loans versus what is puts out on deposits.
National Bank analyst Peter Routledge said the latest quarterly results showed Royal in a good position to contend with slowing consumer loan growth, and the ability to grow business loans and cut costs.
“What Royal showed this quarter is they’re set up pretty well on those accounts,” Routledge said in an interview.
“Leaving aside Europe, they’re giong to have a good year next year. In the interim, if Europe blows up, then Royal would be disproportionately hurt. That’s just the facts of having a big London trading desk.”
In the wealth management division, quarterly profits grew to $189 million from $175 million.
The insurance operations grew net income to $196 million from $124 million.
For the year, Royal Bank earned a record $6.7 billion from its continuing operations, while total net income dropped to $4.85 billion from $5.22 billion in 2010. Revenue grew to $27.43 billion from $26.08 billion.
Its shares ran up $1.40 or three per cent to $48.43 in afternoon trading on the Toronto Stock Exchange.
In October, Luxembourg Finance Minister Luc Frieden told a news conference that Royal Bank was in talks to acquire the remaining stake of its joint venture with Dexia, the Franco-Belgian lender that had to be bailed out by the government last month.
“We are assessing our options and have ongoing discussions with Dexia, but we cannot comment further at this point,” Nixon told analysts on Friday.
RBC Dexia is equally owned by Royal Bank and Dexia and provides institutional investors a range of products and services — from fund and pension administration to securities lending and shareholder services.
Royal Bank is the country’s largest bank by assets and market capitalization, and has 77,000 employees serving more than 18 million clients. The bank has operations across North America and 52 other countries.