Profit at Royal Bank of Canada rose 12 per cent in the first quarter, to more than $2-billion, fuelled by strong performances in its retail banking, capital markets and wealth management divisions.
Canada's largest bank made $2.07-billion, or $1.36 a share. That compared to profit of $1.86-billion, or $1.22 a share a year ago. Revenue rose 4 per cent to $7.9-billion.
The earnings beat analysts' estimates. On an adjusted basis factoring out non-cash items in the quarter, RBC made $1.38 a share. On average, analysts were expecting adjusted earnings of about $1.32 a share. RBC also increased its quarterly dividend 3 cents to 63 cents.
RBC chief executive officer Gordon Nixon said the bank experienced "solid growth across most businesses," while also keeping costs under control. "We believe our financial strength and competitive advantages position us to successfully manage through the ongoing industry headwinds," Mr. Nixon said in a statement accompanying the earnings.
RBC's increased profit was driven mostly by the bank's personal and commercial banking business, which made a record $1.12-billion, up 11 per cent from last year. While the results were arguably stronger than what some analysts were expecting from the retail banking division, where growth is expected to slow, the profit was offset by slimming margins.
Amid low interest rates and high consumer demand for loans, banks are expected to be under pressure in 2013 to grow their retail bank earnings as fast as they have in previous years. However, RBC's earnings showed the decline is only mild so far.
RBC's capital markets earnings drove much of the earnings increase for the bank, as the investment banking division made $464-million, up 25 per cent from a year ago. The increase was driven by increased wholesale lending and a resurgence in merger and acquisition activity in North America, which boosted the bank's fees.
The wealth management business also made a record profit, with earnings of $233-million, up 24 per cent from a year ago. The business, which caters to the investment needs of wealthy clients, saw increases in fee revenue and transaction volumes during the quarter as improving markets attracted more activity from investors.
However, profit fell in the bank's insurance business, which made $164-million, down 14 per cent compared to a year ago. The bank said the drop was largely due to higher disability claims and reinsurance costs. RBC's investor and treasury services division also reported net income of $80-million, which was down about $3-million.
Provisions for credit losses, or the amount of money banks set aside to cover bad loans, were $349-million, an increase of $82-million from a year ago. The bank said the increase was mostly due to a small number of accounts in its wholesale lending portfolio.
The earnings were a strong signal that RBC was, at least for now, holding off the expected slowdown in domestic retail banking. The bank's margins in personal and commercial banking declined by 1 basis point, which was a smaller drop than investors had been fearing as low interest rates and competition for loans grind away at profit margins for the sector.
Barclays Capital analyst John Aiken called the results "a very impressive quarter" for RBC, noting that the bank's higher exposure to the markets, through its large wealth management and capital markets divisions, helped the bank outpace expectations for the quarter. "We view [the] results as quite solid," Mr. Aiken wrote in a research note to clients. "It is hard to argue with the myriad of positives."