WRAPUP 2-Royal Bank of Canada profit misses estimates on weak capital markets business, shares drop

() – Royal Bank of Canada (RY.TO) missed estimates for quarterly profit on Wednesday, as its capital markets division suffered a dearth of deals, dragging the stock down nearly 2% in early trading. The Royal Bank of Canada (RBC) logo is seen outside of a branch in Ottawa, Ontario, Canada, February 14, 2019. /Chris WattieRoyal Bank, Canada’s biggest lender by market value, posted a 12% drop in adjusted earnings from its capital markets unit, driven by lower investment banking and trading revenues. But National Bank said income from its financial markets business rose 7%, as revenue from equity and fixed-income securities trading offset declines in other asset classes and banking. “Financial markets was the standout in Q4 (for National Bank) … the business has clearly outperformed its peers in a more challenging operating environment” Credit Suisse analysts wrote in a note. Meanwhile, Royal Bank was hurt by a challenging environment and timing of deal closings in its capital markets unit, they said. Royal Bank shares fell 2% to C$105.06 in morning trading in Toronto, on track for their lowest close in almost two months. National Bank rose 1.6% to C$71.98, set for a record close. The Toronto stock benchmark gained 0.2%. Across the industry, capital markets businesses have performed more like RBC than National Bank, as global economic uncertainty has led to sluggish investment banking revenue. Banks have also seen rising provisions for bad loans and pressure on margins in the United States following three interest rate cuts there. Royal Bank said adjusted income fell to C$2.22 per share in the fourth quarter, from C$2.24, a year earlier. Analysts had expected C$2.28, according to IBES data from Refinitiv. National Bank said adjusted earnings rose to C$1.69 a share, from C$1.52 a year earlier, surpassing expectations of C$1.62 a share. While both banks posted increases in loan-loss provisions, Royal Bank’s 41% jump was bigger than expected and surpassed National Bank’s 22% rise, which was lower than estimates. Select international markets are also helping boost results. National Bank’s U.S. specialty finance and international unit posted growth of 42%, driven by its ABA Bank in Cambodia. Net income at RBC’s personal and commercial banking division rose 5% from a year earlier, and wealth management earnings grew 32%, due in part to the sale of a business. Insurance and investor and treasury services posted double-digit declines. National Bank’s retail banking division’s earnings grew 5% and wealth management expanded 10%. Reporting by Nichola Saminather in Toronto; Additional reporting by Abhishek Manikandan and C Nivedita in Bengaluru; Editing by Krishna Eluri and Steve OrlofskyOur Standards:The Thomson Trust Principles.