Royal Bank of Canada profit misses on weakness in capital markets division

Royal Bank of Canada on Wednesday reported an increase in third-quarter profit but missed analysts' estimates as weakness in its capital markets business partly offset growth in personal and commercial banking earnings, and domestic lending.

Canada's largest lender by market share also said it would raise its quarterly dividend by 3% to C$1.05 per share.

Its shares inched up 0.2% to $74.60 in pre-market trading in New York.

The Toronto-based bank reported net income of C$3.26 billion ($2.45 billion), or C$2.22 per share, in the three months ended July 31, compared with analyst expectations of C$3.32 billion, or C$2.31 per share. The results were up from C$3.11 billion, or C$2.10 per share, a year earlier.

"The Canadian lending business was much better than we had expected, with solid operating leverage of almost 2%, stable loan growth (both consumer and commercial), and much lower loan losses," analysts at Credit Suisse wrote in a note. This "reflects RY's advantageous position in the Canadian market."

Net income at the lender's capital markets business, which includes trading, investment banking and advisory, fell 6%, in part because of declines in equity trading and loan syndication revenue.

Total loan loss provisions rose 23% to C$425 million, driven by increased provisions in capital markets, wealth management and personal and commercial banking.

However, net income in its personal and commercial banking business rose 10% and wealth management saw profit growth of 11%.

Its Canadian banking division posted a surprise gain, rising 8%.

RBC is the first of Canada's big banks to report third-quarter earnings. Smaller rival Canadian Imperial Bank of Commerce is slated to report its quarterly results on Thursday.