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RBC profit falls 9% to $1.1B

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Royal Bank of Canada (RY-T) made $1.12-billion in the fourth quarter, down 9 percent from a year ago, as increased costs and a loss associated with the sale of its Liberty Life division pushed down profits.

Though he was disappointed with RBC’s international banking division, which includes its U.S. operations, Chief Executive Officer Gord Nixon said Canada’s largest bank performed well in its other operations “With the exception of our U.S. bank, I am very pleased with the strong results in each of our business divisions,” Nixon told analysts on a conference call Friday.

“Canadian banking had record earnings for the year, and we had solid business growth in our wealth management and insurance segments.”

RBC’s fourth-quarter profit was equal to 74 cents per share, compared to a profit of $1.24-billion, or 82 cents a share, a year ago. The results missed analysts expectations, in part due to higher costs reported in the fourth quarter from a variety of items such as increased marketing and expansion, RBC said. Analysts were, on average, expecting earnings of about $1 per share, according to a poll by Thomson Reuters.

Revenue was $7.2-billion, down from just under $7.5-billion last year when the bank’s earnings were boosted by stronger capital markets business.

Excluding the $116-million loss taken on the Liberty Life insurance business, RBC said its fourth-quarter earnings would have been flat. The loss associated with the sale of Liberty Life was equal to 8 cents a share.

Business in its Canadian retail banking division and wealth management arm grew, while the international division posted a loss. Trading revenue, which was down from the record levels a year ago, and the impact of the stronger Canadian dollar, also negatively impacted the quarter, RBC said.

RBC’s Canadian banking operations made $765-million in the quarter, up from $717-million a year ago. The wealth management division made $175-million, compared to $161-million last year.

The international banking operations posted a $157-million loss, compared to a $125-million loss last year.

As well, the capital markets division saw profits drop to $373-million from $561-million, reflecting a slowdown on that side of the business seen across the sector in recent months and a tough comparison to last year’s surging profits in that area.

“Trading results remain strong, considering the unfavourable market conditions, particularly in the latter half of the year, although they were of course down from the strong performance of a year ago,” Nixon said.

Provisions for credit losses, or the amount of money the bank sets aside to cover bad loans, dropped to $432-million, from $883-million last year, reflecting an improving economy.

Return on equity for the fourth quarter was 12.3 percent, compared to 14.7 percent in the fourth quarter of 2009.

RBC kept its dividend the same at 50 cents for the next quarter. Nixon said RBC is awaiting more clarity on global banking regulations through the Basel III process before deciding how to deploy surplus capital.

“We like everyone else is awaiting further clarifications from regulators,” he said.

Amid recent talk that RBC could be given a special designation by global regulators as a ‘systematically important’ bank, which could require it to hold more capital than its peers to backstop operations, Nixon said he does not believe the bank will be given different treatment.

“There has been a lot of talk about systemically important financial institutions and a lot of speculation as to our organization in this context. We have received assurances from our banking regulator that all Canadian banks will be treated equally,” Nixon said. “None of the Canadian banks, at least in my view, should be designated.”

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