Canada Markets closed

RBC kicks off bank earnings with record 2012 profit

Jennifer Kwan

Royal Bank of Canada gave investors something to be satisfied about this morning, kicking off Canada's bank earnings season with a big spike in quarterly profit.

Barry Schwartz, vice president and portfolio manager at Baskin Financial Services, characterized RBC's earnings as "absolutely fantastic" given mounting concerns about sluggish economic growth, rising household debt levels and a cooling real estate market.

"It's setting a very good tone for the banks," Schwartz says.

Fourth-quarter profit at the country's largest bank rose 22 per cent to C$1.9 billion, or C$1.25 a share, helped higher by strength in fixed income trading and stable loan growth. Those figures compared to a year-earlier profit of C$1.6 billion, or C$1.02 a share.

Excluding certain items, the bank earned C$1.27 a share. For the year, the bank notched record profit of C$7.5 billion, up 17 per cent from 2011.

"These earnings aren't any much better than what analysts were expecting so I wouldn't expect the stock to go gangbusters, but I think it's more confirmation and a sigh of relief that all things are running quite smoothly," Schwartz says.

RBC shares were up 0.65 per cent at C$58.73 midmorning Thursday on the S&P/TSX composite index.

New mortgage rules hurting banks?

Ottawa has repeatedly warned that soaring household-debt levels pose a threat to Canada's economy. This summer it tightened mortgage rules to keep debt in check and calm a frothy housing market.

As well, the Organisation for Economic Co-operation and Development this week warned Canada's economy is shifting into lower gear and forecasted growth would be at a soft 1.8 percent in 2013.

Against that backdrop, consumers are still borrowing money to buy houses, but signs of slowdown will eventually show up, said Peter Routledge, an analyst with National Bank.

"At some point, they're not going to borrow quite so much and at that point loan growth slows, which will slow revenue growth, which will be a headwind for Royal and for all the other banks."