WRAPUP 3-Royal Bank, National Bank of Canada miss earnings estimates, raise dividends

(Adds comments from Royal Bank call, share prices, related story links)

By Nichola Saminather

TORONTO, Dec 1 (Reuters) - Royal Bank of Canada and National Bank of Canada on Wednesday reported higher fourth-quarter profits and raised dividend payouts https://www.reuters.com/markets/stocks/its-raining-dividends-hallelujah-canadian-banks-set-post-strong-results-2021-11-29, but both banks' earnings fell short of analysts' estimates as margins remained under pressure.

Royal Bank executives told analysts they expect margins at Canadian banking operations and the U.S. wealth management division to stabilize with an "upside bias" as rates increase. They also predicted that a 25-basis-point rise in policy rates https://www.reuters.com/business/bank-canada-raise-rates-q3-next-year-possibly-sooner-2021-10-25 will result in over C$250 million ($196.42 million) of additional revenue over 12 months across the two businesses.

But they expect mortgage growth to slow somewhat to a high-single-digit rate, and expenses, which proved to be a drag during the quarter, to grow in the low single digits, excluding variable compensation.

Royal Bank, Canada's biggest lender, increased its quarterly dividend by 11% to C$1.20 a share and National Bank said it would raise its dividend by 23% to 87 Canadian cents, the first increases since the country's financial regulator imposed restrictions on capital distributions in March 2020.

Both banks plans to repurchase 3.2% and 2% of their outstanding shares respectively.

Royal Bank and National Bank, the smallest of Canada's Big Six banks, saw headwinds including margin pressure and lacklustre wealth management and capital markets earnings compared with the prior quarter.

Royal Bank shares were up 0.6% in morning trading in Toronto, compared with a 1.5% rise in the broader market . National Bank shares fell 1.9%.

"We do not believe that (Royal Bank's) results will be viewed as high quality," Barclays Analyst John Aiken said in a note."

Royal Bank's Canadian banking business had loan growth of 9% as small business lending more than doubled from a year ago, and mortgages rose nearly 11%. But credit card and commercial lending fell.

Investors had been hoping for a recovery in those businesses, which had been constrained both by lockdowns and high consumer savings during the pandemic, and stabilization in margins, both of which failed to materialize.

Royal Bank CEO Dave McKay reiterated earlier warnings about the Liberal government's plan to impose a surtax on the country's largest financial firms.

"We're going through an enormous transition of our economy," McKay said. "When you start proposing taxes right now, in this narrow way, it is kind of a real detriment to the overall investment thesis for Canada," and means less capital for the banks to invest.

Royal Bank's adjusted earnings climbed 19.4% to C$2.71 a share, from a year earlier, compared with analysts' expectations of C$2.81, driven largely by the release of about C$227 million of reserves the bank had previously taken to cover bad loans.

Excluding the impact of these provisions and taxes, Royal Bank's earnings rose a more muted 4% from a year ago to C$4.76 billion.

At National Bank, adjusted earnings rose 31% to C$2.21 a share, compared with C$2.24 analysts had expected. It released loan-loss reserves of C$41 million, with earnings excluding the impact of these and taxes still up 8% from a year earlier.

($1 = 1.2743 Canadian dollars)

(Reporting by Nichola Saminather; Additional reporting by Mehnaz Yasmin and Sohini Podder;in Bengaluru; Editing by Louise Heavens, Chizu Nomiyama, Jane Merriman and Nick Zieminski)