Royal Bank reports $2.07-billion profit for the first quarter, hikes dividend

The head of Canada’s largest bank says business leaders across the country must aggressively pursue new export markets before losing more competitive ground to other industrialized countries.

Royal Bank of Canada (TSX:RY) president and CEO Gord Nixon said Canada is falling sorely behind its peers.

“Our trade patterns have barely changed since Confederation,” Nixon told the bank’s annual meeting in Calgary on Thursday after it reported improved first-quarter earnings earlier in the day.

“If we are to achieve above-average growth, we must increase overall export activity with the parts of the world that are actually growing.”

Nixon said it’s not an issue isolated to the natural resources sector, where Western Canadian energy companies in particular have struggled to get their products to lucrative Asian markets. Public furor over the environmental impacts of pipelines has made the fate of many market-expanding projects, especially to the West Coast, far from certain.

He said Canada also needs to create more ties with other countries when it comes to agricultural goods, advanced manufacturing, health care and technology.

“There are a lot of things that we do well. Where we can do a much better job in terms of selling our goods and services to other countries, and particularly emerging market economies… I think we need to take a slightly more strategic approach to certain industries,” Nixon told reporters following the meeting.

“Just trading with the United States and Europe, you’re trading with the slowest growing part of the world as opposed to the fastest growing part of the world.”

Royal Bank reported a first-quarter profit of $2.07 billion, or $1.36 per share, up from $1.86 billion, or $1.23 a share, a year ago, helped by the growth of its personal and commercial banking business, capital markets and its wealth management operations.

Adjusted earnings amounted to $1.38 per share, beating analyst estimates by six cents, according to a survey by Thomson Reuters.

Revenue grew to $7.91 billion, ahead of analyst expectations for $7.67 billion, and above $7.57 billion a year ago.

The bank remains in a good position to continue to grow its customers and market share, Nixon said, though economic uncertainty around the world still weigh on the coming quarters.

“The headwinds in the operating environment are not new, but they will continue to shape our outlook,” he said.

Nixon pointed to the European debt and banking crisis as an unpredictable factor, while the U.S. outlook would be determined by fiscal and regulatory uncertainty that he said could create “a major risk, not just to the U.S., but to the world.

“The consequences of America failing to effectively deal with its fiscal imbalance will be significant, and political dysfunctionality is preventing reasonable compromise,” he said.

During the first quarter, the bank’s core personal and commercial banking business accounted for more than half of overall profit, rising by 11 per cent to a record $1.12 billion.

Nixon downplayed concerns over an impending slowdown in the consumer lending part of RBC’s business, saying that segment should still post solid, if slower, growth in the future. More rapid growth in other business segments should act as an offset, he added.

For mortgages specifically, the bank sees a bit of a slowdown ahead, said David McKay, group head of personal and commercial banking, adding that many of RBC’s peers have expressed similar views.

“It’s continuing to grow, just slowing growth,” he said.

New immigrants will be a big source of demand growth for mortgages, as they look to buy homes in their new country.

“I think demand factors are still there and I expect to see modest growth going forward,” said McKay.

Nixon added that it’s important to keep the year-over-year numbers in perspective.

“Slower growth off current levels is still reasonable growth and it still is reasonable relative to where we were two or three years ago.”

Elsewhere in RBC’s business, there were sizable increases in profit at its capital markets and wealth management operations, but they were partly offset by smaller declines in insurance and a relatively new division called investor and treasury services.

Royal Bank joined Bank of Montreal (TSX:BMO) and TD Bank (TSX:TD) in announcing increases to its quarterly dividend. RBC’s will rise five per cent to 63 cents per share, the fourth increase in the past four years.

Earlier this month, Royal Bank completed the acquisition of Ally Financial and quickly announced it planned to shut down the deposit business of the operations. As part of the move, the bank also cut the interest rates of existing Ally accounts to 1.2 per cent from 1.8 per cent, which puts it in line with its own high-interest savings accounts.

Royal Bank is the country’s largest bank by assets and market capitalization and has 80,000 employees serving more than 15 million clients. The bank has operations across North America and in 49 other countries.