By Vipal Monga and Allison Prang
TORONTO -- Royal Bank of Canada's profit increased in its fiscal third quarter as net interest income rose by almost 10%.
Canada's largest bank by market capitalization reported net income of $3.26 billion Canadian dollars ($2.45 billion) in the three months that ended July 31, up from roughly $3.1 billion in the year-prior quarter. Earnings were C$2.22 a share, up from C$2.10. The bank said it had earnings of C$2.26 a share on an adjusted basis, up from C$2.14.
The Toronto-based bank's personal and commercial banking, wealth management and insurance businesses grew, but income from capital markets and treasury investor services fell 6% and 24%, respectively.
RBC followed the recent lead of larger firms like JPMorgan Chase & Co., Goldman Sachs Group and Morgan Stanley in saying investment banking results were pressured by low market volatility, along with slow underwriting and merger advisory business, amid global trade concerns and economic uncertainty.
"Geopolitical risks and trade tensions are having an impact on both business and market sentiment world-wide," said chief executive Dave McKay, during a call with analysts.
RBC's credit-loss provision climbed 27% from a year earlier to C$425 million.
Net interest income -- or the interest that banks take in from loans versus the interest they pay out on deposits -- was C$5.05 billion, up 9.8%. Noninterest income, which comes from categories like insurance premiums and investment management, was C$6.5 billion, up 1%.
The bank expects interest margins to fall in the coming year, assuming the outlook for more rate cuts in Canada and the U.S. remains unchanged, said Rod Bolger, the chief financial officer.
The Bank of Canada, the country's central bank, is expected to keep interest rates steady, but it has faced more pressure to lower rates after the U.S. Federal Reserve recently cut interest rates by 25 basis points. Lower rates can hurt bank profitability by reducing what they earn in interest on some loans.
To counter the expected drop, the bank will cut expenses, particularly in the treasury services group, Mr. Bolger said.
Total revenue, or net interest income and noninterest income combined, was C$11.54 billion. Analysts were expecting C$11.16 billion.
The bank's capital ratio climbed to 11.9% in the third quarter from 11.8% in the second-quarter. Mr. McKay said the bank would conserve capital in light of global economic uncertainty and avoid acquisitions. He said prices for other banks in the U.S. are still relatively high and the bank is content for now to grow its existing business.
The bank, which spent C$197 million on share buybacks during the quarter, will continue to return money to shareholders with further repurchases, said Mr. McKay. RBC hiked its quarterly dividend by 3% to C$1.05 a share.
Separately, the bank said Wednesday that the head of RBC Capital Markets and RBC Investor & Treasury Services, Doug McGregor, 63, is retiring at the end of January. RBC Capital Markets' global head of investment banking, Derek Neldner, 46, will take over as group head of capital markets in November.
A bank spokeswoman said the capital markets business more than doubled between 2008 and 2018 during Mr. McGregor's tenure. RBC has been aggressively trying to grow its U.S. capital-markets presence in recent years.
It ranks 11th in terms of investment banking revenue in the U.S. so far this year, behind Deutsche Bank AG, Wells Fargo & Co. and Credit Suisse Group AG, according to Dealogic.
Write to Vipal Monga at firstname.lastname@example.org and Allison Prang at email@example.com