Royal Bank looks to U.S. capital markets to offset impacts of European recession

TORONTO – Royal Bank of Canada (TSX:RY) says it is focusing on increasing the market share of its capital markets business in the U.S., where it generates “significantly” more revenue than north of the border.

“Our solid results in that market are helping offset the impact of the prolonged recession affecting many European countries, as well as some softness in commodity markets in Canada,” president and chief executive Gordon Nixon said during a conference call.

Royal Bank said its capital markets business brought in $540 million in revenue in Canada, up from $527 million in the second quarter of 2012. Meanwhile, its capital markets business in the U.S. brought in $816 million, compared to $783 during the same year-earlier period.

In total, RBC Capital Markets contributed $386 million to the bank’s net income, up $15 million or four per cent a year ago.

Looking to the U.S., where lower unemployment and higher home values suggest the economy is improving, has been a common themes for the Canadian banks this quarter as they cope with a slowdown in consumer lending in Canada.

Royal Bank reported Thursday a profit of $1.9 billion in the second quarter, up 26 per cent from a year earlier. The profit amounted to $1.27 share while adjusted diluted earnings per share were $1.31 — in line with analyst estimates.

“We grew earnings this quarter in each of our segments compared to last year, driven by the strength and diversification of our businesses,” said Nixon in a statement.

“We continue to extend our leadership position by successfully executing our strategy and making focused investments to deliver long-term shareholder value.”

Royal’s main personal and commercial banking segment accounted for about $1 billion of total net income, up $117 million or 12 per cent year-to-year.

The bank says the increase reflected solid volume growth across all businesses in Canada and a lower provision for credit losses.

RBC’s wealth management segment contributed $225 million in net income, up $13 million or six per cent, while the insurance segment contributed $166 million, up $15 million or 10 per cent.

The bank’s relatively new investor and treasury services segment contributed $67 million of net income — contrasting with a $121 million loss a year earlier.

Royal Bank’s shares closed down by $1.14, or nearly two per cent, at $62.84 on the Toronto Stock Exchange on Thursday.