Royal Bank of Canada
Compared to the second quarter of 2010, net income grew 13% to $1.59 billion while return on equity rose to 16.7% from 15.8%. The bank's tier 1 capital ratio remained high at 13.6% as well.
Like most of the U.S. banks, earnings at Canadian banks such as RBC and Bank of Montreal
Solid growth in its Canadian banking, wealth management, and insurance businesses helped RBC report an impressive quarter. The Canadian banking segment saw an increase of 16% in net income and 7% volume growth due to leveraging of branch networks. Wealth management's net income increased by $133 million to $225 million, reflecting higher average fee-based client assets and increased transaction volumes.
The insurance segment witnessed growth of 36% driven by net investment gains and lower claims costs. In spite of such solid year-on-year growth, investors weren't really enticed. The following paragraph tells you why.
Compared to the first quarter of 2011, the bank's second quarter was a drag. RBC's net income declined 18%. Return on equity, too, was down to 16.7% from 20.3%. Robust growth in the previous quarter's trading revenue that didn't manifest itself once again this quarter raised expectations beyond a realistic level.
To investors' chagrin, a 20% plunge in capital markets revenue owing to a fall in client volumes sent quarterly earnings off 18%. Add that to the fact that domestic lending volumes are expected to remain sluggish while most of the big banks have announced mortgage rate cuts to cope. For instance, RBC and Toronto-Dominion
The Foolish bottom line
If you are an investor who pays more attention to the long-term prospects of a stock, you may consider making RBC a part of your portfolio. That's despite the latest sell-off. With a healthy and consistent payout ratio and various other parameters, RBC looks like a strong and stable stock.
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