Royal Bank of Canada posted fiscal third-quarter earnings that missed analysts’ estimates, hurt by a slowdown in the company’s capital-markets division.

Canada’s largest lender by assets had $653 million in profit from RBC Capital Markets, a 6.4 per cent decline, the result of lower trading revenue and a drop in investment-banking fees, according to a statement Wednesday. Earnings from RBC Investor & Treasury Services also fell, sinking 24 per cent to $118 million, countering record profits in Canadian banking and wealth management.

Canadian banks have been facing a slowdown in domestic investment banking, with fewer equity financings and corporate bond sales along with lower acquisition activity crimping revenue in their capital-markets divisions. Low market volatility and declining interest rates, meanwhile, put additional pressure on trading.

Royal Bank had “a modest miss against expectations as the macro environment weighed on its Capital Markets results as well as those from its Investor & Treasury Services operations,” Barclays Plc bank analyst John Aiken said in a note to clients. “Despite the miss, the results from its other segments were solid.”

Across the Toronto-based bank, net income for the period ended July 31 rose five per cent from a year earlier to $3.26 billion, or $2.22 a share, with adjusted per-share earnings of $2.26 missing the $2.30 average estimate of 13 analysts surveyed by Bloomberg.

Royal Bank is the first of the large Canadian lenders to report quarterly results, and Canada’s six biggest lenders are expected to post earnings growth of five per cent for the quarter, the median of estimates compiled by Bloomberg Intelligence.

Royal Bank is one of Canada’s most diversified banks, including worldwide operations in asset management and capital markets and ownership of Los Angeles-based commercial and private lender City National Bank. Yet Canadian personal-and-commercial banking remains the company’s biggest division. The operation posted a 7.9 per cent jump in earnings to a record $1.61 billion, representing almost half of overall profit at the bank. Wealth-management earnings rose 11 per cent to $639 million.


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    The Toronto-based lender saw improvements in two areas of concern for investors and analysts: expenses and provisions. Growth in non-interest expenses cooled after three quarters of accelerated growth as the bank invested in technology and spent more on hiring, marketing and new initiatives. Still, costs reached a record $5.99 billion, up 2.3 per cent from a year earlier.

    Royal Bank has been facing elevated levels of provisions and impaired loans this year, notably in its wholesale lending portfolio in areas such as the U.S. oil-and-gas industry. In the third quarter, the bank set aside $425 million, little changed from the previous quarter and up 20% from a year earlier.

    Royal Bank’s stock has risen 6.3 per cent this year, outperforming the 4.2 per cent gain for the eight-company S&P/TSX Commercial Banks Index.

    Separately, Royal Bank said that Doug McGregor, group head of RBC Capital Markets and RBC Investor & Treasury Services, will retire on Jan. 31 after 37 years at the bank. Derek Neldner, global head of investment banking at RBC Capital Markets, will become group head of capital markets effective Nov. 1, while Doug Guzman, who oversees wealth management and insurance, will take over Investor & Treasury Services.

    Other takeaways from the bank’s quarterly results:

    • The company routinely expands mortgage balances by about five per cent each quarter, topping growth at its rivals. Domestic mortgage balances rose 5.9 per cent to $257.5 billion in the fiscal third quarter.
    • Most Canadian banks increase their quarterly dividends twice a year. Royal Bank stuck to that tradition, boosting its payout 2.9 per cent to $1.05.