05/24/2012 09:51 EDT

RBC 2Q Earnings: Royal Bank Sees Profits Drop 7 Per Cent On Acquisition


TORONTO -- Royal Bank of Canada says its second-quarter profit from continuing operations dropped seven per cent to $1.56 billion as it faced a loss from its acquisition of the remaining half of RBC Dexia.

The results came in at $1.01 per share, weaker than the $1.68 billion or $1.10 per share reported a year ago.

The company's cash diluted earnings per share was $1.17, a penny below the consensus estimate compiled by Thomson Reuters.

RBC announced last month that it would pay $1.1 billion cash to buy the remaining half of the international pension fund advisory firm RBC Dexia, which it had set up with a European banking partner.

Banque Internationale a Luxembourg SA, the successor to Dexia SA, indicated last year that it planned to sell its half of RBC Dexia and Royal Bank announced in October that it was interested in buying full control of the business.

A loss associated with the purchase of the remaining half of the RBC Dexia reduced the bank's second-quarter profit by $202 million.

RBC chief executive Gord Nixon told analysts Thursday that the loss it recorded on its own RBC Dexia holdings reflects the lower price paid for Dexia's share. The bank would have shown a gain if it had paid a premium to its partner.

"These results, with the exception of the Dexia numbers, are very clean and they reflect solid performance in Canadian banking, capital markets, insurance and wealth management segments,'' Nixon said.

"Our ability to deliver strong results to our shareholders is a testament to the strength of our diversified business model and our ability to successfully execute on our disciplined growth strategy.

"Our results also reflect our strict discipline around managing costs and risks and our commitment to maintaining strong capital position, all of which are key to RBC's operating philosophy and especially important in today's environment with market and economic uncertainty.''

The company's Canadian banking arm accounted for $937 million of RBC's net income for the quarter ended April 30, up $42 million from the comparable period last year.

RBC's insurance business contributed $151 million of profit, up $28 million from a year ago, while RBC Capital Markets provided $449 million of net income, up $42 million from the second quarter of 2011.

The gains in those operations were partially offset by a $15-million decline in profit from wealth management, which contributed $212 million of net income.

The bank's international operations posted a $196-million loss but would have had a slim $6-million profit _ down $40 million from the second quarter of 2011.

RBC's continuing operations also exclude the bank's U.S. regional retail operations, which were sold during the quarter, and from the Liberty Life Insurance business that the bank sold last year.

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