Businessman hand showing financial report on table

Royal Bank of Canada increased its dividend as its third-quarter profit rose 5% to $3.3 billion, but the lender’s latest earnings missed estimates as challenging market conditions weighed on its capital markets division.

The Toronto-based lender said Wednesday it will now pay a quarterly dividend of $1.05 per share, up three cents or 3%.

The increased payment to shareholders came as RBC reported $3.3 billion in net income for the quarter ended July 31, up 5% from $3.1 billion a year ago.

“Our focused strategy and diversified business mix continue to deliver strong returns for our shareholders as we leverage our scale and investments in technology to create new value streams for our clients,” RBC chief executive Dave McKay said in a statement.

RBC’s diluted earnings per share for the three-month period ended July 31 was $2.22, up from $2.10 a year ago. On an adjusted basis, RBC’s diluted cash earnings per share for the third quarter of its financial year amounted to $2.26, compared with $2.14 during the same quarter in 2018.

On average, analysts expected earnings of $2.30 per share, according to the financial markets data firm Refinitiv.

The bank’s latest results were fuelled by strength in personal and commercial banking, wealth management and insurance. However, the lender’s capital markets and investor and treasury services divisions were lower amid challenging market conditions.

RBC’s personal and commercial banking division saw net income of $1.66 billion, up 10% year-over-year due to volume growth and higher spreads in Canadian banking.

Its wealth management arm, which includes Los Angeles-based bank City National, reported net income of $639 million, up 11% from the year prior, largely due to higher average fee-based client assets and an increase in net interest income. City National saw loan growth of 17% year-over-year during the latest quarter, RBC said.

The bank’s insurance division saw net income rise by 29% to $204 million during the quarter, “reflecting higher favourable investment related experience” and the impact of new longevity reinsurance contracts.

However, RBC’s capital markets division saw net income drop by 6% year-over-year to $653 million. The bank said this was “primarily due to lower loan syndication revenue mainly in the U.S. and Europe, reflective of the contraction in the global fee pool.” Other factors impacting the division’s earnings included higher provisions for credit losses — or money set aside for bad loans — and lower equity trading activity across most regions, the bank said.

Its investor and treasury services division reported third-quarter net income of $118 million, down 24% from the same period in 2018, due to lower client deposit margins, lower revenue from its asset services business, and lower funding and liquidity revenue.

“Overall, the results came in below consensus largely owing to lower trading revenue and rate headwinds in the investor and treasury services business, with several other areas — including Canadian banking — showing well,” CIBC Capital Markets analyst Robert Sedran said in a note to clients.

The bank’s key measure of financial health, called the common equity tier 1 ratio (CET1), was 11.9% as of July 31. That’s up from 11.8% during the previous quarter and 11.1% during the third-quarter of 2018.

Total provisions for credit losses during the quarter rose by $79 million or 23% to $425 million, due to higher provisions in capital markets, wealth management and personal and commercial banking.

RBC was the first of Canada’s big banks to report its third-quarter earnings. The Canadian Imperial Bank of Commerce reports its latest financial results on Thursday, followed by the other banks next week.

RBC also on Wednesday announced that its group head of RBC Capital Markets and RBC Investor and Treasury Services Doug McGregor will retire on Jan. 31 after 37 years at the bank. McGregor joined RBC in 1983 and held progressively senior roles at the bank. He became its capital markets CEO in 2008, and assumed responsibility for investor and treasury services in 2012.

“Under Doug’s leadership, RBC Capital Markets has executed on a successful growth strategy to create a top 10 global investment bank with a strong client focus, exceptional talent, and a disciplined approach to risk management,” McKay said in a release.

The bank’s global head of investment banking at RBC Capital Markets Derek Neldner, has been appointed as group head of capital markets effective Nov. 1 when McGregor will become chairman of RBC Capital Markets through to his retirement.

RBC’s group head of wealth management and insurance, Doug Guzman, will assume leadership for investor and treasury services.