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WRAPUP 1-RBC CEO to step down; Canada bank profits mixed

Cameron French
Thursday, 5 Dec 2013 | 11:45 AM ET

* CEO Nixon to be replaced by executive Dave McKay

* RBC profit up on retail, capital markets, shrs drop 1 pct

* TD shares fall 1.9 pct after it misses estimates

* CIBC tops estimates, but shares flat

TORONTO, Dec 5 (Reuters) - Royal Bank of Canada Chief Executive Gordon Nixon will step down next summer after 13 years at the helm of Canada's largest bank, RBC said on Thursday as it announced a stronger-than-expected quarterly profit.

Nixon is the longest-serving of Canada's current crop of bank CEOs, but, at 56, by no means the oldest. He will hand off to RBC's retail banking head, Dave McKay, in a move that analysts said was expected, just not so soon.

"The timing was a surprise, but the appointment was not," said CIBC World Markets analyst Rob Sedran. "Dave has done a very good job running the bank's largest businesses. I was expecting him to get the job, just not this year."

Nixon's announcement, which came as RBC, Toronto-Dominion Bank and Canadian Imperial Bank of Commerce all reported fiscal year-end results, caps off a changing of the guard at Canada's top three banks.

Rick Waugh, who became CEO of No. 3 lender Bank of Nova Scotia shortly after Nixon took the top job at RBC, stepped down in November in favor of Brian Porter. TD Bank CEO Ed Clark said earlier this year he will retire in 2014 after 12 years on the job. He will be replaced by TD executive Bharat Masrani.

"I think the time is right for a transition," Nixon said on a conference call.

"Dave just turned 50. He's at the right age and stage of his career to hopefully have a good 10-year run at leading this incredible organization."

McKay, who will take over on Aug. 1, has been at the bank for 25 years. He ran RBC's Canadian retail bank business from 2008 to 2012, and last year he added responsibility for RBC's retail banking operations in the United States and the Caribbean, as well as its cards business.

Paul Gardner, partner and portfolio manager at Avenue Investment Management, which owns shares of RBC and TD, said he didn't expect any sort of a strategic shift for RBC under McKay.

"It's all about Canadian retail banking, and the continued growth of wealth management, which gives you stable earnings," he said. "(Nixon's) selling at the top in a sense. He's handing it off in fantastic shape."

PROFIT RISES

RBC earned C$2.1 billion ($1.96 billion), or C$1.40 a share, in the fiscal fourth quarter, ended Oct. 31, compared with C$1.9 billion, or C$1.25 a share, a year earlier.

The result was hurt by an already announced C$118 million charge at its insurance unit stemming from proposed insurance legislation that the bank says would affect tax treatment of certain life policies.

That charge was more than offset by a favorable C$124 million tax adjustment.

Excluding those and other smaller items, the bank earned C$1.42 a share, topping analysts' consensus forecast for a profit of C$1.38 a share, according to Thomson Reuters I/B/E/S.

Profit was driven by a 5 percent rise in retail banking, RBC's largest division, as well as 62 percent jump in capital markets income.

Even so, RBC shares were down 1 percent at C$68.33 on the Toronto Stock Exchange, slightly outpacing the 0.6 percent decline in the market's broader financial sector.

TD SHARES DROP ON EARNINGS MISS

Shares of TD, the country's second-largest bank, were down a sharper 1.9 percent at C$93.95 after the bank posted results that missed estimates. The stock dropped even though TD announced a surprise dividend hike and an expected stock split.

TD, which in addition to its Canadian retail bank operates a 1,300-branch network on the U.S. East Coast, earned C$1.62 billion, or C$1.68 a share, up from C$1.60 billion, or C$1.66 a share, in the year-before quarter.

Excluding a C$90 million restructuring charge, a C$59 million hit for amortization of intangibles, and other items, the bank earned C$1.90 a share, missing analysts' estimate of a profit of C$1.99 a share.

John Aiken, an analyst at Barclays Capital, said he thought the miss was largely due to higher than forecast expenses.

"We would not be surprised to see some weakness in TD's shares based on the headline earnings. However, TD's U.S. retail platform's underlying metrics were very strong," he said in a note.

TD's profit during the quarter was driven by its Canadian and U.S. retail banks, as well as its insurance division, and held back by a 61 percent plunge in income at its wholesale bank.

It said it will raise its quarterly dividend 1 Canadian cent to 86 Canadian cents per share.

CIBC, Canada's fifth-largest bank, said it earned C$836 million, or C$2.05 a share, down from C$852 million, or C$2.02 a share, a year earlier.

However, excluding a C$39 million restructuring charge from the bank's Caribbean unit and other items, the bank earned C$2.22 a share, topping expectations for a profit of C$2.15 a share.

Its shares were down just 5 Canadian cents at C$90.00.

Scotiabank will be the last of Canada's big banks to release fourth-quarter results when it reports on Friday.

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