Source: The Canadian Press

Royal Bank (TSX:RY) says it will focus on fixing its U.S. banking business before sinking any more money into the division that was damaged by the economic downturn and continues to struggle.

After reporting a drop in fourth-quarter earnings to $1.12 billion, chief executive Gordon Nixon said the bank has been redefining its international strategy which will focus more on building its wealth management and capital markets businesses around the world.

“If you look at what we’re going to do in China, India, South America and Europe, it is going to be geared toward wealth management and capital markets,” Nixon said as the bank reported the weaker earnings.

“Our aspiration is not to build a global retail banking operation.”

Canada’s biggest bank reported a quarterly profit of $1.12 billion or 74 cents per share, on lower trading profits, higher costs and overall weakness in its international division. The results were down from $1.24 billion, or 82 cents a share, in the same quarter last year.

Revenue was $7.2 billion, down from about $7.5 billion.

Cash earnings per share was 84 cents, which was below analyst expectations of $1 per share, according to a survey by Thomson Reuters.

Shares in the bank closed down $2.47 at $53.25 on the Toronto Stock Exchange.

Royal Bank posted a $157-million loss at its international banking operation, which includes U.S. retail banking, compared with a loss of $125 million a year ago.

However Jim Westlake, head of Royal’s international banking and insurance, said he expected his division would reach profitability on a quarterly basis in the coming year, helped by improved results in several areas including fewer bad loans in the United States.

“But we’re also seeing some signs of renewed business growth and some positive items,” Westlake told a conference call with analysts.

The U.S. experience for Canadian banks has been a difficult one.

Both TD Bank (TSX:TD) and the Bank of Montreal (TSX:BMO) have made acquisitions in the past year to expand their U.S. holdings, but due to the economic uncertainty they have faced numerous challenges, partly in loan portfolios, which have been ravaged by the soft housing market.

Stonecap Securities analyst Brad Smith said RBC is playing to its strengths by looking to expand its wealth management and capital markets business around the world.

“They have very substantial global footprints in those two businesses,” said Smith, who noted the bank missed his expectations for the quarter.

“I also very strongly agree with Gord Nixon and his view on the U.S. retail banking business, which is fix what you’ve got first and then ask yourself the question as to how much more of that is good for the bank and the shareholders.”

RBC signed a deal last month to buy Fortis Wealth Management Hong Kong Ltd., a wealth management firm based in Hong Kong with 50 staff members, beefing up its presence in the Asia-Pacific region.

In October, the Royal Bank announced an agreement to sell Liberty Life to Bermuda-based reinsurer Athene Holding Ltd. for US$628.1 million, saying it’s concerned the division cannot properly compete at its current size.

The bank booked a $116-million loss on the sale. A year earlier, the quarterly results included a $1-billion charge to reflect the reduced value of intangible assets.

Excluding the special items in both years, Royal’s fourth-quarter earnings rose $481 million, or 10%, driven by record earnings in Canadian banking and solid growth in wealth management and insurance.

For the year, the bank reported net income of $5.2 billion, an increase of 35% from a year ago. Revenue was down to $28.3 billion from $29.1 billion.

Royal Bank is the country’s largest bank by assets and market capitalization, and has 77,000 employees serving more than 18 million clients. The bank has operations across Canada, the United States and more than 50 other countries.