Royal Bank of Canada today said its third-quarter net income fell 10% as writedowns and provisions for bad loans offset gains in RBC’s domestic banking business.

RBC said net income was $1.26 billion, or 92¢ a share, in the three months ended July 31. That compared with a profit of $1.39 billion, or $1.06 a share, in the same 2007 period.

RBC’s overall revenue was $5.9 billion, up from $5.48 billion in the third quarter of 2007.

“We have been able to effectively manage our costs, while seizing revenue opportunities and investing for future growth,” RBC president and CEO said in release.

“Our record revenue and solid performance through difficult market conditions demonstrate the strength of our diversified businesses. I am confident we have the right strategies and disciplines in place for long-term success.”

The bank’s profit was hurt by writedowns, which reduced income by $263 million after tax or $498 million before tax, and by increased provisions for bad loans at its U.S. banking business, RBC announced Thursday.

RBC Capital Markets accounted for about two-thirds of the writedowns. The capital markets business unit saw its net income fall by 25% to $269 million, down $91 million from a year earlier.

RBC’s international banking arm posted a net loss of $16 million, down $103 million from net income of $87 million a year ago.

The bank attributed the loss at its international banking arm to higher provisions for credit losses and to a writedown of $53 million before-tax ($33 million after-tax) on the investment portfolio in its U.S. banking operations.

Royal’s provision for credit losses was $334 million, nearly double the $178 million recorded a year earlier but down slightly from the $349 million set aside in the second quarter ended April 30.

Net income at RBC’s domestic retail banking rose to $709 million, up 19% from the third quarter of 2007, thanks to strong growth across all its business lines and cost cutting.

The bank’s wealth management business also grew its profits. Wealth management net income was $186 million, up 5% or $9 million over last year on higher fee-based revenue, including the contribution from recently acquired Phillips, Hager & North.

RBC’s insurance division reported net income of $137 million, up 33% or $34 million over last year mainly due to actuarial adjustments.

Standard & Poor’s Equity Research reiterated its “buy” recommendation on RBC. S&P noted that the Canadian banking segment performed above its forecast, with net income of $709 million, offsetting worse-than-expected performance in international and capital markets, both of which were negatively affected by the U.S. housing downturn.