ROYAL BANK OF CANADA $56 - Toronto symbol RY

ROYAL BANK OF CANADA $56 (Toronto symbol RY; Conservative Growth Portfolio, Finance sector; Shares outstanding: 1.4 billion; Market cap: $78.4 billion; Price-to-sales ratio: 2.1; SI Rating: Above Average) is Canada’s largest bank, with total assets of $659.9 billion. In its third quarter, which ended July 31, 2009, Royal’s earnings rose 23.7%, to $1.6 billion, or $1.05 a share, from $1.3 billion, or $0.92 a share, a year earlier. Revenue rose 32.3%, to $7.8 billion from $5.9 billion. Royal has steadily expanded its capital-markets division over the past few years. Through this subsidiary, the bank helps businesses raise capital by selling shares and issuing debt. It also provides security-trading and research services. Royal gets about a quarter of its revenue from this division. The bank’s improved results were largely driven by a $293-million earnings increase at the capital-markets division, which posted higher underwriting volumes and fewer writedowns as stock and bond markets rebounded. This helped offset lower earnings at Royal’s Canadian and international banking divisions, which were forced to set aside $770 million for bad loans. That’s up 130.5% from $334 million a year earlier. The capital-markets division will probably see slightly slower earnings growth over the next few months. Still, it should continue to offset weak demand for new loans at Royal’s retail-banking operations. The stock trades at 13.2 times the $4.23 a share that Royal will likely earn this year. The $2.00 dividend yields 3.6%. Royal Bank is a buy.