RBC chief says NAFTA concerns affecting business clients

By Matt Scuffham

TORONTO (Reuters) - Royal Bank of Canada on Friday said concerns about the outcome of talks to renegotiate the North American Free Trade Agreement were impacting longer-term investment decisions by its commercial customers.

Officials from the United States, Canada and Mexico are preparing for a critical seventh round of negotiations in Mexico City beginning on Sunday, amid growing doubts a deal will be agreed before talks are scheduled to finish in early April.

"Some of our commercial customers remain concerned about it and it's certainly impacting longer-term investment decisions that we see customers making," RBC Chief Executive Dave McKay said on a conference call after the bank reported first-quarter earnings that exceeded market expectations.

McKay was hopeful a deal would be reached but believed there was a "reasonable probability" that U.S. President Donald Trump would trigger a 180-day countdown to withdraw from the agreement.

"At that point I still think the markets will largely anticipate a good outcome and look through that but you'll see some volatility through this process," he said. "We all hope this gets resolved in the near-term."

Chief Financial Officer Rod Bolger said in an interview he believed Canada's economy would be resilient enough to withstand the impact of NAFTA being terminated if the countries reverted to World Trade Organization tariff levels.

"If that were the case, we do not believe the impact on GDP growth over a several-year period would be more than half a percent to 1 percent and the number of jobs lost in Canada would be fewer than the amount added last year," he said. "You're talking more of a blip than a major concern."

Canada's biggest lender by market value reported earnings per share, excluding one-off items, of C$2.05 for the quarter through Jan. 31. Analysts had on average forecast earnings of C$1.99 per share, Thomson Reuters I/B/E/S data showed.

RBC reported net income of C$3 billion ($2.4 billion), up 7 percent. That included a writedown of C$178 million as a result of a tax overhaul in the United States.

The bank's core personal and commercial banking division produced a 10 percent rise in net income to C$1.5 billion, benefiting from a 6 percent increase in sales of residential mortgages despite concerns over Canada's housing markets.

RBC said it was too early to assess the impact of stricter rules on mortgage lending introduced in January.

($1 = 1.2706 Canadian dollars)

(Reporting by Matt Scuffham; Editing by Jane Merriman and Bernadette Baum)