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Nathan Denette/The Canadian Press

Profit at Royal Bank of Canada fell 5 per cent in the first quarter as Canada's largest bank suffered from a sharp downturn in capital markets income.

RBC made $1.86-billion, or $1.21 in the quarter. That compared to a profit of $1.95-billion, or $1.27 a share, during the same period last year.

Revenue increased 5 per cent to $7.57-billion.

The results beat analysts' forecasts. On a diluted bases, RBC made $1.25 per share. Analysts were expecting earnings of about $1.12, according to First Call.

The bank also announced it was increasing its quarterly dividend by three cents, or about six per cent, to 57 cents.

Net income from continuing operations, which does not include the money-losing U.S. retail banking business RBC sold last summer, fell 6 per cent to $1.88-billion.

After booking an unusually strong quarter in the capital markets business a year ago, as upheaval in Europe caused bond trading to soar, RBC's earnings took a hit from a slowdown in that business.

The capital markets operations made $448-million, a drop of $189-million or 30 per cent, "compared to record earnings in the prior year," the bank said.

That drop overshadowed record earnings in RBC's Canadian personal and commercial banking business, which made a record $994-million in the quarter, up seven per cent compared to the first quarter of 2011.

After trading revenue skyrocketed a year ago and pushed capital markets profits up, the business began to slow in late 2011. While some of that has come back in recent months, Mark Standish, Co-CEO of RBC's capital markets business, said things remain sluggish.

"I still don't think we are in markets that could even be remotely described as normal," Mr. Standish told analysts on a conference call Thursday to discuss the earnings.

Profit at RBC's wealth management division also fell, dropping 12 per cent to $188-million. The decline came amid low interest rates and choppy markets, which led to lower transaction volumes among clients, the bank said. The business also booked higher costs as RBC looks to expand that operation.

RBC's insurance business made $190-million, up 40 per cent compared to last year due to gains from investments, lower claims costs and a significant new annuity contract.

The bank's international banking division made $24-million, down 65 per cent from last year, as low interest rates ate into margins at its Caribbean operations, and staffing costs increased.

Analysts and investors have raised concerns before about RBC's large capital markets exposure, which produces less predictable earnings than more steady retail banking. Despite the drop in capital markets income, RBC chief executive officer Gordon Nixon said the results were an example of other areas of the bank, such as Canadian retail banking and insurance, picking up the slack for the drop in trading revenues.

"These results demonstrate the strength of our disciplined growth strategy and diversified business model," Mr. Nixon said in a statement. "Record earnings in Canadian Banking continued to reflect our unrivalled size, scale and distribution network."