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TORONTO: Royal Bank of Canada (TSX:RY) reports its third quarter net profits fell 18 per cent to $1.28 billion, reflecting strong results in Canadian banking, wealth management and insurance, but weaker capital markets businesses.

Canada's largest bank said Thursday its net income for the three months ended July 31 was down from a record $1.56 billion last year.

Diluted earnings per share dropped to 84 cents from $1.05, while return on equity, a broad measure of bank efficiency, fell to 14.3 per cent from 19.4 per cent.

Analyst estimates for Royal had forecast a profit of $1.02 per share, according to Thomson Reuters.

President and CEO Gord Nixon said the bank's broad operations and strong retail banking presence helped offset weaker capital markets businesses, which were hurt by lower trading from challenging global markets.

``We continue to build on our strong competitive positions and invest in our businesses for long term growth,'' Nixon said in a release before stock markets opened. ``The strength of our geographic and business diversity enabled us to produce another solid quarter despite challenging global capital market conditions.''

Royal is the third big bank to report its earnings this week.Bank of Montreal missed expectations on Tuesday, while CIBC outperformed analyst estimates Wednesday.

All three banks revealed some tension on their balance sheets as erosion set into their capital markets divisions, which trade and invest in bonds and stocks and help underwrite company financings, mergers and other transactions.

Skittish investors have kept stock market trading restrained in recent months as economic uncertainty, particularly in Europe, wore down their confidence and often left returns at a minimum.

At Royal, the bank's capital markets net income fell to $201 million from $562 million a year ago, largely reflecting a decline in trading revenue from record levels last year.

Profits from Canadian retail banking jumped 14 per cent to $766 million, driven by strong volume growth and lower provision for credit losses.

Wealth Management net income rose 10 per cent to $185 million, while insurance profits fell eight per cent to $153 million.

Meanwhile, the net loss from international banking dropped to $76 million this quarter from $95 million last year, reflecting improved credit losses at its U.S. banking division in the southeastern U.S. states.

Royal Bank is the country's largest bank by assets and market capitalization, and has 77,000 employees serving more than 18 million personal, business, public sector and institutional clients. The bank has operations across North America and 52 other countries.