A Royal Bank of Canada (RBC) sign is seen outside of a branch in Ottawa, Ontario, Canada in this file photo.Chris Wattie/Reuters
Royal Bank of Canada posted lower profit from capital markets during its third quarter, as lighter client activity in fixed-income trading weighed on the bank's results.
In the three months ended July 31, net income from capital markets declined 4 per cent to $611-million. The segment was dragged down by lower revenue from fixed-income trading, higher compensation costs and lower results from its municipal banking desk in the United States, RBC said on Wednesday in its third-quarter earnings report.
During the period, revenue from capital markets dropped by 2 per cent to $2.04-billion from $2.09-billion last year. Trading revenue fell 7 per cent to $753-million, whereas non-trading revenue rose 1 per cent to $1.3-billion.
Low volatility was a key theme in the quarter. When volatility is low, as it has been, investors tend to feel less compelled to change their positions. Brokerages suffer because they earn revenue off each trade and sell other trading products to help their clients manage risk amid choppy markets.
At this time in 2016, investors around the world were scrambling to make sense of Britain's Brexit vote and prep for the U.S. election.
Subdued client activity pushed revenue from fixed income, currencies and commodities (FICC) lower to $589-million, from $618-million a year ago. RBC's peers in the U.S. also saw declines in their FICC trading businesses.
Revenue from global equities trading fell a more modest 2 per cent to $261-million.
RBC reported year-over-year declines in some of the regions where it operates, and gains in others.
Revenue from RBC's U.S. capital markets division, which generates almost double the sales for the bank than its Canadian unit, dropped 6 per cent to $1-billion. RBC attributed the decrease to lower fixed income and equities trading, plus lower municipal banking and equity underwriting activity.
Sales across Europe fell 6 per cent to $322-million, also due to a decline in fixed income trading.
On the other hand, the Canadian arm saw its revenue rise 2 per cent to $583-million. In its home market, the bank said it posted strong revenue in equities, fixed income and commodities, as well as more revenue from loan syndication and lending. These gains were partially offset by lower fees from underwriting.
The Asia and other regions segment also performed better, with revenue rising 35 per cent to $130-million on improved equities trading and higher fees from advising on mergers and acquisitions.