A Royal Bank of Canada sign is seen in downtown Toronto in March, 2011.Mark Blinch/Reuters
With the market focusing on Royal Bank of Canada's fast-growing capital markets business, which is producing more and more of the company's profit, chief executive officer David McKay is spending some time Friday morning downplaying the business.
Royal Bank of Canada's capital markets division had a huge quarter, with income rising 66 per cent as RBC did well on pretty much every aspect of the securities and wholesale lending business.
Corporate and investment banking revenue rose 44 per cent amid more debt and equity underwriting. Trading revenue drove global markets revenue up 62 per cent. The result is that capital markets is now producing a touch more than 25 per cent of the bank's overall profit in the most recent quarter, edging past an internal benchmark. (Here's a look from the Wall Street Journal at the bank's deliberations on whether to try to move that benchmark.)
But wait – it may not ever be thus, Mr. McKay stressed. He noted on Friday morning's conference call that there were "outsized trades" that helped and mentioned factors that were "unlikely to be repeated."
When an analyst pressed Mr. McKay on the Journal article, he first mentioned "how exceptional the results are and how happy we are with the capital markets franchise" before noting once again those "one-time trading items and very, very strong markets for us." He then stressed that the results again were "exceptional," characterized the contribution from capital markets as "slightly" over the 25-per-cent benchmark and said that business "ebbs and flows."
The CEO reiterated that the bank is sticking with the 25-per-cent target for capital markets, saying it is appropriate for a diversified business. There was about a $100-million (pretax) boost from such items.
The bank said one of the trades was in fixed income, commodities and currencies that related to an asset that had been written down. The bank restructured and sold the asset, and that resulted in a boost. There was also a trade in Canada in securities finance and equities.