Canadian banks' wealth business sags, but prospects solid

Fri Jun 1, 2012 5:14pm EDT
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By Andrea Hopkins

(Reuters) - Wealth management wasn't a big money-maker for Canadian banks this quarter as slumping financial markets kept investors on the sidelines, the second straight gloomy performance by a segment most banks view as a future cash cow.

Assets under management inched higher in the quarter ended April 30 as the banks drew in a few more clients and sold a few more mutual funds, but profits were flat or slightly lower for the banks who did not make big acquisitions.

"It's a market-related revenue line, and when markets are down, so are revenues," said Peter Routledge, banking analyst at National Bank Financial.

The global market downturn and the long-term prospect of low interest rates have made it harder for Canada's Big Six banks to make money on their mutual fund, advisory and investment services, which in previous years have helped drive earnings at the very profitable lenders.

But the Canadian banks continue to jockey for acquisitions and greater market share in the global wealth management sphere, seen as a relative growth opportunity compared to plain vanilla banking like checking and savings accounts and lending.

"This is a growth engine for a lot of these banks, Royal especially, so they are going to continue to make acquisitions where they make sense," said Tom Lewandowski, Canadian banking analyst at Edward Jones in St. Louis.

Canada's largest lender, Royal Bank of Canada (RY.TO: Quote), has repeatedly said it is interested in expanding its global wealth management unit, and rumor has it that RBC is among the bidders for Bank of America's non-U.S. wealth business.

RBC notched C$212 million ($204 million)in wealth management profits in the second quarter, down from C$227 million a year ago, but an improvement over the C$188 million in income in the previous quarter. Assets under management inched up to C$325 billion.   Continued...