RBC, National hit by weak trading income

Thu Aug 26, 2010 4:36pm EDT
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By Cameron French

TORONTO (Reuters) - Quarterly profit at Royal Bank of Canada fell more than expected due to weak trading income, while a similar drop in profit at smaller rival National Bank of Canada was not as severe as analysts had feared.

Shares of Royal, Canada's biggest bank, slumped 3.4 percent after markets opened, while National jumped 4.2 percent.

Canada's banks as a group are suffering from year-on-year comparisons to the third quarter of 2009, when recovering markets led to strong trading activity.

This quarter, the combination of the European debt crisis and a retrenching of equity prices has sapped activity from the market, leading to a drop in trading revenue that has exceeded what had already been dour predictions.

Bank of Montreal prompted a sell-off among Canada's big six banks earlier this week when it reported a surprisingly drop in trading profits, but Royal's results still managed to startle investors and analysts.

"After BMO reported, there were built-in expectations that revenue could potentially fall off a cliff. That being said, we were disappointed and little bit surprised by the amount of decline that Royal reported this quarter," said Barclays Capital analyst John Aiken.

RBC's net income fell 18 percent to C$1.28 billion ($1.2 billion) from C$1.56 billion, on a C$361 million drop in capital markets income.

"Trading revenue was certainly affected by industry-wide declines in client activity and lower trading margins, particularly throughout Europe," RBC Chief Executive Gord Nixon said on a conference call with analysts and media.   Continued...

<p>People walk past a Royal Bank of Canada branch in Ottawa August 27, 2009. REUTERS/Chris Wattie</p>