August 30, 2012 / 7:48 PM / 5 years ago

Wealth management stagnates at Canada's big banks

* Wealth management profits unimpressive
    * Global uncertainty weighs on assets, investor appetite
    * Segment still seen as future driver of growth

    By Andrea Hopkins
    TORONTO, Aug 30 (Reuters) - Wealth management profits at
Canada's big banks shrank or stagnated in the sector's third
quarter, as market malaise and skittish investors again
neutralized a segment expected to emerge as a future money-maker
for the nation's big lenders.
    With billions of dollars of assets under management in the
mutual fund, investment advisory and brokerage services of
Canada's big five banks, wealth management can add big profits
in bull markets -- but languish in bearish ones.
    "Higher volatility and lingering concern about Europe
returned, and I'm not surprised to see assets under management
and under administration flat to down over the quarter," said
Edward Jones analyst Tom Lewandowski.
    "You need both of those things to go in the right direction
for this business to work."
    Assets under management (AUM) were little changed for the
big five Canadian banks that reported third-quarter earnings in
recent days -- Royal Bank of Canada, Bank of Nova Scotia
, Toronto-Dominion Bank, Bank of Montreal
 and Canadian Imperial Bank of Commerce -- as
flat or falling markets hurt investments.
    
    Assets under management:    
 Bank    Q3/12   Q2/12   Q3/11   y/y     q/q
         C$mln   C$mln   C$mln   pct     pct
 RBC     325     322     310     4.8     0.9
 TD      204     202     191     6.8     1.0
 BNS     109     109     105     3.8     0.0
 BMO     158     158     152     3.9     0.0
 CIBC    84      85      82      2.4     -1.2
    With both retail and institutional investors staying on the
sidelines, the banks mostly stuck with existing product lines in
a bid to keep costs contained until market confidence comes back
and they can start selling advice and investments again.
    "Investor activity levels were low, reflecting uncertainty
and lack of new issuance. These two trends depressed top-line
performance in many wealth management divisions," Moody's
banking analyst David Beattie said in an email.    
    
    Wealth management profits:    
 Bank    Q3/12   Q2/12   Q3/11   y/y     q/q
         C$mln   C$mln   C$mln   pct     pct
 RBC     156     212     192     -18.8   -26.4
 TD      154     155     146     5.5     -0.6
 BNS     284     298     260     9.2     -4.7
 BMO     91      94      86      5.8     -3.2
 CIBC    76      79      70      8.6     -3.8
    Canada's biggest bank stumbled hardest, though the results
included a C$29 million charge in the third quarter. Excluding
that, profits were down 8 percent compared with a year earlier. 
    "(RBC had) fairly significant decline in wealth management
earnings, with revenue decreases across all geographies,"
Barclays Capital analyst John Aiken said in a research note.
    Even so, RBC Chief Executive Gord Nixon said the segment's
big size advantage over rivals and capacity to grow bodes well
for better performance once improving markets lure investors
back to their portfolios.
    "We have an ambitious growth objective for this segment, and
while we are behind schedule as a result of the uncertain
markets and low interest rates, we are well positioned and have
good leverage to benefit from market stability," Nixon told
analysts on a conference call, noting that the market
environment had already improved in the last month.
    "We are confident that we're investing in a foundation that
will provide strong future growth, particularly as markets begin
to stabilize and client activities increase," he said.
    Crosstown rival TD Bank, the nation's second-largest lender,
did better in the quarter, with profits essentially flat as
lower trading volumes in the directing investing business were
offset by higher fee-based revenue in the asset-management
segment and higher net interest margins.
    "D espite a deterioration in economic conditions, we
anticipate good earnings growth year- o ver- y ear driven primarily
by continued momentum in net new client assets in the
advice-based and asset management businesses," Chief Executive
Ed Clark said during a c onference call.
    Scotiabank, BMO and CIBC all saw profits edge higher
compared w ith the third quarter last year, but shrink from the
previous quarter.
    Despite the lackluster performance at all of the banks,
wealth management remains a favored segment among the lenders,
in part because it has low capital requirements in a regulatory
environment demanding banks hold more capital in reserve.
    Demographics and the fact that plain vanilla
borrowing-and-lending segments of banking have little room to
grow also means wealth management holds be tter promise for
future profits.
    " If you can move into this wealth space there are attractive
returns and profitability potential," said Lewandowski.
    With the exception of TD Bank, which relies on its strong
retail banking platform to power profits, all of the banks are
working to expand their wealth management units, either through
acquisition or organic growth.
    In the meantime, the banks are waiting for the tide to turn
in global financial markets, trusting that when investor
confidence comes back, assets under management and profits will
grow again.
    Lewandowski said the first sign of a change in sentiment
will come when fund flow activity switches from the current
focus on fixed income and hybrid funds towards more risky
assets, signaling investors are active again. 
    "When you see that start to change, that will be a positive
for all of these banks in their wealth segments. It remains to
be seen when it will happen, but it will happen eventually. We
are long-term here at Jones -- so I'm willing to wait."

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