Wealth management buoys Canada banks in quarter, outlook bright

Tue Mar 5, 2013 4:45pm EST

* Banks benefit as investors get back into market
    * Assets under management drive profits, but fee revenue up
    * Outlook strong as market gains seen driving volumes

    By Andrea Hopkins
    TORONTO, March 5 (Reuters) - Strong wealth management
returns boosted profits at Canada's big banks in the first
quarter of 2013 as healthy gains in global stock markets drove
investors back into the market and powered the fees lenders
charge for advice and trading.
    While weak financial markets held back wealth management in
recent years, the segment has bounced back as stock markets
regain record peaks, setting the stage for more gains in the
services Canada's big six banks offer in mutual funds,
investment advice and full-service and discount brokerages.
    "Wealth management showed some exceptionally strong results
this quarter. The operations of largely all the banks benefited
from not only the growth in valuations in the markets, but also
on apparent improvement in sentiment in investors," Barclays
Capital analyst John Aiken said.
    "And while we may see continued volatility through 2013,
rising equity markets definitely bode well for increasing
profitability within the banks' wealth management platforms."
    Assets under management rose across the board for the six
big banks that have reported first-quarter earnings - Royal Bank
of Canada, Toronto-Dominion Bank, Bank of Nova
Scotia, Bank of Montreal, Canadian Imperial
Bank of Commerce and National Bank of Canada -
as rising markets boosted investments.
       Assets under management (C$ bln):
             Q1 2013     Q4 2012     Q1 2012
 RBC         353         340         313
 TD          211         207         196
 BNS         131         115         106
 BMO         167         164         155
 CIBC        92          89          84
 National    37          36          59
                                     
    With both retail and institutional investors returning to
trading, the banks capitalized on higher volumes and an ability
to raise fees, freedom they lacked as markets slumped after the
financial crisis.
    RBC, Canada's largest lender, said its wealth management net
income hit a record C$233 million, up 24 percent from a year
earlier, "mainly due to higher average fee-based client assets
resulting from net sales and capital appreciation, increased
transaction volumes reflecting improved market conditions and
higher semi-annual performance fees."
    Analysts said the Toronto-based bank, which has the largest
wealth management business and the most global wealth exposure
of its peers, will benefit from that as retail bank business
threatens to slow as Canada's economy underperforms.
    Cross-town rival TD Bank, which has expanded strongly down
the U.S. east coast, notched up a smaller but still impressive
15 percent growth in wealth management profit in the year.
    "Strong asset growth is driving earnings growth in our
Wealth business, despite low trading volumes and the low
interest rate environment," TD head of wealth management Mike
Pedersen said in a statement.
       
    Wealth management profits (C$ mln)    
             Q1 2013     Q4 2012     Q1 2012
 RBC         233         207         188
 TD*         165         148         144
 BNS*        310         300         288
 BMO*        163         164         104
 CIBC        90          84          100
 National    56          50          46
                                     
 * TD's results exclude TD Ameritrade. BNS and BMO results
include insurance. 
    
    While global economic clouds remain, the U.S. stock market's
record high on Tuesday will tempt more investors back into the
market.
    "We've had lower macroeconomic instability in the sense of
some of these larger issues - Europe, slower economic growth -
have been less of a headwind in investors' faces, which has
caused them to move more towards riskier assets and increased
investment activity. And that is nothing but positive for a
wealth management business," said Tom Lewandowski, a St.
Louis-based analyst at Edward Jones.
    He said Canadian banks have gobbled up boutique asset
managers and smaller firms, doubling their market share in
mutual fund sales over the past 10 years. 
    With Canadians seeming to prefer all their banking services
under one roof, the future for wealth management growth looks
bright for the big banks, who face headwinds in other domestic
banking services as Canadian consumers pay down debt.
    "I think we will continue to see good wealth management
results," Lewandowski said. "We like this business. It's
relatively low capital requirement, high return and relatively
consistent."
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