RBC: Don't Expect Soaring Bank Profits to Continue

Dec. 8.09 | About: Royal Bank (RY)

By Tara Perkins

Banks globally are unlikely to keep up the stellar trading profits that they posted in 2009, Royal Bank of Canada (NYSE:RY) chief executive Gordon Nixon told an industry conference in New York Tuesday.

Speaking at the Goldman Sachs financial services conference, Mr. Nixon said that he thinks RBC is a good proxy for the industry at large when it comes to trading results, and the bank is starting to see some “stability” in trading.

On the back of volatile markets, many banks including RBC have posted unusually high trading profits in the past year, and that’s helped to cushion their overall earnings during a difficult time for the sector.

Mr. Nixon said that there’s no question that trading levels will not be sustained. Banks will not continue to show the growth rates that they have in trading over the last little while, he said. However, he said that capital markets businesses should be able to offset, to some degree, the decline in trading thanks to expected growth in other parts of investment banking including M&A.

Mr. Nixon also reiterated his belief that it will take longer than many people expect before the U.S. banking sector’s biggest players start to consolidate. For its part, Royal Bank is in no rush to do a U.S. takeover and Mr. Nixon said it’s pretty unlikely that any bank will do a significant deal in the near future. The last thing RBC wants to do is inherit another bank’s balance sheet challenges, he said.

Royal Bank has been aggressively structuring its own struggling U.S. banking operation in the last few months, Mr. Nixon said, and its priority is to achieve a return on assets in that business that’s on par with industry levels.