Editor's note: This story has been corrected to clarify types of trading activity.
Canada’s investment banks have been dragged through several tiresome months of slim demand for their services to raise money or help with deals like mergers. But thanks to the solid work of their bond traders, at least two of Canada’s banks have found some much-needed support.
Both BMO Nesbitt Burns Inc., and Scotia Capital Inc. worked to offset losses in a slow deal market by leaning on their trading desks, as was revealed in their third-quarter results today.
Scotia Capital, which is already known for its strong trading operations, put a little extra weight on capital markets revenue in its fixed income, commodities and precious metals businesses to hold up the quarter’s growth. In fact, the division produced its best quarter in three years when it comes to net income. It announced $398-million in net income for Q3, which is a 31 per cent increase year-over-year – amid tumultuous markets, that’s a particularly impressive accomplishment.
Trading activity, including prop and market making, offered a little extra support to the investment banking side of its business – deal advisory and underwriting fees dropped, as did trading commissions. Net fee and commission revenue was down $12-million over the same time last year.
At BMO, the period saw a similar boost from trading. Revenue from the trade of bonds and commodities was up thanks to general improvements in the marketplace. Other areas that got a boost in the past year were corporate banking and debt underwriting. Although, unlike Scotia Capital, BMO’s net income in this division was down 14 per cent to $232-million from a strong Q3 in 2011.
But much like Scotia Capital, BMO took a hit in M&A fees and equity underwriting which dropped by $7-million. It’s no surprise, given the general market hesitation caused by the crisis in Europe, slow growth in China and uncertainties in the U.S.
The other four major Canadian banks report their third quarters on Thursday, so we’ll soon find out whether this great lean on trading has dominoed through the industry.