How to read RBC's numbers

Before looking at Royal Bank of Canada's latest results, which are terrific, it's important to understand how professional investors approach Canada's banks.

The big six banks are core holdings for most portfolio managers, and they make up a huge chunk of the S&P/TSX benchmark. Play the banks correctly, and a money manager outperforms. Miss a move in this space, and unemployment looms.

Most institutions try to beat the index by overweighting their stakes in bank stocks they see leading the pack, and underweighting the dogs. It's a simple strategy, and it works. That translates into enormous attention to the relative merits of each bank, against rivals.

Which brings us to Royal Bank .

On an absolute basis, this is Canada's leader in the field. RBC is the market leader in domestic retail banking, fields a strong and growing wealth management platform and owns globally relevant investment dealer. Any investor picking just one Canadian bank stock to own would be well advised to opt for RY - that's the stock symbol.

But most investors don't own just one Canadian bank.

When digesting RBC's financial results on Friday, analysts focused on how it compares with the rivals that have reported to date. (Bank of Nova Scotia is the only big bank that hasn't weighed in with 2009 results, it reports on Tuesday.)

Simply put, analysts are saying other bank stocks are likely to produce better performance.

"While it is very difficult to argue with the strength of its domestic franchises, our issue with Royal Bank remains its absolute valuation levels," said a report early Friday from Barclays Capital analyst John Aiken. He said the bank faces "significant volatility and headwinds as trading revenues decline to more sustainable levels."

But here is what most investors will key on in coming weeks, as they revist their bets on the banks.

"On a relative basis, although Royal Bank's earnings were quite strong particularly in context with the current economy, we note they lack the 'stand out' quality that some of its peers reported this quarter," Mr. Aiken said.

That sort of sentiment sets the stage for a move out of RBC, and into the likes of Bank of Montreal, which significantly beat expectations when it posted results last week.