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A Royal Bank of Canada logo is seen on Bay Street in the heart of Toronto’s financial district in 2015.Mark Blinch/Reuters

Observers had low expectations for capital markets activity among the big banks, heading into the first-quarter reporting season. The banks didn't disappoint.

For three of the five banks that reported results last week, profits from capital markets fell by double digits from last year, at a time when Canadian banks are struggling to find growth in their retail divisions because of slowing loan growth and a weak Canadian economy.

Admittedly, the profit declines follow strong capital markets activity a year ago – when some of the banks reported double-digit profit growth, stock markets were near record highs, and commodity prices were more stable – making comparisons difficult. Yet, even chief executive officers noted that today's market conditions are far from favourable.

Dave McKay, Royal Bank of Canada's CEO, called the environment for capital markets "difficult" during a conference call with analysts, pointing to higher provisions for bad loans and a quiet market for initial public offerings and debt – no doubt driven by volatile stock markets and depressed commodity prices.

Still, RBC's capital markets division did relatively well next to its peers: It delivered a profit of $570-million in the fiscal first quarter, down just $24-million or 4 per cent from last year. The result beat the expectations of some analysts, largely because of rebounding credit and foreign-exchange trading revenue.

"In prior research about the capital markets segments of the Big Six banks, we have long argued that revenues and earnings from this business line will grow in an environment of heightened, but not toxic, volatility (we referred to this as 'Goldilocks' volatility)," Peter Routledge, an analyst at National Bank Financial, wrote in a note.

"In considering RBC's results this quarter, market volatility fuelled faster revenue growth than we anticipated. However, this quarter's earnings strength also highlights the underlying franchise strength of RBC Capital Markets," Mr. Routledge wrote.

Canadian Imperial Bank of Commerce said that profit from its capital markets division was $244-million, down $27-million or 10 per cent.

Among some of the highlights during the quarter, CIBC was the joint lead and book runner of the $1-billion offering from the Province of Manitoba, and it advised BayBridge Seniors Housing Inc. on its $1-billion takeover of Amica Mature Lifestyles Inc.

National Bank of Canada said that profit from its financial markets division fell to $41-million, down $136-million or 77 per cent. However, the decline followed a $165-million writeoff of its equity interest in Maple Financial Group earlier this month. Excluding that one-time hit, National Bank said that financial markets profit rose 5 per cent, to $186-million.

Bank of Montreal was the outlier among the big banks in the first quarter. Its capital markets division reported a profit of $260-million, up $40-million or 18 per cent from last year, driven partly by the stronger U.S. dollar, higher corporate banking activity, higher investment banking advisory fees and its best quarter for equity trading since the first quarter of 2009 – though analysts doubted whether the gains were sustainable.

"In this challenging environment, we are very surprised to see trading make a multiyear high," Meny Grauman, an analyst at Cormark Securities, said in a note.

The quarterly reporting season will conclude on Tuesday, when Bank of Nova Scotia reports its fiscal first-quarter results.