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Morning Meeting: Scotia, RBC pay price for growth plans Add to ...

A look at some must-read news on deals and deal makers around the world

RBC, Scotia capital markets earnings slide

Everybody pretty much expected the revenue line to be down for capital markets as Canada's big banks started reporting earnings. What's been a bit of a shocker is how much expenses have climbed as the banks, rather than trimming, have spent money to grow even though the markets have cooled. Both Royal Bank of Canada and Bank of Nova Scotia said Friday that earnings from capital markets were down as revenue declined while expenses climbed.

RBC's capital markets profit in the three months ended on Oct. 31 fell to $373-million from $561-million. The culprit was sales and trading revenue that fell to $869-million from from $1.34-billion. That outweighed an increase in revenue from corporate and investment banking to $604-million from $496-million.

This is the RBC take on the quarter, relative to the fourth quarter of 2009:

"Trading revenue was negatively impacted by significantly lower client volumes resulting from sovereign debt concerns and regulatory uncertainty, and the tightening of credit and bid/ask spreads compared to strong trading results in the prior year. Strong revenue growth in most of our investment banking businesses, particularly in debt origination and mergers and acquisitions (M&A) in the U.S. and Europe partially offset the decrease."

There was also a big jump in expenses stemming from the bank's fast expansion. RBC said "non-interest expense increased $107-million largely due to higher costs in support of business growth and new regulatory requirements."

Still, RBC showed a big rebound in capital markets from the third quarter and the results prompted analyst John Aiken of Barclay's Capital to say the bank had "an overall exceptional quarter in its capital markets" division.

Bank of Nova Scotia reported that profit in capital markets fell $80-million to $273-million "due largely to more normalized market conditions." Revenue declined $186-million.

Unlike RBC, Scotia Capital reported not only a decline in trading but in corporate and investment banking revenue as loan volumes and fees dropped.

The bank said that total non-interest expenses were $322-million in the fourth quarter, 13 per cent higher than last year. "The change reflected an increase in hiring costs as well as higher technology costs to support current and future business growth initiatives," Scotia said.

Walter gets Western Coal

Walter Energy and Western Coal of Canada have agreed on a $3.3-billion combination. The Walter agreement to purchase Western will be a relief to arbs. The deal comes shortly after the two companies agreed to extend an exclusive negotiating period, which set off speculation that there was a hitch in structuring a takeover. The betting was it was a tax issue.

The battle in private banking heats up

With investment banking and capital markets looking less attractive in the new regulatory environment, more banks are looking to get into the business of private banking for very wealthy clients. Bloomberg News takes a good look at the shifting landscape.

CPPIB looks east for returns

The top brass at Canada Pension Plan Investment Board is spending a lot of time in Asia of late, looking to understand and thrive in a market that's expected to be a cornerstone of the money manager's future. The Globe and Mail's Tara Perkins reports.

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