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A Scotiabank location in downtown Toronto.Fred Lum

The capital-markets arms of two of Canada's biggest banks saw their first-quarter profits decline, but executives said improved stock market conditions bode well for the quarter ahead.

BMO Nesbitt Burns Inc. and Scotia Capital Inc. both saw their net income for the three months ended Jan. 31 decline from a year ago.

BMO's capital-markets division reported net income of $271-million for the quarter – a 26-per-cent drop compared to an exceptionally strong first quarter of 2017, when the dealer had $367-million in profits.

"You're comparing to a really abnormally successful [first quarter] of last year," Pat Cronin, BMO's head of capital markets told investors during a conference call to discuss the bank's results. "This year we saw some softness, particularly in the underwriting and advisory line, so the year-over-year comparison was a tough one."

Read More: International footprints step up results for BMO, Scotiabank

Meanwhile, Scotiabank's global banking and markets division reported $454-million of net income for the quarter, down 3 per cent from a year ago when its profits totalled $469-million. The dealer said lower non-interest income and the negative impact of foreign-currency translation were responsible for the decline.

However, executives at both banks painted an optimistic picture for the second quarter, which saw markets tumble dramatically before beginning to recover. Market volatility can lead to an increase in trading revenues but can hurt advisory fees as clients may put their capital-raising plans on ice.

"We're optimistic looking ahead to [the second quarter] as we've seen increases in the pipeline and client activity in a more constructive environment, as well as continued growth in our U.S. franchise," BMO's chief executive Darryl White said.

Dieter Jentsch, head of Scotiabank's global banking and markets division, said trading revenue picked up in January, when the Bank of Canada hiked its benchmark lending rate by a quarter-percentage-point to 1.25 per cent.

"We see the markets actually being quite constructive to ongoing trading revenues," Mr. Jentsch said during a conference call.

He also said the bank is planning to hold onto its metals-trading arm, ScotiaMocatta. Last year, media reports suggested the bank was putting the business up for sale.

"We recently concluded a strategic review of this business and I'm pleased to confirm that most of our key services in our key markets to our key clients will be continuing," Mr. Jentsch said.

"But that said, we will be exiting some markets, we will be simplifying our product suite and we will be much more judicious about our allocation of capital and liquidity."

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