The Royal Bank of Canada has released its full year results. Much like Jefferies, RBC is interesting because it reports before other banks and therefore offers and indication on the health of the whole sector.
RBC's year ended on October 31st and for RBC's fixed income traders, it was (predictably) not a good one. Despite a year of hard work, in which all RBC's traders lost money on just seven days (compared to 20 days in 2012), revenues from the bank's fixed income currencies and commodities (FICC) trading business fell 11% compared to the year before.
RBC said the European fixed income trading operation in London was the main source of its woes. Although bonuses will be up in wealth management, it also said that bonuses across the capital markets business will be down this year. European fixed income traders seem particularly likely to find their bonuses diminished.
There is, however, some good news. While all kinds of other banks (Deutsche, UBS) have been imposing five year deferral periods on bonuses, RBC Capital Markets is sticking to its three year deferrals with payments seemingly vesting in equal shares. Moreover, figures for bonuses across RBC as a whole suggest that a very high proportion of its bonuses are paid in cash. As the chart below shows, RBC paid a total of $5.6bn Canadian dollars (US$5.3bn) in variable pay, 'benefits and retention compensation' and 'share based compensation' for 2013. However, 69% of this looks like cash. We asked RBC for clarification; it declined to comment.
In other good news, it seems that RBC might do a bit of hiring in London and Hong Kong next year. The bank added 84 people to its capital markets business globally in 2013 (bringing the total to 3,644). In 2014, it says it plans to 'build on core strengths' in Europe and Asia and to 'selectively grow corporate and investment banking' in key areas of expertise.
More worryingly for European fixed income trades, RBC also says it plans to use 2014 to 'focus on the sustainability of trading through origination and sales.' The implication seems to be that the current trading operation may not be sustainable as it is.