Yesterday, RBC became one of the first North American banks to report full year results for 2014. They were good. RBC's investment bankers can be forgiven for thinking they might get paid when the bank announces its bonuses in two weeks' time.
Net profits for the full year increased by 21% in RBC's Capital Markets business. Corporate and investment banking revenues rose 14%. Sales and trading revenues rose 13%. Return on equity was stable, but in double digits, at 14.1%.
The increase in profitability could be a sign that RBC's bankers will be rewarded for all their hard work. Then again, it could be a sign that pay is being squeezed to hike profits.
Unfortunately there are several indicators that the latter might be the case. Ominously, RBC has trimmed the proportion of capital markets revenues it pays out in compensation from 39.8% in 2012 to 37.7% for the year just passed. Ominously too, in a presentation accompanying its fourth quarter results, the bank said variable compensation (bonuses) fell in the three months to October.
Less portentously, RBC's results show that it's increasing the amount of variable compensation it's paying across the bank. RBC-wide, bonuses rose by 11% in 2014. However, this increase may have gone to the bank's wealth managers or tellers rather than to its investment bankers.
RBC has been building out its capital markets business in London. In May, it announced plans to build out its European advisory business, with a focus on healthcare, telecoms and media and technology. It's also been opportunistically picking up people let go from Barclays Investment Bank (whilst refusing to pay recruiters a fee for punting any ex-Barclays staff). The Financial Conduct Authority Register shows that RBC Capital Markets upped the number of registered staff it has in London from 490 in January to 534 at the end of October.
However, there are signs that RBC's European build may not be going to plan. During yesterday's call, CEO Dave McKay said Europe is a "challenging market" and that RBC is being "cautious" with the build-out, but that he was "encouraged by the teams we've added and some of the mandates we've won." Reading between the lines, this doesn't sound like a bank that's enthused about paying its people well for 2014. It sounds like a bank that's already spent a lot of money hiring in new staff and is still waiting for them to reward its investment. RBC bankers are advised against holding their collective breath.