Banks’ wealth businesses to take a hit: Fitch

For the big Canadian banks, higher market volatility is likely to mean lower revenue from the wealth management business in the months ahead, according to Fitch Ratings.

In a new report, the rating agency said most of the banks enjoyed year-over-year growth in wealth management revenues for their fiscal second quarter “driven mainly by solid fees from higher net sales and asset appreciation” over the past 12 months.

The wealth management segment also produced “solid loan and net interest income growth” for most of the banks, it noted.

However, Fitch indicated these trends are poised to shift in the months ahead amid heightened market turmoil.

“If the recent pattern of market declines and volatility persists, wealth management results will likely moderate in the coming quarters as [assets under management] and assets under administration (AUA) could be pressured, resulting in lower fees,” it said.

At the same time, reduced investor confidence could negatively impact net mutual fund sales and retail trading activity, Fitch noted, adding that “rising interest rates and reduced investment opportunities could pressure wealth-related loan growth.”

The recent negative shift in market conditions could also affect the banks’ other sources of capital markets revenues, the report noted.

“Continued market volatility and economic uncertainty will likely mean softer M&A activity in the coming quarters as many clients have postponed market transactions,” it said.

Trading revenues generally benefit from increased market volatility, the report said.

“Despite market turbulence, the banks indicated either minimal or no days of trading losses during the [previous] quarter, which reflects their effective risk management,” it said.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.