Royal Bank of Canadaexited about half its proprietary-trading strategies as the lender seeks to comply with looming U.S. regulations.
The banks RBC Capital Markets unit recorded about C$46 million ($40.5 million) of costs and lower revenue in the fourth quarter tied to abandoning those strategies to conform with the Volcker Rule, the Toronto-based company said today. Royal Bank has been working to reorganize its global arbitrage and trading unit for a year after the U.S. regulators released a final version of the provision, which restricts banks ability to trade with their own money.
Were well advanced in restructuring our proprietary-trading activities in the U.S. to comply with the Volcker Rule, Chief Financial Officer Janice Fukakusa said today in a conference call with investors. Weve exited about half the trading strategies, weve transitioned market-making strategies into our agency-trading business and we are restructuring our remaining strategies to comply.
The bank has sold some of its credit positions and transferred others into cash equities and securities-funding businesses, Doug McGregor, head of RBC Capital Markets, said on the call. Royal Bank considered spinning off its U.S. proprietary-trading business into a hedge fund before deciding against the plan in October.
The provision of the 2010 Dodd-Frank Act, named after former Federal Reserve Chairman Paul A. Volcker, limits banks ownership stakes in hedge funds and private-equity funds.
Its not that much of a concern whether or not they have this specific prop-trading business persisting the way it has in the past, said Tom Lewandowski, an analyst with Edward Jones & Co. in St. Louis. Its going to be cents in the overall picture of earnings.
Royal Bank gets about 1.5 percent of total revenue from proprietary trading, which is not a significant thing for us, Fukakusa said at a March 26 investor conference. Royal Bank had C$34.1 billion of revenue in the fiscal year ended Oct. 31, according to financial statements.
