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Canadian lenders look to wealth management for earnings growth- report

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December 2
3:32 AM 2013

A Bloomberg report said the biggest banks in Canada were looking on wealth management to offset the slowdown in capital markets and lesser consumer borrowing. According to Toronto-based Barclays analyst John Aiken, wealth management will comprise a significant portion of the country's lenders in the fourth quarter, with the six largest banks averaging an 11% per-share profit growth.

In an interview with Bloomberg, Aiken said, "Exposure to wealth management is probably going to be a key to outperformance this quarter. The improving global equity valuations as well as sentiment is likely going to see fairly significant growth in assets under management."

The report added that better performance in the global stock markets will also buoy the revenues of the lenders' asset management and brokerage businesses. Compared to last year, the MSCI World Index increased 23% as of October 31 while Canada's benchmark Standard & Poor's/TSX Composite Index rose 7.6%.

Among the banks who collectively spent more than CAD 10 billion or USD 9.4 billion in acquisitions of asset managers in the past six years, private wealth businesses and other wealth assets include the Royal Bank of Canada, Bank of Nova Scotia and Canadian Imperial. Citing company financial statements, the report said wealth management comprised 10% to 20% of the bank's profits for the country's six largest lenders in the first nine months of the year.

John Kinsey told Bloomberg, "The banks have been wanting to get into this area for some time, and with the demographics it's an area they're putting more and more focus on. It's certainly a direction where they want to go." Kinsey works at Toronto-based Caldwell Securities Ltd where he helps handle an estimated CAD 1 billion in wealth which includes bank shares.

According to the report, banks around the world are also turning to wealth management as lower interest rates and stricter rules on capital levels have weighed down profits.

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