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Bonus Pools at Biggest Canada Banks Rise Least in 3 Years

Royal Bank of Canada's Headquarters Stand in Toronto
Royal Bank, Canada’s largest lender by assets, boosted variable compensation to C$3.92 billion for the fiscal year, the most among the group. Photographer: Reynard Li/Bloomberg

Canada’s biggest banks posted the smallest average increase in bonus pools in three years as profit growth slowed.

The six lenders set aside C$10.8 billion ($10.2 billion) for incentive compensation this year, 5 percent more than 2012 and the lowest increase since 2010, according to financial statements by the firms. Royal Bank of Canada led for a second straight year with a 7.5 percent hike, while National Bank of Canada was the only lender to reduce its allocation.

The banks may distribute more rewards to businesses such as wealth management that helped lift profits to record highs, while bankers in capital markets could get a smaller share as a slump in mining and energy deals sapped activity for most of country’s bank-owned investment banks, according to Bill Vlaad, president of Vlaad & Co., a Toronto-based recruitment firm that specializes in financial services.

“The investment banks have not been as strong as the personal and commercial and bricks-and-mortar business, so they’re going to have a smaller percentage of the pool than they did in years past,” Vlaad said in a Dec. 6 telephone interview.

The bonus projections for Canadian bank employees approximate those in the U.S. Wall Street bankers can expect “moderately larger” year-end incentive payouts compared with 2012, with the biggest increases skewing to those in asset and wealth management, Johnson Associates Inc., a New York-based compensation-consulting firm, said in a Nov. 7 report.

Record Profits

The Canadian bonus pools reflect the amount reserved, not paid out, and don’t include base salaries and other compensation. Bonuses are typically awarded this month.

Canada’s six largest banks collectively posted a 5.1 percent increase in profit to C$31.1 billion for the year ended Oct. 31, trailing last year’s 18 percent surge. All except Montreal-based National Bank had record annual net income.

This year’s increase in reserved incentive compensation is less than the 7.5 percent rise in the bonus pool in 2012, according to financial statements. The lenders allocated 7.8 percent more in 2011 compared to the prior year, while in 2010 bonuses inched up 1.1 percent.

Royal Bank, Canada’s largest lender by assets, boosted variable compensation to C$3.92 billion for the fiscal year, the most among the group. The increase was less than the 11 percent rise in 2012. Still, the Toronto-based bank has reduced compensation in its capital-markets unit to 37 percent of revenue this year from more than 40 percent a couple years ago, according to Chief Executive Officer Gordon Nixon.

‘Weak’ M&A

“That’s a compensation trend,” Nixon, 56, said in a Dec. 5 telephone interview, the day he announced his retirement. “But having said that, with very strong performance and good results and earnings, it’s been a good year for people.”

Nixon will be succeeded in August by David McKay, who is currently Royal Bank’s head of personal and commercial banking.

Lower payouts for investment bankers may reflect slower capital markets activity in mining and energy. Announced deals involving Canadian companies totaled about $167 billion in the year ended Oct. 31, down 18 percent from a year earlier, according to data compiled by Bloomberg.

The volume of mining mergers and acquisitions are the lowest since 2004, while energy takeovers are on pace for a decade low. Stock sales in mining have also slowed, with financings this year at less than half the levels from 2008 and 2011, the data show.

‘Downward Expectations’

“M&A’s been weak, for sure,” Brent Ludwig, CEO of Calgary-based Ludwig Financial Recruitment, said in a Dec. 6 telephone interview. “Banks have been guiding everybody’s expectations downward, and it could be significantly downward.”

Bank of Nova Scotia, Canada’s third-largest lender, raised performance-based compensation by 5.5 percent to C$1.56 billion compared with a 9.4 percent increase in 2012. Canadian Imperial Bank of Commerce, the fifth-biggest bank, increased its bonus pay 5.1 percent to C$1.3 billion, reversing a 2 percent cut in last year’s allocation. Both are based in Toronto.

“We had a good year relative to our targets and the industry,” Ann DeRabbie, a Scotiabank spokeswoman, said Dec. 6 in an e-mailed statement. “On an individual and business-line level, the compensation levels will vary.”

Kevin Dove, a spokesman for CIBC, didn’t return calls and e-mails seeking comment.

Toronto-Dominion Bank, the second-largest lender, raised incentive compensation 4.7 percent to C$1.63 billion this year, compared with a 7.8 percent increase last year.

Wealth Management

“I’d chalk that up more to direct-drive compensation, particularly in our wealth-management business, which had a very strong record year,” Chief Financial Officer Colleen Johnston, 55, said in a Dec. 5 telephone interview. “A lot of that variable comp is paid directly off the top line.”

Toronto-Dominion’s wealth-management business with its U.S. discount brokerage TD Ameritrade had a 16 percent increase in annual profit. The Toronto-based firm’s investment-banking unit saw earnings drop 26 percent as fees from underwriting and advisory fell.

Bank of Montreal raised its performance-based compensation by 2.5 percent to C$1.68 billion, about half the increase of a year earlier.

“I think 2013 is consistent with 2012, which was a good year,” CEO William Downe, 61, said in a Dec. 3 telephone interview. “The bank had a good year in 2012 and employees did well. The bank had a good year in 2013 and employees will do well.”

National Bank

National Bank, Canada’s sixth-largest lender, reduced its variable compensation 2 percent to C$678 million after last year joining Royal Bank in leading firms with an 11 percent increase. A portion of National Bank’s bonuses are tied to volume from investment banking and wealth management, said Jean Dagenais, senior vice-president of finance.

“Capital markets activities were reduced during the year 2013 compared to 2012, therefore the payout has been reduced,” Dagenais said in a Dec. 4 telephone interview. “Those outside capital markets may fare better.

‘‘We have done a bit more than our budget, so employees should expect slightly more than the target,’’ Dagenais said.

In the U.S., year-end incentives on Wall Street will rise 5 percent to 10 percent this year compared to 2012, including cash bonuses and equity awards, New York-based Johnson Associates said in its report. Those in asset management and investment bankers focused on underwriting can expect the biggest increase, as much as 10 percent to 15 percent, while fixed-income traders will be hardest hit with payments expected to fall about 5 percent to 15 percent, the firm said.

Options Group Inc., a New York-based recruitment firm, said in a report last month that average compensation on Wall Street will climb 4 percent this year, driven by increases at smaller banks and boutique advisory and investment firms.

‘‘The U.S. firms are starting to see an increase in compensation,’’ Vlaad said. ‘‘If Canada’s banks pay too low, we’re going to lose talent to the U.S. because we’re already starting to see a significant increase in recruiting interest south of the border.”

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