Royal Bank of Canada (RY.TO, RY) is the “most compelling bank to own” among Canada’s major lenders amid concerns that capital markets activity could slow, Scotia Capital analysts say. The bank’s shares have lagged peers this year, which analyst Mike Rizvanovic says has created a “compelling entry point.”
Longer-term trends also suggest RBC’s capital markets business is less volatile than that of other banks. “We believe that favourable dynamic highlights the bank’s more diversified capital markets business and scale advantage relative to peers,” Rizvanovic wrote.
The note follows a sharp run-up in capital markets activity. Trading revenue across the large banks has jumped 44 per cent over the past two years on a trailing 12-month basis — similar to gains seen during the pandemic-era surge, though below the increase during the global financial crisis.
If that momentum has peaked, Rizvanovic says any slowdown would likely be shorter than the decade-long downturn that followed the financial crisis, and closer to the roughly four-year post-pandemic cycle. Consensus expectations are “already pricing in a big slowdown” in capital markets earnings, Rizvanovic says. Forecasts call for a modest seven per cent gain in 2026 and “relatively flat” earnings in fiscal 2027.
In that context, Scotia sees RBC as a safer pick because its capital markets earnings are less volatile than peers, suggesting less downside if the cycle turns. Its analysis shows RBC has the lowest volatility in trading revenue and among the lowest across other capital markets businesses. National Bank of Canada (NA.TO) sits “at the other end,” with the highest historical volatility in trading revenue.
Royal Bank stock is also down around five per cent in 2026, compared with the other banks that are up an average of three per cent. RBC has typically traded at a premium to peers, but that gap has narrowed to about eight per cent, below its long-term average of roughly 11 per cent, Rizvanovic notes.
“[W]e note that RY’s premium tends to increase in times of market uncertainty, which we believe describes the current environment,” the analyst added.
While consensus forecasts already project a slowdown in capital markets earnings, the Scotia analysts say heightened market volatility could still drive results above expectations, noting that banks have exceeded estimates in seven of the past 10 quarters.
John MacFarlane is a senior reporter at Yahoo Finance Canada. Follow him on X @jmacf.
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