Royal Bank managed to increase its earnings in a tough market last quarter, but the big topic on the conference call with analysts was the poor results from its recent acquisition, Dain Rauscher.

The bank’s second quarter is the first period in which the results include the contributions for the entire quarter of Dain Rauscher Corp. Unfortunately that contribution was negative. Bank executives told analysts that the poor results were due to the cost of retaining Dain Rauscher employees, and goodwill from the deal written off in the quarter.

RBC set aside US$200 million to retain Dain personnel — a big reason for the firm’s negative contribution to earnings. Retention costs will continue in future quarters, too. On a pure operating basis Dain made a little money in the quarter. Executives wouldn’t say how much, but they stressed that it was only a little. “Dain Rauscher suffered the effects of significantly weaker client trading volumes,” said John Cleghorn, Royal chairman and CEO.

Irv Weiser, the head of Dain, said that the firm’s retail brokers have hardly noticed the acquisition, but there have been some disruptions in the capital markets business. He attributed this to the fact that retail is a one-on-one business, whereas the capital markets business is now a global one, and so the presence of RBC DS is much more significant.

Despite the addition of Dain, RBC’s investment banking business saw its net income slip from $151 million in the quarter a year ago to $117 million this past quarter. There has obviously also been some job cutting in the division, which reported 265 fewer employees from the first quarter to 2,923. Employment in the wealth management division grew quarter over quarter, even as net income in the group slipped from $128 million to $67 million.

Still, RBC has not been deterred from further U.S. deals, anticipating that Dain’s poor results are temporary and market related. Cleghorn says, “We continue to look for other fill-in acquisitions, largely in wealth management, and personal and commercial banking, which will extend our U.S. franchise and grow its customer base.”