RBC Warns of Massive Writedown

RBC Warns of Massive Writedown NATIONAL NEWS - Royal Bank of Canada warned on Thursday it would suffer an $850-million blow as its operations in the United States continue to bleed red ink.

Canada's largest bank blamed the fresh charge on "the impact of prolonged challenging economic conditions" in the United States, putting pressure on rivals to detail impairments on U.S. operations.

The latest setback comes after RBC's international-banking unit fell into a loss last year, dragged lower by exposures to the decimated construction sector.

The bank cited "declines in the U.S. housing market, the deterioration in the overall U.S. economic environment, and the decline in the market value of U.S. banks."

John Aiken, an analyst at Dundee Securities, said the impairment "points to the fact their U.S. acquisitions have not been as successful as they hoped."

The losses the bank is suffering may dampen the appetite of investors for fresh expansion in America, where Canadian banks have struggled to deliver growth in the wake of risky purchases.

Toronto-Dominion Bank and Bank of Montreal have both struggled to meet expectations for their retail franchises in the United States.

The charge RBC is taking on its international unit "will put pressure on TD or BMO to decide whether or not they are going to have to take some impairments," said Mr. Aiken.

The analyst added that RBC may be more vulnerable than rivals to the downturn underway in the United States because its retail franchise is concentrated in the southeastern states hit hardest by the bursting of the housing bubble.

Canadian banks have suffered more than $20-billion in writedowns since the onset of the credit squeeze triggered a crisis in the financial sector.

The latest charge for RBC comes after about $5-billion in writedowns during the financial crisis.

The bank stressed that the latest $850-million impairment in the "goodwill" value of its U.S. operations was an accounting charge that would not affect its "ability to pay dividends" or the level of its capital reserves.

The setback came after a six-week run for bank stocks that has seen financial institutions claw back some of the heavy losses they suffered during last fall's market crash.

Shares in RBC have climbed about 20% in the past month, and closed yesterday at $42.35 after reaching a peak of about $60 before the crisis.

The bank said the latest knock would hit its international banking operations and would appear when it reveals earnings for this quarter on May 29.
Source: Financial Post

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