RBC profit falls 27 per cent amid U.S. market woes
Royal Bank CEO Gordon Nixon said the bank is 'not happy about these writedowns.'(Adrian Wyld/Canadian Press)
Canada's biggest bank is reporting a 27 per cent drop in profit and a 13 per cent drop in revenue as it licks wounds suffered in U.S. credit markets.
Royal Bank of Canada said Thursday its profit for the second quarter of 2008 was $928 million or 70 cents a share on revenue of $4.95 billion, down from a profit of $1.28 billion or 98 cents a share on revenue of $5.67 billion a year earlier.
Joining the list of Canadian banks posting lower earnings for the three months, RBC attributed the profit drop mainly to previously announced writedowns.
“We are not happy about these writedowns and continue to be impacted by higher provisions for credit losses in our U.S. banking business," CEO Gordon Nixon said in a statement.
"However, we are confident in the fundamental strength of our operations and are building our businesses in Canada, the U.S. and internationally for long-term growth. In particular, our Canadian banking operations continue to demonstrate solid growth."
The writedowns — $714 million before tax — shrank earnings of the bank's RBC Capital Markets unit to $13 million, down $337 million from a year ago. The bank put the cost of the writedowns at $323 million after tax and pay adjustments, suggesting that people will not get bonuses they once hoped for.
The writedowns were in areas such as U.S. subprime mortgages, U.S. commercial mortgage-backed securities and U.S. auction-rate securities, all damaged by market turmoil that left banks around the world with U.S. assets of doubtful value.
On a hopeful note, RBC said it thinks some of the writedowns reflect "liquidity pressures on assets that we continue to hold, rather than underlying credit quality," suggesting that good assets were marked down because of markets problems but could regain value.
"Higher provisions for credit losses, primarily in U.S. banking, also impacted earnings," it said.
Even as it took losses south of the border, RBC made money in banking back home.
It reported a Canadian banking-related profit of $604 million, up seven per cent from a year earlier, "because of volume growth across all businesses, particularly home-equity lending and personal deposits, where volumes were up one per cent and 18 per cent, respectively."
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