Canada’s largest bank to take a $360 million hit in fourth quarter
Grant Surridge
Sun
TORONTO –The mortgage mess in the United States ensnared the biggest Canadian bank on Tuesday, as Royal Bank of Canada said it would take a $360-million hit to its fourth-quarter earnings.
RBC said it will record the charge, which should be about $160 million after tax, to account for lower valuations on its stable of subprime collateralized debt obligations and residential mortgage-backed securities.
Investors reacted positively to the news from RBC, pushing up shares close to two per cent in mid-morning trading on the Toronto Stock Exchange.
On Nov. 9, CIBC said it would take a $463-million pre-tax writedown in the fourth quarter on investments related to the U.S. subprime market. Major U.S. banks have already announced billions in writedowns and fired senior executives as turmoil in the debt markets continues to spread.
Citigroup, the world’s biggest bank, said its losses could come to $12 billion US.
Barclays bank and Royal Bank of Scotland, as well as some in Germany and Switzerland, are also expected to announce writedowns that could reach similar scales.
RBC also said on Tuesday it would take a $120-million ($80 million after-tax) charge related to increased liabilities in its credit card customer loyalty program.
However, the bank said the charges will likely be largely offset by a $325-million gain related to its stake in Visa Inc. following that company’s global restructuring.
RBC said in a press release that it expects its bottom line to be “only modestly affected” by the combined charges.
“Royal Bank is taking advantage of the Visa gain in order to shore up some areas on its balance sheet that may have some cracks. We view this as a prudent move, particularly as Royal and the other banks were not likely to receive much valuation credit from the one-time gain,” wrote Dundee Securities analyst John Aiken in a morning note to clients.
The bank reports its fourth quarter and full-year fiscal results on Nov. 30.
© The Vancouver Sun 2007