View Full Version : No Recession in US - Banks Have Record Financial Year

11-30-07, 11:46 AM

The recent sub prime/ credit crunch is nothing but a small blip compared to the juggernaut called Vancouver/Canada Real Estate. Please read the facts and don't get hung up on emotions.

- Royal Bank of Canada (TSX:RY) ended another record financial year with a five per cent rise in fourth-quarter revenue and profit, despite writedowns linked to the collapse of the U.S. subprime mortgage market.

Canada's biggest bank said Friday it had net income of $1.32 billion, $1.01 per share, in the three months ended Oct. 31. This compared with $1.26 billion, 96 cents per share, in the year-earlier period.

Revenue was $5.62 billion, up from $5.35 billion, with strong performances across most of the bank's business segments.

RBC's adjusted earnings met the consensus expectation of $1.03 per share among analysts polled by Thomson Financial.

The bank's stock was up 33 cents to $61.08 in early trading, with a 52-week high and low of $61.08 and $48.55.

Full-year profit came to $5.49 billion or $4.19 per share, an increase of 16 per cent from the prior year. Revenue of $22.46 billion was up nine per cent, and return on equity grew by 1.1 percentage points to 24.6 per cent.

The only big blotch was a debt-market-related decline of 38 per cent to $186 million in quarterly earnings in the RBC's capital markets division. That followed writedowns of $357 million pre-tax, or $160 million after tax, related to securities hit by the U.S. subprime market meltdown.

There also were higher provisions for bad debts in U.S. and international banking. And the Royal said the appreciation of Canadian dollar against the U.S dollar and British pound reduced earnings by $28 million, compared with a year ago.

Overall provisions for credit losses were $263 million during the quarter, up 65 per cent from $159 million a year ago. Full-year provisions increased 84 per cent to $791 million.

The annual results "reflect leadership in our core Canadian businesses and growth in our non-domestic operations," stated CEO Gordon Nixon.

"Our solid performance in a year marked by challenges in the financial markets reflects the diversity of our businesses across multiple products, markets and geographies."

In Canadian banking, lending volume grew 11 per cent on the year and deposit balances swelled six per cent.

Fourth-quarter earnings in Canadian banking were $899 million, up 33 per cent. Excluding the Royal's gain on the restructuring of Visa Inc. and a higher liability for loyalty rewards, the division's net income was $709 million, up five per cent.

Wealth management earned $180 million on the quarter, up 10 per cent.

U.S. and international banking net income slumped 73 per cent to $21 million, "primarily reflecting systemic deterioration in the U.S. housing market, which accelerated in the fourth quarter," the bank said.

"I am encouraged by the progress of our U.S. banking operations and we remain committed to our long-term strategy of building a strong retail bank in the U.S. Southeast," Nixon stated.

He added that the Royal does not originate U.S. subprime mortgage loans and has $216 million of net exposure to U.S. subprime collateralized debt obligations of asset-backed securities.
"We also have $388 million of exposure to U.S. subprime residential mortgage-backed securities, which is classified as available-for-sale and which we intend to hold until maturity," he said.
"Combined, these amounts represent less than 0.1 per cent of our total assets. Our dealings with structured investment vehicles and Canadian non-bank sponsored asset-backed commercial paper conduits with general market disruption facilities are nominal. Our exposure to hedge funds is modest and predominantly collateralized."
Looking ahead, the bank expects economic growth to "moderate" in 2008, but without a recession in the United States.
"We anticipate that financial market volatility will persist into early 2008 as investors and lenders will remain cautious and risk-averse amid a slowdown in the housing market," the bank stated. "However, economic growth is expected to pick up in the latter part of the year."