Royal Bank taking $855M in writedowns on 'market conditions'
- Royal Bank of Canada (TSX:RY) disclosed Wednesday that its results for the February-April quarter will be hit by $855 million in writedowns "relating to market conditions."
The writedowns will be worth $420 million after tax, Canada's largest bank said.
"We are not happy about taking any writedowns and certainly do not take them lightly," president and CEO Gord Nixon said in a statement.
"That said, these writedowns are manageable and our risk profile continues to remain within our risk appetite. This is due to our disciplined risk management, our strong balance sheet and our business diversity."
RBC Capital Markets will take the biggest writedown at $715 million, followed by the bank's Corporate Support division at $140 million.
"RBC believes a significant portion of the writedowns reflect liquidity pressures on assets that we continue to hold, rather than underlying credit quality," the bank said.
The bank will also book a gain of $50 million, or $20 million after tax, on the change in fair value of liabilities "designated as held-for-trading as a result of its credit spreads widening over the second quarter."
The writedowns included:
-$200 million for credit default spreads on exposures to a subsidiary of U.S. monoline insurer MBIA Inc.
-$90 million related to retained positions in U.S. subprime collateralized debt obligations of asset-backed securities and other structured credit trading positions.
-$185 million on U.S. Auction Rate Securities, most backed by student loan collateral that is largely government-insured.
-$140 million at its U.S. Municipal GIC business, mostly mortgage-backed securities, discount bonds and notes.
-$175 million on other trading portfolios, primarily related to market liquidity.
-$65 million on "available-for-sale" holdings related to the deterioration in the U.S. subprime market.
The bank is scheduled to release full quarterly results on May 29. In February it reported a 17 per cent drop in first-quarter profit of $1.25 billion, including a $430-million pretax writedown at Capital Markets.
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