Royal Bank taking $855M hit on writedowns
Last Updated: Wednesday, May 14, 2008 | 4:13 PM ET
CBC News
Royal Bank of Canada said Wednesday it will take $855 million in pre-tax writedowns in the second quarter as the bank struggles with difficult credit market conditions.
The bank said the writedowns will amount to $420 million after tax, adding that it 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 writedowns include:
- $200 million for credit default spreads on exposure to a subsidiary of insurer MBIA Inc.
- $90 million for positions in U.S. subprime collateralized debt obligations.
- $185 million on its holdings in U.S. auction rate securities.
- $140 million related to its U.S. GIC business.
- $175 million in trading portfolio writedowns, mainly because of market liquidity.
- $65 million for other impaired assets.
"We are not happy about taking any writedowns and certainly do not take them lightly," bank president and CEO Gordon Nixon said in a release. "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."
Investors were apparently relieved the writedowns were less than some analysts had been forecasting. Shares of Royal Bank gained $1.23 to close at $49.85 on the TSX.
Royal Bank — Canada's largest chartered bank — is due to report its second-quarter results on May 29.
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