Royal Bank of Canada, said Friday it lost $50-million in the second quarter as a result of a previously disclosed $1-billion charge stemming from deterioration in the value of its U.S. operations.
The loss compares to profit of $928-million in the same period last year.
Canada's largest bank disclosed in April that it would take a goodwill charge of roughly $850-million (U.S.) this quarter because of the impact the soured U.S. economy is having on the value of its operations there. The bank emphasized that the charge is a non-cash item that does not impact its capital levels.
RBC's profits were also hurt by $296-million (Canadian) of market-related losses, and higher provisions for troubles loans.
As a result, the bank is reporting its first loss since 1993, according to data from Bloomberg. It is the last of the Canadian banks to report its second quarter financial results.
Investment banking and insurance profits topped those of a year ago, while earnings from Canadian and U.S. lending as well as wealth management fell.
Adjusting for the goodwill charge, the bank said that its profits rose two per cent to $950-million. Factoring out the charge and other one-time items, the bank's cash earnings per share came in at 97 cents, above analysts' expectations.
“Royal once again demonstrated the underlying strength of its platform, with earnings strong enough to withstand higher than anticipated provisions,” Dundee Securities analyst John Aiken wrote in a note to clients. “However, credit deterioration was still material and we do not believe that Royal's valuation reflects the risk it faces in terms of additional provision growth in light of the support received by substantial but volatile trading fees.”
The bank's provisions for credit losses, or troubled loans, rose by $625-million from a year ago due largely to its consumer and residential builder finance lending portfolios in the U.S. Rising issues among Canadian business loans, credit cards, and unsecured personal loans also contributed to the increase.
Profits from RBC's core Canadian lending operations fell 4 per cent, or $23-million, to $581-million because of the higher provisions and lower mutual fund distribution fees.
The bank said that it has been making use of the government's mortgage purchase program as a relatively cheap source of funding. RBC sold a total of $7.9-billion worth of mortgages into that program and the Canada Mortgage Bond program this quarter, and has sold $13-billion into the mortgage purchase program since it began last fall.
The bank's wealth management profits dropped 31 per cent, or $56-million, to $126-million because of the impact that soft stock markets had on fees and the number of transactions.
International banking operations, which include the U.S., lost $1.13-billion in the quarter, reversing a year ago profit of $38-million, as a result of the goodwill charge and higher provisions for loan losses.
Insurance profits actually rose nine per cent, or $9-million. Capital markets, or investment banking, operations saw profits rise by $407-million to $420-million, thanks to higher trading revenue and fewer writedowns.