Royal Bank of Canada (RBC) (RY.TO) announced on Friday that it has infused cash into City National to improve the liquidity of the subsidiary’s operations in Los Angeles and pay off higher-cost borrowing.
However, the Canadian bank did not reveal the total amount of capital it had contributed to the organization.
“This is part of the management actions that RBC is taking on the path to improving profitability at City National,” a spokeswoman for RBC told Reuters. “This is part of the management actions that RBC is taking.”
RBC, which paid $5.4 billion to acquire City National in 2015, said in August that the subsidiary’s losses for the third quarter amounted to $38 million. This contrasts with a profit of $102 million for the same period in the previous year.
These losses materialized as “everything went against us this quarter,” RBC CEO Dave McKay told analysts last month. These losses were largely the result of a credit loss on a real estate item, higher costs, and rising deposit betas, which measure the sensitivity of a bank’s deposit cost to changes in short-term interest rates. RBC CEO Dave McKay told analysts that “everything went against us this quarter.”
The failure of Silicon Valley Bank in March, which was headquartered in Santa Clara, California, was the event that sparked a regional banking crisis in the United States, and California was the first epicenter of the crisis.
Greg Carmichael, the former chief executive officer of the regional bank Fifth Third Bancorp in the United States, has been recruited by RBC to serve on the board of directors of City National.
RBC also stated that recent sales of certain debt instruments by City National through intercompany transactions will result in recognizing realized losses at the unit, which will be “eliminated at the Royal Bank of Canada consolidated level.”
KBW analyst Mike Rizvanovic says the action is similar to “an internal bailout.”
Rizvanovic stated that they anticipate there will be little impact on RBC at the all-bank level, even though the necessity for such actions is a negative read-through on the soundness of City National.
Comment Template