ROYAL BANK OF CANADA
Question # 1
The weak market environment continued through to Royal Bank of Canada (RBC) third quarter of 2008. ”The declining markets produced an end result of $498 million ($263 million after tax and related compensation adjustments) in writedowns which is illustrated in Table 1(in the Appendix) – Summary of Writedowns. Capital Markets writedowns of $173 million in the third quarter of 2008 resulted from declines in fair value of credit default swaps (CDS) with monoline insurer MBIA Inc. that represents credit protection purchased to hedge the credit risk exposure to super-senior (AAA) tranches of structured credit transactions, expected recovery rates on the underlying assets and other parameter inputs.”
“RBC total provision for credit losses increased $156 million, or 88% in Quarter 3 in 2008, in comparison to Quarter 3 in 2007 which is illustrated in Table 2 – Credit Quality Performance. Wholesale provisions increased by $120 million, primarily reflecting higher impaired loans related to their U.S. residential builder finance and commercial portfolios, reflecting the continuing downturn in the U.S. housing market and weak U.S. economic conditions. The increase also reflected higher provisions and lower recoveries in RBC corporate lending portfolio. Retail provisions accounted for $30 million of this increase which is largely due to credit cards in Canada, primarily reflecting portfolio growth, and home equity and lot of loans in the U.S.”
RBC total allowance for credit losses was up $411 million, or 27% in Quarter 3 in 2008 in comparison to Quarter 3 in 2007 which is illustrated in Table 2 (Appendix RBC) – Credit Quality Performance. The increase in specific allowances was largely driven by higher ...