Canada's RBC injects capital into City National to bolster US subsidiary's liquidity (updated)

First Republic Bank

29/09/2023 16:40

(Adds details about City National's Q3 performance, analyst
comment)
       Sept 29 (Reuters) - Royal Bank of Canada (RBC)  RY.TO 
on Friday said it had injected capital into City National to
strengthen the Los Angeles-based subsidiary's liquidity position
and pay down higher-cost borrowing.
    The Canadian bank, however, did not disclose how much
capital it had injected into the unit.
    "This is part of the management actions that RBC is taking
on the path to improving profitability at City National" an RBC
spokesman told Reuters.
    RBC, which bought City National in 2015 for $5.4 billion,
said in August that the subsidiary's losses in the third quarter
stood at $38 million, compared with a profit of $102 million a
year ago. 
        Those losses materialized as "everything went against us
this quarter," RBC CEO Dave McKay told analysts last month,
largely arising from 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.
    California was the initial epicenter of a U.S. regional
banking crisis triggered by the collapse in March of Santa
Clara-based Silicon Valley Bank.
        RBC has also hired Greg Carmichael, the former CEO of
U.S. regional lender Fifth Third Bancorp, to sit on City
National's board. 
    RBC also said recent intercompany sales of certain debt
securities by City National will result in the recognition of
realized losses at the unit, which will be "eliminated at the
Royal Bank of Canada consolidated level."
    KBW analyst Mike Rizvanovic said the move resembles "an
internal bailout."
        "We expect little impact on RBC at the all-bank level,
although the need for such measures is a negative read-through
on City National's health," Rizvanovic said.

 (Reporting by Jaiveer Singh Shekhawat in Bengaluru and Nivedita
Balu in Toronto; Editing by Maju Samuel and Paul Simao)
 ((JaiveerSingh.Shekhawat@thomsonreuters.com;))