A hefty impairment charge on its U.S. operations drove Royal Bank of Canada to its first quarterly loss in 16 years.
Canada's largest lender said Friday that it lost $45.7 million in the three months that ended April 30, its second quarter, largely because of a $915 million writedown on its U.S. business, RBC Bank, which has been reeling from bad loans to home builders in the Southeast.
"This is, obviously, a very difficult business," Gordon Nixon, Royal Bank's president and chief executive, said in a conference call with analysts.
"The business model for banking in the United States is broken."
Excluding the impairment, Royal Bank's cash net income rose 4% from a year earlier, to $907.9 million. Nixon said the impairment, which the company disclosed in April, was a noncash charge that did not hurt Royal Bank's capital ratios.
Royal Bank's international banking unit, which includes the $33 billion-asset RBC Bank as well as Caribbean operations, posted a net loss of $1.029 million, largely because of the impairment charge. The division earned C$38 million in the year-earlier quarter and lost C$144 million in the prior quarter.
Royal Bank suffered booked credit losses on both sides of the border, illustrating the depth of the global recession.
Provisions for credit losses rose 288% from a year earlier, to $264.2 million, in the international banking unit and 56%, to $320.9 million, in Canada.
Though Nixon said the Canadian economy shows signs it could turn a corner next year, he said it could take longer for things improve in the United States. The 430-branch RBC Bank is hobbled by its heavy exposure to Florida, where the housing market has been ravaged by the recession.
RBC, which branched into the Southeast aggressively with acquisitions earlier in the decade, has essentially frozen U.S. expansion for the past 18 months.
Nixon said the company is not in a rush to emerge from that "holding pattern" to take advantage of consolidation or investment opportunities.