Royal Bank of Canada's president and chief executive repeatedly expressed disappointment Friday in his company's U.S. operations and vowed to fix them.
Gordon Nixon spoke to investors after the U.S. arm posted its second straight quarterly loss fueled by mounting credit losses and securities writedowns.
During a conference call to discuss earnings for its fiscal fourth quarter, which ended Oct. 31, Mr. Nixon said Royal Bank will be "extremely cautious" deploying capital in the United States, including through bank acquisitions.
"At the same time, it is not a market that we believe we should be exiting," he said in response to a question. "We do think there will ultimately be a recovery in the U.S. banking business, and given our strength, we would like to take advantage of that, as opposed to miss that opportunity."
Mr. Nixon made it clear that he was displeased with the U.S. operations, which largely contributed to a $170.5 million loss in Royal Bank's international banking business during the quarter.
"We will be extremely focused in 2009 in dealing with this underperformance," he said. "We will be working hard to strengthen our business by managing our U.S. loan portfolio, improving efficiencies, and reducing expenses to ensure that we are well positioned when the environment improves."
The international business, which includes the $31 billion-asset RBC Bancorp USA in Raleigh and smaller Caribbean operations, lost $15.6 million a quarter earlier and had posted a $22 million gain a year earlier. Comparisons with a year earlier were skewed by the February purchase of Alabama National BanCorp. in Birmingham and the June acquisition of RBTT Financial Holdings Ltd. in Trinidad and Tobago.
Provisions in the international banking business jumped 22.4% from the previous quarter and more than doubled from a year earlier, to $163.9 million. Impaired retail loans in the United States rose 19.4% from the previous quarter and quadrupled from a year earlier, to $1.35 billion.
Morton Friis, the $599.1 billion-asset Toronto company's chief risk officer, said during the earnings call that the unit's biggest credit problems are in the home builder portfolio. "However, our commercial and business banking portfolios are also experiencing increased impairments."
Home equity loans also showed deterioration from the previous quarter, Mr. Friis said, and U.S. provisions are likely to rise. "We anticipate ongoing deterioration in our residential builder portfolio, as well as in our commercial retail and business banking portfolios."
Credit losses were overshadowed by substantial writedowns in the unit's securities portfolio. The latest results included $201.9 million of writedowns, largely tied to mortgage-backed securities. In the previous quarter the unit had $51.8 million of writedowns on securities backed by alternative-A mortgages and investments in Fannie Mae and Freddie Mac preferred stock.
The international business has another $481.7 million of net unrealized losses embedded within its investment portfolio, Royal Bank said. International banking revenue fell 22.5% from the previous quarter and 2.2% from a year earlier, to $262 million.
Average loans in the unit rose 2.2% from the previous quarter and 29.2% from a year earlier, to $27.9 billion. Deposits rose 2.9% from the previous quarter and 17.4% from a year earlier, to $42.6 billion.
International banking was the only business to post a loss at Royal Bank, whose earnings fell 24.7% from the previous quarter and 33.3% from a year earlier, to $926.9 million. Full-year earnings fell 34.4%, to $3.77 billion.