Royal Bank of Canada loses top credit rating
TORONTO: Royal Bank of Canada lost its Moody's triple A credit rating, leaving its smaller rival TorontoDominion as the only Canadian bank, and one of less than half a dozen worldwide, that still enjoys the blue-ribbon ranking.
In lowering the rating to Aa1 on Monday, Moody's said the move had been prompted by the bank's growing international capital markets business "which potentially exposes bondholders to increased earnings volatility and poses significant risk challenges".
Nevertheless, "even after the downgrade, Royal Bank enjoys one of the highest ratings globally among banks with substantial capital markets operations," said Peter Nerby, a Moody's senior vicepresident. Mr Nerby pointed to the strength and diversity of RBC's business in Canada, where it is the largest financial institution.
Canada's six biggest banks have come through the financial crisis in far better shape than many of their US and European counterparts thanks to a more conservative lending culture, a resilient housing market and robust regulation.
National Bank of Canada, the smallest of the six, recently became the first to raise its dividend since the onset of the financial crisis. The other five, including RBC, are widely expected to follow suit next year. However, RBC disappointed investors earlier this month with a 9 per cent drop in fourth-quarter net earnings from a year earlier. Besides the growing volatility of its capital markets business, the bank has struggled to improve the performance of its US retail operations, based in the south-east. Moody's noted that RBC has been able to exploit the disarray at many of its investment banking competitors to expand its banking, sales and trading capabilities outside Canada. -PB News