DBRS Confirms Royal Bank of Canada at AA and R-1 (high), Stable Trend

DBRS has today confirmed the ratings of Royal Bank of Canada (RBC, Royal or the Bank) and its related entities, including RBC’s Deposits & Senior Debt at AA and Short-Term Instruments at R-1 (high). All trends are Stable. RBC’s ratings are underpinned by its superior domestic franchise, international businesses and solid credit and financial risk profiles. The resilience of RBC’s earnings is a result of its highly diversified business model.

The Bank has leading or near-leading domestic market shares in retail banking, wealth management and capital markets products. The domestic businesses are diversified by product, geography and customers. DBRS expects Royal to continue to strengthen its Canadian franchise through ongoing expansion of its product offerings, investments in its distribution network and further development of its sales culture, while at the same time driving efficiencies through automation and streamlining processes.

During the year, RBC took actions to increase its leading position in several Canadian businesses, including expanding its domestic credit card offering by becoming the first large Canadian financial institution to have credit card duality (Visa and MasterCard), partnering with Westjet to offer an RBC MasterCard.

DBRS believes it is this strong performance of the domestic franchise that supports the Bank’s international growth strategy, including investments in capital markets in the United States and the United Kingdom, RBTT Financial Group (RBTT) in the Caribbean and RBC Bank (USA) in the United States. Some of these expansion initiatives have been more successful than others. Longer term, RBC’s ability to successfully build these investments into competitive businesses will likely be a contributing factor to its ratings.

Over the last 12 months, RBC has been busy expanding its capital markets footprint in the United States and the United Kingdom. The Bank has seized opportunities to accelerate its global capital markets build-out by recruiting top talent, which was readily available as several international peers shed capital markets employees during the recent banking crisis. The result is a significant presence in U.S.-dollar fixed income and currencies, equity sales and trading and having been designated a U.S. primary dealer by the Federal Reserve Bank of New York.

Work also began on restructuring the U.S. banking operations, following the recognition of a $1 billion goodwill impairment charge in Q2 2009. The objective is to improve efficiency while increasing customer satisfaction. DBRS does not anticipate any meaningful positive results from the turnaround in the near term given the current U.S. economic condition and weak U.S. housing markets. At the same time, losses from this business are manageable relative to Royal’s overall earnings and capital.

Royal Bank of Canada’s long-term Deposits & Senior Debt rating, at AA, is composed of its intrinsic assessment of AA (low) and its support assessment of SA2 (reflecting the expectation of systemic and timely external support by the government of Canada). The SA2 ranking results in a one-notch benefit to the senior debt and deposits and subordinated debt ratings, which benefit from this implied support.

Based in Toronto, Royal Bank of Canada has full-service domestic banking, full-service brokerage and bank-owned mutual fund firms in Canada. In every Canadian business it participates in, Royal currently holds first- or second-ranking positions, with ambitions to become number one in every business. The Bank’s global businesses include retail banking, insurance, international wealth management, global capital markets and global custody.

The Bank’s operations are divided into six segments: Canadian Banking, Wealth Management, Insurance, International Banking, Capital Markets and Corporate Support, which represented 51%, 12%, 8%, minus 6%, 39% and minus 1% of adjusted pre-tax earnings (net revenue minus expenses and loan loss provisions) in H1 2010, respectively.

Canadian Banking includes domestic personal and business banking operations and certain retail investment businesses. This segment operates one of the largest personal and business banks in Canada. It services more than ten million individual and business clients through an extensive network, including 1,202 branches. Wealth Management comprises businesses that directly serve the growing wealth management needs of affluent and high-net-worth clients globally and provides asset management and estate and trust products through RBC and external partners. Insurance is a global business that provides a wide range of creditor, life, health, travel, home and auto insurance products and services to individual and business clients in Canada and the United States, as well as reinsurance. International Banking comprises banking businesses outside Canada, including banking operations in the United States (427 branches), the Caribbean and the 50%-owned RBC Dexia Investor Services. Capital Markets comprises the Bank’s global wholesale banking business, providing sales and trading and research and related products and services to corporations and public-sector and institutional clients in North America and specialized products and services in select global markets.

Royal Bank of Canada is Canada’s largest Schedule I bank as measured by assets ($655 billion) at H1 2010.

Note:
All figures are in Canadian dollars unless otherwise noted.

The ratings for the Deposits & Senior Debt and Short-Term Instruments apply to Royal Bank Mortgage Corporation, Royal Trust Corporation of Canada (no guarantee) and Royal Trust Company (no guarantee).

The applicable methodologies are the Global Methodology for Rating Banks and Banking Organisations, Rating Bank Subordinated Debt and Hybrid Capital Instruments with Contingent Risks, Rating Bank Subordinated Debt and Hybrid Capital Instruments with Discretionary Payments, Rating Bank Preferred Shares and Equivalent Hybrids and Enhanced Methodology for Bank Ratings – Intrinsic and Support Assessments, which can be found on our website under Methodologies.

This is a Corporate (Financial Institutions) rating.