RBC takes a Hit

Royal Bank of Canada (RBC), one of Canada’s largest banks has said that it will take about US$850 million (C$1.03 billion) charge because of its international businesses declined; thus reducing second-quarter earnings by an equivalent amount.RBC blames the declining U.S. housing market and overall economy for having to take the US$850 million charge. This expected charge reflects the impact of prolonged challenging economic conditions that have affected its international banking reporting unit; especially the U.S. banking business.

Imagine having one of our largest Canadian banks needing US$850 million to help them out even after the drop in earnings from 2008. Well this is small change compared to the $1 trillion that will be pumped into the global economy.

RBC has a large presence in the south-eastern United States through its RBC (USA) unit. This was the former Centura Bank division which has consumer, mortgage and commercial lending operations in the Carolinas, Georgia and Florida. This region was hit hard by the slumping U.S. housing market.

RBC they decided to have a two step review which started in the last quarter; recently they have completed their second step of the testing process. There have determined that the international banking reporting unit goodwill is impaired. This will result in the expected charge to second quarter earnings.

In case you weren’t aware (I was not so I did a little research), Goodwill is an accounting term that values the reputation, know-how and trademarks of a company when it’s acquired for a price above the book value of its hard assets.

Well from all this it would not seem too great for our economy if RBC, one of Canada’s largest banks needs US$850 million charge for its second quarter. Well let us hope that the next quarter will be better for RBC, and well the rest of the economy.