December 1, 2007 / 4:16 AM / 10 years ago

RBC upbeat about U.S. future despite Q4 impact

TORONTO (Reuters) - Royal Bank of Canada is comfortable with its U.S. loan portfolio and committed to its pending acquisition of Alabama National BanCorp, bank executives said on Friday, after the slumping U.S. housing market dented Royal’s fourth-quarter profit.

“We are very positive on the Alabama National acquisition,” Chief Executive Gord Nixon said on a conference call, referring to the US$1.6 billion deal that is expected to close in early 2008.

Royal Bank’s plans for its U.S. retail business over the next year include integrating Alabama National and managing “the real estate issues” as best it can, Nixon said.

“We think we’ll come out of that with a good platform and a good asset base.”

The deteriorating U.S. housing market hurt fourth quarter profit, as Royal took higher U.S. provisions for credit losses and recorded a C$160 million writedown on securities related to the U.S. subprime mortgage market.

Royal, Canada’s largest bank, said overall profit rose 5 percent to C$1.32 billion ($1.32 billion) in the three months ended October 31, or C$1.01 a share.

That was up from C$1.26 billion, or 96 Canadian cents a share, in the same 2006 period, but marked a slowdown from double-digit profit growth earlier in the year.

Fourth-quarter profit slid 73 percent in Royal’s U.S. and international banking segment, to C$21 million, as loan loss provisions jumped to C$72 million from C$5 million a year earlier. That was almost entirely due to the residential builder finance business of its RBC Centura unit in the U.S. Southeast.

Credit problems in this portfolio are primarily contained to Georgia and California, Royal Bank’s chief risk officer, Morten Friis, said on the conference call.

The bank stressed that its builder loans makes up less than 20 percent of RBC Centura’s loan portfolio.

“Higher provision levels are probable given the expected weakness within the residential and commercial real estate markets in the U.S. Southeast,” Credit Suisse analyst Jim Bantis said in a research note.

Royal Bank also said that economic growth looks set to slow next year, and trimmed its 2008 “objective” for overall earnings per share growth to between 7 percent and 10 percent.

In 2007, the bank’s actual increase in EPS was 17 percent, far outpacing its goal of more than 10 percent.

Full-year profit rose 16 percent to a record C$5.5 billion.

Nixon said domestic banking should remain strong next year.

“I wouldn’t overemphasize the word slowdown, I think it’s still going to continue to be a reasonably good market,” Nixon said, noting that unemployment rates remain low and real estate inflation hasn’t been as severe as in other countries.

Fourth-quarter profit in Royal’s core Canadian banking and insurance operations climbed 5 percent to C$709 million, excluding a Visa restructuring gain and other items.

Its wealth management unit saw quarterly profit increase 10 percent to C$180 million.

But capital markets profit fell 38 percent to C$186 million on the U.S. subprime mortgage-related writedowns.

For 2008, the bank kept most of its 2007 objectives. It aims to earn more than a 20 percent return on equity, and to pay out 40 percent to 50 percent of profit as dividends.

In the year just ended, return on equity was 24.6 percent and the dividend payout ratio was 43 percent.

Shares of Royal Bank fell 1.2 percent on the Toronto Stock Exchange, closing down 67 Canadian cents at C$53 a share.

The stock is down 5 percent this year, underperforming competitors Bank of Nova Scotia and Toronto-Dominion Bank.

($1=$1 Canadian)

Additional reporting by Jonathan Spicer; editing by Rob Wilson

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