May 29, 2009 / 12:01 PM / in 9 years

UPDATE 3-RBC posts loss on charges, bad loans; shares drop

* Q2 shr loss C$0.07 on writedowns

* Adjusted cash EPS C$0.97, above expectations

* Bad loan provisions soar to C$974 mln from C$349 mln

* Shares drop 3.1 pct (Recasts, adds analyst’s comments, context)

By Andrea Hopkins

TORONTO, May 29 (Reuters) - Royal Bank of Canada (RY.TO) notched its first quarterly loss since 1993 on Friday as it wrote down the value of its U.S. assets and set aside nearly C$1 billion ($900 million) to cover bad loans, sending shares 3.1 percent lower.

While Canada’s largest bank managed to exceed analysts’ expectations, closing a week of better-than-expected results from the country’s Big Six banks, analysts said Royal’s provisions for bad loans signaled deteriorating credit.

“Royal once again demonstrated the underlying strength of its platform, with earnings strong enough to withstand higher than anticipated provisions and (exceeding) expectations,” Dundee Securities analyst John Aiken said in a research note.

“However, credit deterioration was still material and we do not believe that (Royal’s share) valuation reflects the risk it faces in terms of additional provision growth,” he warned.

All of Canada’s major banks reported rising provisions for bad loans in their second quarter, ended April 30, as recession-weary consumers and businesses failed to pay mortgages, credit card bills and auto loans.

Royal Bank said it had a net loss of C$50 million, or 7 Canadian cents a share, compared with earnings of C$928 million, or 70 Canadian cents a share, a year earlier.

The results included a previously announced C$1 billion goodwill impairment charge reflecting losses in the bank’s U.S. operations, which reduced earnings per share by 71 Canadian cents, as well as market-related losses that reduced net income by 21 Canadian cents a share.

After adjustments, the bank said cash EPS was 97 Canadian cents a share, above analysts’ expectations of 95 Canadian cents a share, according to Reuters Estimates.

Shares of Royal Bank dropped 3.1 percent to C$44.09 on Friday morning on the Toronto Stock Exchange, dragging down the broader financial index by 0.9 percent.

The amount of money the bank set aside to cover bad loans nearly tripled in the quarter to C$974 million from C$349 million a year earlier, exceeding expectations.

But Chief Executive Gordon Nixon said the bank remained strong.

“The environment remains challenging, but our company is strong and we are taking advantage of opportunities in the marketplace. This quarter, we generated cash net income of almost C$1 billion,” Nixon said in a statement.

“The general provision reflects higher provisions predominately in U.S. banking and, to a lesser extent, our Canadian retail lending portfolio on loans that have not yet been specifically identified as impaired,” the bank said.

The increased loan loss provisions pushed down income in the bank’s Canadian banking division by 4 percent to C$581 million, while income at its capital markets division climbed 3 percent to C$420 million.

Trading fees generated more than C$1.5 billion in revenues, with the bulk coming from fixed income, similar to the other banks this quarter, Aiken said.

Royal Bank said its Tier 1 capital ratio was 11.4 percent, up from 10.6 percent three months earlier and well above the 7 percent regulatory minimum. Canadian banks are very well capitalized by international standards, which puts them in strong position to buy assets or institutions when the opportunities arise.

The bank’s dividend was unchanged, as expected, at 50 Canadian cents a share.

$1=$1.10 Canadian Reporting by Andrea Hopkins, editing by Peter Galloway

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