RBC injected about $3 billion this year into US unit to boost capital

By Nivedita Balu

TORONTO (Reuters) – Royal Bank of Canada has injected about $2.95 billion into its U.S. unit City National Bank (CNB) so far this year to bolster its capital, making one of the biggest annual infusions of funds since acquiring the Los Angeles-based bank in 2015.

City National disclosed the numbers in a regulatory report in the United States late on Monday, which also showed that it posted a net loss attributable to the bank of $1.59 billion for the first three quarters of the year.

RBC, Canada’s top lender, said in September that it had infused fresh capital into City National, without elaborating, as it struggled amid the U.S. regional banking crisis.

“The necessity of RBC’s intervention is a negative read-through, highlighting CNB’s struggles to navigate through a tough operating environment,” KBW analyst Mike Rizvanovic said.

Rizvanovic estimates roughly $7 billion of low-yielding debt securities were transferred from City National to RBC, and he said the return on invested capital should “improve meaningfully” following the move.

City National CEO Kelly Coffey in statement to Reuters on Tuesday said that the capital injection “is intended to further strengthen the capital and liquidity position of our balance sheet, while also being used to pay down higher cost borrowing.”

Since RBC acquired it for $5.4 billion in cash and stock, City National has most recently received amounts between $450 million, $700 million and $600 million annually. In the first six months of 2023, City National received $950 million.

U.S. regional banks were at the center of a crisis earlier this year, following the March collapse of Santa Clara, California-based Silicon Valley Bank. This triggered massive deposit withdrawals and placed renewed focus on lenders’ financial health.

RBC CEO Dave McKay has previously acknowledged that a higher cost of doing business was reducing the profitability of U.S. regional banks and said in August that City National was “not immune to these factors.”

RBC’s fiscal year ends on Oct. 31 while the regulatory reports of condition and income follow the calendar-year accounting. The bank has previously said realized losses at City National will be eliminated at the RBC consolidated level.

RBC, like other Canadian banks, has been struggling to boost profit in an uncertain environment as high interest rates have burdened consumers’ mortgage and loan repayments while costs of doing business have also risen.

(1 Canadian dollar = $0.7213)