World Economic

Royal Bank of Canada’s first-quarter profit tumbled by 17 per cent to $1.25 billion after debt writedowns, higher loan losses from its American operations and the soaring Canadian dollar took a bite out of its bottom line.

CEO Gordon Nixon did not rule out future credit-related charges but said RBC’s performance, relative to its peers, should be a source of confidence for shareholders.

"As a global financial services company, we have been exposed to the difficult market conditions that emerged since the middle of last year as illustrated by the writedowns we reported the past two quarters," Nixon told shareholders at RBC’s annual meeting.

"But our financial performance and stability have not suffered to the same degree as many of our global competitors."

On Thursday, Canadian Imperial Bank of Commerce posted a $1.46 billion loss for the first quarter and warned it could take billions more in future charges if market conditions worsen and shaky American bond insurers go belly up.

CIBC’s pre-tax charges for the November-January period topped $3 billion. In contrast, RBC’s writedowns totalled $430 million, including about $201 million on credit default swaps with monoline bond or asset insurers.

While "very few" of RBC’s businesses are affected by the subprime mortgage meltdown, Nixon conceded its structured credit and U.S. residential builder finance operations remain under pressure. Nonetheless, he was optimistic financial markets would begin recovering during the latter half of 2008.

Still, the bank broke with a long-standing practice of raising its dividend every other quarter payday advance online. It’s quarterly dividend will remain unchanged at 50 cents a share in the second quarter.

Some analysts, however, seemed less hopeful. John Aiken of Dundee Securities cut RBC’s stock rating to "underperform." In a note to clients he said that "although not on the same relative scope as CIBC, Royal too has some meaningful exposure to U.S. subprime and monoline insurers."

He added: "While capital remains strong, the absolute level of the exposures, coupled with a continued decline in Royal’s credit quality in the U.S. heightens the bank’s risk profile."

Total provision for credit losses spiked 80 per cent to $293 million during the quarter.

Risk was also top of mind for shareholders who quizzed executives about RBC’s subprime and real estate exposures and the viability of its U.S. operations. There was also a spirited discussion on executive pay. More than 42 per cent of shareholders voted in favour of a "say on pay" proposal to give them a non-binding vote on executive compensation. Like CIBC, RBC plans to revisit the issue this year.

RBC’s first-quarter profit of $1.25 billion, or 95 cents per diluted share, compared with year-ago earnings of $1.49 billion, or $1.14 per share. The credit charges coupled with currency headwinds cut earnings by 18 cents per share.

With a file from The Canadian Press

Source