Analyst sees more charges at Royal Bank of Canada
TORONTO, July 9 (Reuters) - Royal Bank of Canada (RY.TO) could take capital markets charges of up to C$1.5 billion ($1.49 billion) in its third quarter for various credit-market exposures, an analyst said on Wednesday.
Genuity Capital Markets analyst Mario Mendonca said the pretax charge at Canada's largest bank could range from C$900 million to C$1.5 billion, driven by the downgrade of U.S.-based bond insurer MBIA (MBI.N) and the subsequent spread widening of MBIA's credit default swaps.
On June 19, Moody's Investors Service stripped MBIA of its last top "AAA" rating.
Another source of higher charges at RBC, Mendonca wrote, is the recent increase in certain mortgage-backed securities spreads due to concerns at U.S. home finance companies Freddie Mac and Fannie Mae.
In the second quarter, which ended April 30, Royal took C$854 million in capital markets and corporate support charges before tax. The writedowns covered a variety of debt securities and hedge positions.
RBC is due to report results for the May-June quarter in late August.
On the Toronto Stock Exchange late on Wednesday, shares of RBC were down 3 percent at C$44.62, while the S&P/TSX financials index was off 2.1 percent.
If actual charges are at the the top end of Mendonca's estimate, RBC's total pretax charges since the fourth quarter would be more than C$3 billion, but the bank's Tier 1 regulatory capital ratio would remain strong, at more than 9.0 percent, the analyst said.
He cut his RBC price target to C$52 a share, from C$55 previously. ($1=$1.01 Canadian) (Reporting by Lynne Olver; editing by Rob Wilson)
