Royal Bank of Canada says in better shape than peers
TORONTO, April 29 (Reuters) - Deposit margins in the banking industry are compressing "rapidly" but Royal Bank of Canada (RY.TO) can handle this pressure better than most of its rivals, the bank's new head of Canadian banking said on Tuesday.
"We are in a better position to balance the funding challenges relative to most peers, as we have excellent access to wholesale funding and are growing deposits at the same time," said David McKay, who took on the top job at RBC's Canadian banking segment earlier this month.
The domestic banking unit contributes more than 50 percent of RBC's revenue and earnings.
The Canadian consumer is in good shape, RBC is making customer gains in key categories and there is little indication of slowing growth, even in mortgages, McKay said at an investor briefing in Toronto.
"You've got people working, you've got low interest rates, and the relative affordability of housing is good," McKay said.
"We see potentially some small geographic shocks...but we've got a balanced distribution, we don't rely on any one region."
The Canadian and U.S. housing markets are like "night and day," McKay said, with much more conservative mortgage loan-to-value ratios in Canada, in addition to structural differences.
"I do not lose any sleep about our home equity business whatsoever," McKay said.
The bank had C$124 billion of Canadian residential mortgages on its books at the end of January, up from C$108 billion a year earlier.
Canadian housing starts and growth in home prices are both expected to moderate this year, but any slowdown in new mortgage origination may be offset by customers dipping into their home equity for renovations, McKay said.
On the capital markets side, RBC is not overweighted in any particular business, although it has been affected by U.S. market turbulence, Chief Executive Gordon Nixon said.
"Let me assure you that we are not happy about taking any writedowns and certainly do not take them lightly," Nixon said at the investor briefing.
"While we have suffered in some of our operations, we have not had the same degree of concentration that our competitors have had in those areas," Nixon said.
He did not address potential writedowns expected in the bank's fiscal second quarter, which ends on Wednesday.
Analysts are warning that Royal will take further writedowns on its U.S. debt securities when it reports quarterly results on May 29, although the magnitude of the potential writedowns is open to speculation.
Citi analyst Shannon Cowherd said in a report this week that the bank could write down C$5 billion ($4.95 billion) in various securities, but RBC took the unusual step of refuting her report on Tuesday, saying it contained errors.
Other analysts have estimated that RBC will write down between C$400 million and C$700 million in debt securities in the second quarter.
The bank, Canada's largest, took a pretax charge of C$430 million in the first quarter ended Jan. 31 for U.S. subprime mortgage-related assets and credit default swaps with U.S. bond insurers, among other items.
RBC's risk profile "compares favorably" with other banks around the world, and it expects to "come out even stronger" as the dust settles, Nixon said.
($1=$1.01 Canadian) (Reporting by Lynne Olver; Editing by Bernadette Baum)
