Magazine article American Banker

Royal of Canada Reduces Builder Lending in U.S

Magazine article American Banker

Royal of Canada Reduces Builder Lending in U.S

Article excerpt

Stung by the deteriorating quality of loans to home builders, Royal Bank of Canada said its RBC Bank has stopped making such loans in most U.S. markets where it has no branches.

The $33 billion-asset Raleigh subsidiary will continue to originate those loans in its branch territory, which stretches from Alabama and Florida to Virginia, and to Canadian customers looking for such loans in other markets. RBC Bank also will continue to lend to home builders in Texas.

The new policy took effect in Royal Bank's fiscal second quarter, which ended April 30. The pullback is meant to help RBC Bank "manage this business more effectively," Gordon M. Nixon, Royal Bank's chief executive, told investors during a conference call Thursday after his company reported earnings for the quarter.

Royal Bank said its U.S. banking and capital markets operations swung to a $132 million loss in the quarter, from a $183.7 million profit a year earlier, because of rising credit costs and continued writedowns related to capital markets.

The U.S. and international banking business, which includes RBC Bank, remained profitable.

A spokeswoman for Royal Bank said the decision to cut back on home builder loans was a result of deteriorating credit quality.

In its earnings report, Royal Bank did not disclose specifics about RBC Bank's loan book, credit quality, or quarterly results.

But Morten Friis, the $619.4 billion-asset parent company's chief risk officer, said during the call that the subsidiary had about $3 billion of home builder loans on April 30. About $500 million came with the February purchase of Alabama National BanCorp. - an in-market acquisition. A third of the loans in the $3 billion home builder portfolio are outside the markets where RBC Bank has branches, according to Mr. Friis.

Loans in California and Arizona created particular headaches, he said. …

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