RY Capitalization: 1Q09

RY has released its Fourth Quarter 2008 Earnings and Supplementary Package, so it’s time to recalculate how much room they have to issue new preferred shares – assuming they want to!

Step One is to analyze their Tier 1 Capital, reproducing the prior format:

RY Capital Structure
October, 2008
& January, 2009
  4Q08 1Q09
Total Tier 1 Capital 25,173 28,901
Common Shareholders’ Equity 115.0% 108.0%
Preferred Shares 10.6% 13.2%
Innovative Tier 1 Capital Instruments 15.4% 14.3%
Non-Controlling Interests in Subsidiaries 1.4% 1.2%
Goodwill -39.6% -34.4%
Miscellaneous -2.7% -2.4%
‘Miscellaneous’ includes ‘Substantial Investments’, ‘Securitization-related deductions’, ‘Expected loss in excess of allowance’ and ‘Other’

Next, the issuance capacity (from Part 3 of the introductory series):

Tier 1 Issuance Capacity
October 2008
& January 2009
  4Q08 1Q09
Equity Capital (A) 18,637 20,949
Non-Equity Tier 1 Limit B=0.666*A 12,425 13,952
Innovative Tier 1 Capital (C) 3,879 4,141
Preferred Limit (D=B-C) 8,546 9,811
Preferred Actual (E) 2,657 3,811
New Issuance Capacity (F=D-E) 5,889 6,000
Items A, C & E are taken from the table
“Regulatory Capital”
of the supplementary information;
Note that Item A includes everything except preferred shares and innovative capital instruments

Item B is as per OSFI Guidelines; the limit was recently increased.
Items D & F are my calculations

and the all important Risk-Weighted Asset Ratios!

Risk-Weighted Asset Ratios
October 2008
& January 2009
  Note 4Q08 1Q09
Equity Capital A 18,637 20,949
Risk-Weighted Assets B 278,579 273,561
Equity/RWA C=A/B 6.69% 7.66%
Tier 1 Ratio D 9.0% 10.6%
Capital Ratio E 11.1% 12.5%
Assets to Capital Multiple F 20.1x 17.5x
A is taken from the table “Issuance Capacity”, above
B, D, E & F are taken from RY’s Supplementary Report
C is my calculation.

Derivatives exposure, which was an issue last quarter as their long-term FX contracts grossed up the balance sheet, declined in notional terms but the risk-weighting increased to leave the risk-weighted exposure flat on the quarter. The notional decline was due to a reduction in short-term exposures; values for terms extending beyond one year were flat. It is possible – though not discussed! – that Royal is using its counterparty strength to go after the more profitable long-term business. Additionally, there appears (page 37 of the supplementary PDF) to be a shift from Foreign Exchange to Interest Rate derivatives.

It was a good solid quarter with nothing particularly exciting happening … just the way we like it! Very nice to see the delevering indicated by the Assets to Capital Multiple and improved Preferred Share subordination shown by the the Equity/RWA ratio.

One Response to “RY Capitalization: 1Q09”

  1. […] does not affect the capital ratios because goodwill is already deducted from capital. The market yawned. What a difference six months makes, eh? If this announcement had been made at […]

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