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 |
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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):
RY Tier 1 Issuance Capacity October 2008 & January 2009 |
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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!
RY Risk-Weighted Asset Ratios October 2008 & January 2009 |
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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.
[…] 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 […]