Royal Bank of Canada (RBC) has injected capital into its Los Angeles-based subsidiary, City National, in a bid to enhance liquidity and reduce high-cost borrowing. The Canadian bank did not disclose the specific amount of capital injected. RBC’s move is part of its strategy to improve profitability at City National, which reported losses of $38 million in the third quarter, compared to a profit of $102 million the previous year. The losses were attributed to various factors, including a credit loss on a real estate item, increased costs, and rising deposit betas.
RBC acquired City National in 2015 for $5.4 billion, and it has been grappling with challenges in recent times. The California-based subsidiary faced a banking crisis triggered by the collapse of Silicon Valley Bank earlier this year. To support City National, RBC has appointed Greg Carmichael, the former CEO of Fifth Third Bancorp, as a member of its board. Additionally, recent intercompany sales of certain debt securities by City National will lead to recognized losses that will be eliminated at the consolidated level of RBC.
Analysts have perceived RBC’s injection of capital into City National as an “internal bailout.” While the impact on RBC’s overall performance is expected to be minimal, the need for such measures indicates concerns about the health of City National. The move is part of RBC’s broader efforts to strengthen its subsidiary and improve its financial standing.
In summary, RBC has bolstered City National’s liquidity and addressed its high-cost borrowing by injecting capital into the subsidiary. This measure is part of RBC’s strategy to enhance profitability at City National, which recorded losses in the third quarter. In addition to internal actions, RBC has also appointed a new board member and will eliminate recognized losses at the consolidated level. While the impact on RBC is expected to be limited, the move reflects concerns about the health of City National and highlights the broader goal of strengthening the subsidiary’s financial position.