RBC Financial (Caribbean) Ltd has reported a huge loss on its operations across the region in its 2014 financial statement, even as a Wall Street Journal report has hinted that there may be significant ownership changes in the wind at RBC's wealth management division across the Caribbean amidst claims of new problems with money laundering within its Latin America Wealth Management Division.Those reports come against a backdrop of a significant loss at RBC Financial (Caribbean) Limited.
In its consolidated financial statement for the 12-month period ending October 31, 2014, RBC Financial posted a loss of $735.7 million, which was a huge increase from the $6.7 million loss in the previous year.The company's 2014 performance was driven by the fact that it recorded the sum of $999.5 million as impairment losses on loans and advances, which was more than double the $491.5 million impairment losses it reported in 2013.
In terms of the impairment losses by sector, RBC Caribbean reported $479.2 million in the commercial and corporate sector, $405.5 million for mortgage loans and $114.8 million for retail loans.In the chief executive report, published on January 31, RBC Financial CEO, Robert Johnston, sought to put a brave face on the results, pointing to the growth of the regional banking franchise's core business:
Over the fiscal period ending October 31, 2014, excluding one-time items, we realised core earnings of $511 million compared to $448 million in 2013, as our core business continues to improve and grow."We have positive momentum in quality loan growth in our key areas of corporate and business banking, which we will continue to develop further."
Johnston also stated:"Even as RBC Financial and its subsidiaries (the group) were impacted by challenging economic conditions across the region, we maintained our relationship with the Caribbean and continue to reaffirm our commitment to the region."Meanwhile, RBC's T&T subsidiary reported a loss of $189.5 million for the 12-month period ending October 31, 2014, which was higher than the $55.7 million it recorded in 2013.
That loss was driven by the company declaring $179.9 million in impairment losses on loans and advances to customers. In 2013, RBC's T&T subsidiary reported $28.6 million in impairment losses.
In his managing director's report, Darryl White stated: "Across the region, the Caribbean parent implemented certain restructuring initiatives to adjust the overall cost structure of the group in response to the challenging economic conditions across the region. Costs relating to this restructuring and the settlement of a long-outstanding, post-retirement benefit issue, negatively impacted the bank by $110 million (2013-$268 million) in 2014.
"The bank also strengthened loan loss provisions to reflect the challenges in collateral realisation."According to the WSJ article headlined "Money-laundering fears fuel an RBC retreat" financial losses may not be the only issue facing the Canadian bank in the region.
On the issue of RBC's sale of some more of its Caribbean businesses, the opened by stating: "Canada's largest bank, Royal Bank of Canada , is exiting from once-promising businesses in Latin America and the Caribbean after being swept up in the net of global money-laundering probes."
Talking about the story during an interview the same day it was published in the WSJ (Tuesday February 4) on the Canadian Business News Network, Mac Donald said the probe into RBC's wealth management business in Latin America stemmed back into 2009, when Brazilian police investigated the possibility that laundered money from the Dutch Caribbean may have ended in an account in their country, touching off probes Mac Donald said in two other RBC Latin America areas, Uruguay an Argentina.
In a later story on WSJ, written on Friday, February 6, Mac Donald said the RBC was in talks "with several bidders for parts of the Caribbean wealth-management business that it is exiting as part of a pullback in the Caribbean and Latin America".Last November, after initial reports of closures in several Latin American countries, a Business Guardian report quoted a media release form the bank saying that this was unlikely to affect T&T or the rest of the region.
"We remain committed to strengthening our overall business performance and focused on markets where we can be a leading competitor over the long term."
But Mac Donald has reported that two people familiar with the matter have said that "among the bidders for some of the Caribbean assets is Toronto-based Cidel Financial Group Inc." RBC is also said to be advised in the process by Ernst & Young. Mac Donald also said that "RBC is currently in talks to sell its Caribbean-based trust business, which helps the ultrawealthy plan tax and ownership issues in inheritance" but that this sale would not include a sale of RBC's Caribbean brokerage business.
The WSJ report continues: "RBC is pulling out of the Caribbean and Latin America because the risks associated with potential money-laundering didn't justify the profits the bank was making there." It adds a 'spokeswoman' said "the business had underperformed for several years and said the bank had a strong record on regulatory compliance, including anti-money-laundering."
According to the CEO's report, RBC Financial's result were affected by several "one-time" items, including steeling longstanding pension issues to the tune of $222 million and a $577 million dollar charge related to the sale of the group's Jamaica operation.
According to its financial statements, RBC Financial's results were down when compared to 2013 in its Interest Income, ($3,122,522 in 2014 to $3,498,572 in 2013) and non interest income ($1,473,398 in 2014 to $1593,651 in 2013)The Sunday BG contacted Natalie Mansoor, Head Asset Management, RBC Investment Management (Caribbean) Limited for a comment on the WSJ report sending her links to the material.
She said that she was out of the country but gave a commitment to review the story and then provide a response.Royal Bank of Canada announced in October 2007 that it would acquire the RBTT Financial Group for a total of about US$2.2 billion, as it sought to re-enter the region building on the Canadian bank's modest presence in the region.
Shareholders of Trinidad and Tobago-based RBTT received about US$6.33 per share, payable in a combination of 60 per cent cash and 40 per cent Royal Bank of Canada common shares. The offer represented an 18 per cent premium to RBTT's closing price on September 28, before the Business Guardian pegged RBC as the buyer.
The transaction closed in June 2008 just before the onset of the global financial crisis, which has meant that the Canadian parent has had challenges generating a return on its US$2.2 billion investment.In October 2007, Peter Armenio, RBC's head of US and international banking said on a conference call: "This franchise creates a base for future expansion down the road" not only in the Caribbean, but possibly in Central America and South America, .
RBC said the deal, which is expected to close by the middle of next year, will "mildly" increase its earnings per share in 2008.But the combination will be "transformational" for RBC in the Caribbean, as the new entity will become the fourth largest bank by assets in the region, Armenio said.