The Royal Bank of Canada, which owns Los Angeles-based City National Bank, has made a series of intracompany transactions that should bolster the profitability of
The transactions centered around debt securities previously owned by
On a percentage basis, City National had the fourth-highest average unrealized securities losses among U.S. banks with at least $50 billion of assets, according to a six-quarter data analysis from KBRA Financial Intelligence.
Toronto-based RBC announced the transactions on Friday. It said that City National has sold certain debt securities, resulting in realized losses that will be eliminated at the Royal Bank of Canada consolidated level.
In turn, City National has reinvested most of the proceeds from the sale into new securities for its liquidity and investment portfolio. Those purchases are expected to lift City National's net interest margin.
RBC also said that a capital injection has been made into City National, which has bolstered the U.S. subsidiary's capital and liquidity position. The capital is also being used to pay down higher-cost borrowings, RBC said.
"This is part of management's actions that RBC is taking on the path to improving profitability at City National," said Gillian McArdle, an RBC spokesperson.
The bank plans to provide more details in its upcoming call report for the three-month period that ended on Sept. 30.
The announcement of the transactions follows a significant increase in long-term bond yields, which likely magnified City National's unrealized losses, according to Nigel D'Souza, an analyst at Veritas Investment Research.
But it's not clear why Royal Bank of Canada decided to crystallize the losses, D'Souza wrote in a research note. Because deposit balances at City National have stayed relatively stable, the sale likely was not the result of liquidity needs, he wrote.
City National, which was run independently before RBC bought it in 2015 for more than $5 billion,
The $94.6 billion-asset bank has been hurt by rising funding costs, as well as pressure to reduce its lending capacity in an effort to conserve capital and liquidity, RBC executives said in August.
Rising expenses have also been a problem, and City National has been facing pressure to cut its costs substantially. Last month, City National announced that Greg Carmichael, the former CEO of Fifth Third Bancorp, would become the executive chair of its board of directors, reporting directly to RBC Chief Executive Dave McKay.
