Profitability

Canadian Banks write off $1.2 Bn … so far – [33% default rate]

RBC announce $0.4Bn charge related to sub prime, bringing the Canadian total to $1.2 Bn so far.  The astounding statistic here is that the RBC charge relates to 33% of their outstanding in that sector. 

What kind of risk assessment was done on an investment made within the last 2 years that produces 33%+ default rates?  And using Canadian depositors money no less.   I could comment on the less than 3% default rate at Prosper, but no, I won’t go there … today.

reportonbusiness.com: RBC to take $360-million charge amid credit crunch

The subprime writedown, which amounts to about one-third of the bank’s exposure, is slightly smaller — on a percentage basis — than the charge that Canadian Imperial Bank of Commerce has taken, Genuity Capital Markets analyst Mario Mendonca said in a note to clients.

…
Last week, Canadian Imperial Bank of Commerce announced that it will take a $463-million pre-tax hit on its exposure to subprime-relatedsecurities. That brought CIBC’s total writedowns to $753-million for the last six months as a result of these investments, an issue that prompted the bank to parcel off much of its U.S. investment banking operations, which were sold to Oppenheimer Holdings Inc. for a minimal sum.

UPDATE:
• There is a lot of uncertainty surrounding BMO in terms of the bank’s
potential write-downs from non-bank ABCP liquidity facilities and
perhaps recent holdings in non-bank ABCP, as well as its Structured
Investment Vehicles (SIVs). The potential magnitude of the writedown is
difficult to ascertain but could be as high as $500 million.

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2 thoughts on “Canadian Banks write off $1.2 Bn … so far – [33% default rate]”

  2. Thanks William. I think its important, and reflects Canadian Banks getting away from their base customer focus, in Canada.

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