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Announcement:

Moody's reviews Royal Bank of Canada for Downgrade (Deposits at Aaa)

14 Sep 2010

New York, September 14, 2010 -- Moody's Investors Service placed all the long-term ratings of Royal Bank of Canada, including its Aaa rating for deposits, on review for possible downgrade. Royal Bank's unsupported bank financial strength rating is rated B+, which maps to a Aa2. Royal Bank is rated Aaa for long-term deposits and senior debt, two notches higher than its unsupported ratings, because of Moody's very high systemic support assumptions. The bank's Prime-1 short-term ratings were affirmed.

During its review Moody's will focus on Royal Bank's commitment to capital markets and its growth plans for the business. Moody's will also examine the bank's controls on these businesses, including its limits on position concentrations and less-liquid assets.

On an industry basis, Moody's believes wholesale banking activities poses heightened risks including those associated with concentrated positions, high levels of leverage, confidence sensitivity and opacity. Capital market activities expose bondholders to extreme events or "tail risks" if controls fail. Tail risk is difficult to measure and makes management of a global capital markets businesses especially challenging. Moreover, as market conditions improve and competitive pressures increase, managers at investment banks may relax their disciplines and venture into more complex products.

On a firm-wide basis, RBC management has expressed a strategic target to maintain a 25 to 30% earnings contribution on average from the capital markets segment, which Moody's considers high for a B+ BFSR bank. Moody's noted Royal Bank's growth plans include select hiring of professionals and a growing contribution of revenues from outside Canada.

"Royal Bank and many other investment banks have recently de-risked, but shareholder demands will inevitably cause firms to increase risk and complexity over the next market cycle" said Peter Nerby, a Moody's Senior Vice President.

Royal Bank's very high ratings are underpinned by its sizeable market shares in nearly all Canadian retail financial services including branch banking, residential mortgages, credit cards and wealth management where it typically holds a top two position. These franchises produce steady and predictable earnings with which to absorb potential capital markets volatility. Therefore, the rating agency said any downgrade of Royal Bank's financial strength and deposit ratings would likely to be limited to one notch.

The last RBC rating action was on February 22, 2010 when Moody's downgraded the ratings of certain hybrid securities issued by Canadian banks, in line with its revised Guidelines for Rating Bank Hybrids and Subordinated Debt published in November 2009. Moody's downgraded non-cumulative perpetual preferred securities and Innovative Tier 1 and Tier 2A Instruments issued by Canadian banks, including those issued by RBC.

The principal methodologies used in rating RBC were "Bank Financial Strength Ratings: Global Methodology" and "Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology," published in February 2007 and March 2007, respectively, and available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

The Royal Bank of Canada, headquartered in Toronto, Canada, reported total assets of C$704 billion as of July 31, 2010.

On Review for Possible Downgrade:

..Issuer: RBC Capital Trust

....Preferred Stock Preferred Stock, Placed on Review for Possible Downgrade, currently A2

..Issuer: RBC Capital Trust II

....Preferred Stock Preferred Stock, Placed on Review for Possible Downgrade, currently A2

..Issuer: RBC Subordinated Notes Trust

....Subordinate Regular Bond/Debenture, Placed on Review for Possible Downgrade, currently Aa1

..Issuer: RBCF L.P.

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Possible Downgrade, currently Aaa

..Issuer: Royal Bank of Canada

....Bank Financial Strength Rating, Placed on Review for Possible Downgrade, currently B+

....Issuer Rating, Placed on Review for Possible Downgrade, currently Aaa

....Multiple Seniority Medium-Term Note Program, Placed on Review for Possible Downgrade, currently a range of (P)Aa1 to (P)Aaa

....Multiple Seniority Shelf, Placed on Review for Possible Downgrade, currently a range of (P)Aa1 to (P)Aaa

....Preferred Stock Preferred Stock, Placed on Review for Possible Downgrade, currently A2

....Subordinate Regular Bond/Debenture, Placed on Review for Possible Downgrade, currently a range of A1 to Aa1

....Senior Unsecured Deposit Note/Takedown, Placed on Review for Possible Downgrade, currently Aaa

....Senior Unsecured Medium-Term Note Program, Placed on Review for Possible Downgrade, currently (P)Aaa

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Possible Downgrade, currently Aaa

....Senior Unsecured Deposit Rating, Placed on Review for Possible Downgrade, currently Aaa

..Issuer: Royal Bank of Canada (London Branch)

....Multiple Seniority Medium-Term Note Program, Placed on Review for Possible Downgrade, currently (P)Aa1, (P)Aaa

....Senior Unsecured Deposit Note/Takedown, Placed on Review for Possible Downgrade, currently Aaa

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Possible Downgrade, currently Aaa

..Issuer: Royal Bank of Canada (New York)

....Senior Unsecured Deposit Note/Takedown, Placed on Review for Possible Downgrade, currently Aaa

....Senior Unsecured Deposit Rating, Placed on Review for Possible Downgrade, currently Aaa

..Issuer: Royal Trust Corporation of Canada

....Bank Financial Strength Rating, Placed on Review for Possible Downgrade, currently B+

....Senior Unsecured Medium-Term Note Program, Placed on Review for Possible Downgrade, currently (P)Aaa

....Senior Unsecured Deposit Rating, Placed on Review for Possible Downgrade, currently Aaa

Outlook Actions:

..Issuer: RBC Capital Trust

....Outlook, Changed To Rating Under Review From Negative

..Issuer: RBC Capital Trust II

....Outlook, Changed To Rating Under Review From Negative

..Issuer: RBC Subordinated Notes Trust

....Outlook, Changed To Rating Under Review From Negative

..Issuer: RBCF L.P.

....Outlook, Changed To Rating Under Review From Negative

..Issuer: Royal Bank of Canada

....Outlook, Changed To Rating Under Review From Negative(m)

..Issuer: Royal Bank of Canada (London Branch)

....Outlook, Changed To Rating Under Review From Negative

..Issuer: Royal Bank of Canada (New York)

....Outlook, Changed To Rating Under Review From Negative

..Issuer: Royal Trust Corporation of Canada

....Outlook, Changed To Rating Under Review From Negative

New York
Peter E. Nerby
Senior Vice President
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Robert Young
MD - Financial Institutions
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
USA

Moody's reviews Royal Bank of Canada for Downgrade (Deposits at Aaa)
No Related Data.
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