Royal Bank of Canada (RBC) is taking steps to bolster its capital base following the C$13.5bn ($10.1bn) deal to buy HSBC’s Canadian operations, according to a report of The Canadian Press posted on BNN Bloomberg.
Announcing the fourth quarter results, RBC said it plans to defer share repurchases until the deal with HSBC closes, which is anticipated to happen in 2023.
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The lender also said it plans to launch a 2% discount on dividend reinvestments, which would add to its balance sheet.
According to RBC CEO Dave McKay, the dividend reinvestment incentive comes amid increased probabilities of unlikely but disruptive events, and it is anticipated to add around C$2bn to the capital.
“There is a higher level of uncertainty, and therefore, you have higher tail risk right now,” McKay was quoted by the publication as saying on the analyst call.
“Therefore, we are building a little bit of a capital buffer for uncertainty,” he added.
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By GlobalDataFactoring in the potential economic turmoil, the bank has set aside $381m for potentially bad loans.
In a statement, McKay said, “we maintain our cautious stance on the outlook for economic growth. This caution stems from elevated housing and energy prices, political and geopolitical instability, a pressured manufacturing sector, and an aggressive monetary policy stance by central banks”.
During the fourth quarter, RBC reported C$3.9bn in earnings, which remained relatively flat from a year ago and the diluted earnings per share grew by 2% during the same period.
