S&P: RBC Dominion Securities Inc. Rated 'AA-' Based On Core Status To Royal Bank of Canada
The rating reflects that on its parent, Royal Bank of Canada (RBC). "We believe RBC DS is core to RBC, reflecting the company's integration with and integral part of RBC's overall strategy, vital role in RBC's investment banking offering in Canada, and significant presence in the Canadian investment banking sector," said S&P Global Ratings credit analyst Lidia Parfeniuk.
RBC DS' core status further reflects the company's deep integration with the RBC group, practices, operations, and infrastructure. The company also shares RBC's brand name, is aligned with RBC's enterprise risk framework and reputation, and is overseen by RBC's governance and controls oversight. As a result, we have equalized the rating on RBC DS with that on RBC.
RBC DS is a wholly owned subsidiary of RBC. It offers full-service brokerage and investment banking products and services to corporations, public sector, and institutional clients. Its business consists of regional capital markets and wealth management operations in every major city in Canada with over 400,000 clients and C$217 billion in assets under administration. RBC DS also provides full-service brokerage and investment services for high and ultra-high net worth clients in Canada, an important and successful business for RBC. RBC DS represents 6% of RBC's assets and net income. Its balance sheet consists of high-quality liquid assets.
The outlook is negative. Consistent with our core status, the outlook on RBC DS mirrors that on its parent, RBC. A potential change in RBC DS' core status could cause us to lower the rating by one notch or more, but we do not view such a change as likely.
The negative outlook on RBC reflects our concerns over aggressive growth in RBC's U. S. wholesale lending portfolio over the past several years, with emphasis on non-investment-grade loans. RBC also has the highest exposure of its peers to the highly indebted Canadian consumer and to Canada's oil - and gas-producing regions. These exposures, and potential future growth, in aggregate, could lead to higher loan losses than peers'.
We could lower the rating on RBC over the next two years if the bank's risk appetite remains elevated in our view, or if credit quality metrics worsen relative to the peer average for several quarters.
Alternatively, we could revise the outlook to stable if we were to see evidence that risk appetite is moderating and that credit quality metrics are unlikely to worsen more than for peers.
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