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ROYAL BANK OF CANADA (Toronto symbol RY; www.rbc.com) is Canada’s largest bank, with $815.0 billion of assets.
The U.S. Commodity Futures Trading Commission (CFTC) recently accused Royal of using a complex series of trades to cut its tax bill in Canada.
Specifically, the CFTC says that divisions of the bank bought Canadian and U.S. dividend stocks (plus futures contracts on these stocks) and quickly sold them to other divisions. These transactions would let Royal earn tax credits on the dividends it received from these holdings.
The CFTC claims that this process was a wash trade, in which the bank artificially set prices for these transactions, instead of letting the market determine the prices. Royal has denied these allegations.Don't miss your chance to download Pat McKeough's free report, "Stock Market Investing Strategy: Pat McKeough's Conservative Investing Guide for Making Money & Cutting Risk." In this report, Pat gives you simple, plain-English advice that can help you cut your portfolio's volatility — even in unpredictable markets like today's. Click here to download your copy and get started right away.
Royal recently agreed to buy the 50% of RBC Dexia Investor Services that it does not already own. Formed in 2006, this 50/50 joint venture provides safekeeping and administration services (including holding securities and processing transactions) to institutional investors.
Meanwhile, the bank earned $1.9 billion, or $1.23 a share, in the first quarter of fiscal 2012, which ended January 31, 2012. That’s down 6.0% from $2.0 billion, or $1.31 a share, a year earlier. Lower profits from Royal’s securities trading business was the main reason for the earnings decline.
Royal set aside $267 million to cover bad loans in the latest quarter, up slightly from $264 million a year earlier. Revenue rose 4.9%, to $7.6 billion from $7.2 billion.
The bank will probably earn $4.88 a share in fiscal 2012. The stock trades at 11.5 times that estimate. The $2.28 dividend yields 4.1%.
In the latest edition of The Successful Investor, we examine the viability of the CFTC’s case against Royal Bank and assess the possible consequences for the bank. We also look at the potential risks and rewards of the bank’s raised stake in Dexia Investor Services. We conclude with our clear buy-sell-hold advice on the stock.
You get our recommendation on Canada’s big five banks and more leading Canadian dividend stocks when you try a risk-free introductory subscription to The Successful Investor. As a new subscriber, you can save $50.00 — and get all the details on “My #1 Stock Pick for 2012.” Click here to take advantage of this special subscription offer.Be the first to comment
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