RBC may be IFRS-proof

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Those new accounting rules that proved so onerous for mono-lines have actually boosted the recorded earnings for RBC, the biggest of the Big Five said Friday.

“Net income from consolidated operations for the year ended October 31, 2011 under IFRS was $6,444 million, $1,488 million higher than Canadian GAAP net income,” said RBC in a statement outlining its year-end results under the newly-adopted International Financial Reporting Standards.

While those new accounting rules officially took effect January 2011 and require federally regulated lenders to bring securitized mortgages onto their balance sheets and spread out interest gains from those mortgages instead of declaring that profit upfront.

Those changes represented a real challenge to many monolines, in fact, encouraging one player to alter their game plan.

While Home Trust was already well-capitalized, the IFRS changes encouraged it to place greater emphasis on non-prime mortgages, which effectively increase its spread margins. The lender also raised rates on some of its prime fixed- and variable-rate products.

RBC appears to have escaped any need to hedge against any increase in its own asset-to-capital requirements constraints, given its restated earnings under IFRS.

It reported an increase of approximately $48 billion in loans, which were mainly Canadian residential mortgages, with only $12 billion of securities coming off the balance sheet as a result of IFRS.

“Under IFRS, we will no longer recognize gains on these securitization activities,” says Friday’s statement. Although “net income for 2011 under IFRS (was) $17 million higher than Canadian GAAP and is expected to impact mostly Corporate Support and Capital Markets on a recurring basis.”

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