27 April 2008

Citigroup Downgrades RBC

Citigroup Global Markets, 27 April 2008

• Downgrading to 3H from 2H, and Lowering Target Price to C$40 — The downgrade is driven by our conservative estimate of a C$5B potential credit related write down and a C$2B increase to the provision for credit losses. Our estimates are based on our assessment of the bank’s exposures and the actions employed by similar U.S. banks during Q108 results reporting.

• Reduced our Already below Consensus FY08E to C$2.91 — We reduced our prior FY08E of C$4.30 by C$0.06 to reflect the anticipated write-downs, and by C$1.33 to reflect the increased provision for credit losses. The reduced target price reflects the hit to book value driven by recording fair value to OCI.

• Other Comprehensive Income (OCI) vs. Net Income — Managerial discretion is used to determine the asset classifications. Fair value adjustments to securities classified as available for sale are recognized in OCI, held for trading and to maturity are recognized in net income. Under Basel II, changes to OCI impact book valuations and Tier 1 regulatory capital.

• Increased Credit Coverage Ratio to 200% — As of the end of Q108A, the coverage ratio was 96%. Based on our estimate of the FY08E impaired loans ratio increasing to 0.8% from FY07A of 0.45%, the allowance needs to be increased by approximately C$2B to generate a 200% coverage ratio.

• Risk to Our View — Given Royal’s weight in the benchmark, investors may continue to hold the stock even after the disclosures. Additionally, asset values may change prior to disclosure.