Royal Bank of Canada -- Moody's rates Baa3 (hyb) RBC's additional tier 1 structure limited recourse capital notes

Rating Action: Moody's rates Baa3 (hyb) RBC's additional tier 1 structure limited recourse capital notes

Global Credit Research - 15 Jul 2020

Toronto, July 15, 2020 -- Moody's Investors Service, ("Moody's") assigned a Baa3 (hyb) rating to Royal Bank of Canada's (RBC) issuance of additional tier 1 (AT1) structure limited recourse notes.

Assignment:

..Issuer: Royal Bank of Canada

Additional Tier 1 Structure Limited Recourse Notes, Assigned Baa3 (hyb)

RATINGS RATIONALE

The rating on the AT1 structure limited recourse notes is positioned three notches below the a3 adjusted baseline credit assessment (adjusted BCA) of RBC, in accordance with Moody's standard additional notching guidance for contractual non-viability perpetual securities. The assigned rating is aligned with the rating level at which we would rate the securities to which the note holders have recourse in the event of non-payment by RBC of interest or principal on the notes. The standard additional notching guidance reflects the contractual terms of the underlying non-viability contingent capital (NVCC) preferred shares, including their perpetual maturity, and the loss absorption through conversion to equity at the point of non-viability.

RBC is a strong and diversified universal bank with leading market shares across many retail products and services in its home market. It has demonstrated over time strong risk management resources, processes, modeling capabilities and risk culture, mitigating our growth concerns related to its capital markets operations. The key supports of RBC's strong credit profile continue to be its high asset quality and the stable earnings generated by its Canadian retail franchise, which contributes approximately half of its earnings. A solid wealth and asset management business adds further to sustainable internal capital generation. RBC is also a leader in developing digital customer solutions in Canada.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING

Upward rating pressure would emerge if the bank reduced its exposure to auto and credit card Canadian consumer debt or significantly reduced its reliance upon capital markets earnings.

Downward rating pressure could emerge if there was a significant deterioration in the domestic operation environment, if the bank increased its risk appetite leading to significant loan or trading losses, significantly changed its business mix or increased capital allocation towards the Capital Markets business or experienced material regulatory, compliance or risk management failures. Given our expectation of issuance of a substantial volume of loss absorbing liabilities, the ratings could also be downgraded due to actual or planned issuance of junior senior debt being less than presently assumed.

The principal methodology used in this rating was Banks Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The rating has been disclosed to the rated entity or its designated agent (s) and issued with no amendment resulting from that disclosure.

This rating is solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

David Beattie Senior Vice President Financial Institutions Group Moody's Canada Inc. 70 York Street Suite 1400 Toronto, ON M5J 1S9 Canada JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Ana Arsov Associate Managing Director Financial Institutions Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Canada Inc. 70 York Street Suite 1400 Toronto, ON M5J 1S9 Canada JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653

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