RBC, the Real Canadian ‘Big Brother’ - Repairing a Balance Sheet
In the October 2023 edition of Finance 'In-Action,' we’ll look at RBC and its US unit City National, which will highlight concepts related to the Cash Flow Statement, Balance Sheet and Financial Ratios.
”RBC made a capital injection into City National and bought debt securities from it, boosting the Los Angeles-based division’s liquidity and capital”.
Liquidity refers to an organization’s ability to cover its short-term obligations with its current assets. The Current Ratio (Current Assets / Current Liabilities) is a measure of Liquidity.
“…City National was swept up earlier this year in the US regional bank turmoil, which hurt liquidity and net interest margin — the difference between what banks make from lending and what they pay for deposits…”
From City National’s perspective, the purchase of debt e.g., bonds reflects a source of funds from financing activities. The Balance Sheet would see an increase in Current Assets from the purchase of the debt, with a corresponding (‘balancing') increase in long-term liabilities. As a result of this transaction City National’s Liquidity improves and Leverage (Debt / Equity) increases.
RBC Injects Capital Into US Unit to Repair Balance Sheet, Bloomberg, September 29, 2023.
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