Royal Bank of Canada expects its fourth-quarter net income to be about 15% lower at $1.1 billion due to mounting credit losses and the effects of the global economic downturn, the bank warned on Monday.

The bank said earnings were reduced due to certain items relating to the market environment totaling approximately $360 million, approximately $645 million of losses on held-for-trading securities and provision for credit losses for the fourth quarter of about $620 million.

The bank said that it expects net income for quarter ended Oct. 31, to be approximately $1.1 billion, down 15% from $1.3 billion a year ago.

RBC expects its Tier 1 capital ratio to be approximately 9.0%.

“These are challenging times, with extreme volatility in the global financial markets and an uncertain outlook,” said Gord Nixon, RBC’s president and CEO, in a release.

“However, RBC continues to be in a strong financial position. We are focused on prudently managing our balance sheet, while continuing to provide our clients with excellent financial advice and service.”

RBC will release its fourth quarter and fiscal 2008 results on Dec. 5.

Credit rating agencies confirmed their ratings on RBC despite the bank’s negative pre-announcement.

DBRS Ltd. confirmed its ratings and trends of RBC following the bank’s pre-announcement of fourth quarter results, which include a loss of approximately $645 million pre-tax on the held-for-trading portfolio, and approximately $355 million pre-tax losses on available-for-sale securities. These were partially offset by a gain on the change in fair value of RBC’s liabilities designated as held-for-trading as a result of credit spreads of approximately $330 million and reserve release of approximately $540 million pre-tax for Enron Corp. related litigation, it said.

“The confirmation reflects DBRS’s view that the writedowns are manageable, given the strength of the bank’s earnings profile. Earnings are well diversified and more levered to lower-risk business segments, with Canadian banking and wealth management representing 58% and 16%, respectively, of reported earnings ($3.4 billion) in the first nine months of 2008,” DBRS said.

The rating agency said that the bank’s Tier 1 capital ratio is expected to decline to approximately 9.0% at the end of Q4 from 9.5% at the end of Q3. “Although the Tier 1 capital ratio is reasonable for RBC, DBRS believes it is prudent for the industry, as a whole, to maintain capital levels that are higher than historical levels, given the expectation of deteriorating credit quality and the potential for further writedowns to occur as capital markets remain uncertain,” it said.

Moody’s Investors Service also affirmed RBC’s ratings, but changed its rating outlook to negative from stable. In affirming the ratings, Moody’s noted the strength of RBC’s broad financial franchise in Canada. The change in RBC’s rating outlook is based on several concerns, it said, namely: the potential for further charges related to its structured credit exposures, and RBC’s off-balance sheet exposure to multi-seller and third-party conduits totaling $42 billion.

Regarding the structured credit losses, Moody’s notes that the gross $1 billion in losses announced today come in addition to $1.8 billion incurred up to the third quarter of 2008, and it adds that these exposures have the potential of producing further losses. As for the conduit exposures, Moody’s notes that anticipated credit quality deterioration in 2009 could produce losses that RBC may be obliged to absorb, as some of its peer banks have done in recent quarters.

Moody’s vice president and senior credit officer, Peter Routledge noted Moody’s opinion that “RBC’s off-balance sheet conduit and structured credit exposures represent concentrations that may well exert continued downward pressure on the bank’s earnings and capital ratios which would, in turn, put pressure on the bank’s very high B+ bank financial strength rating. Moody’s has reflected this rating pressure by assigning a negative outlook to RBC’s ratings.”

Routledge reasserted Moody’s view that “RBC benefits from a strong earnings and capital position which provide substantial bulwarks against a material deterioration in its credit profile.” Moody’s expects RBC’s pre-tax, pre-provision earnings to exceed $1.5 billion per quarter in 2009 and estimates that the bank has $5.5 billion in Tier 1 capital above the regulatory minimum of 7.0% and $2.8 billion in total regulatory capital above the 10% minimum.

Additionally, Standard & Poor’s said that it is maintaining its buy recommendation of RBC’s shares. However, it is reducing its fiscal 2008 and 2009 EPS estimates to $3.39 and $3.50, from $3.51 and $4.31, respectively.

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