DBRS Ltd. has confirmed its credit ratings on Royal Bank of Canada at AA and R-1 (high), citing its diversified business model’s ability to generate stable earnings.

In a confirmation issued Monday, the rating agency notes that RBC (TSX:RY) has leading, or near-leading, domestic market shares in retail banking, wealth management and capital markets, and that its domestic businesses are diversified by product, geography and customer.

DBRS expects the bank to continue to strengthen that leading Canadian franchise through “ongoing expansion of its product offerings, investments in its distribution network and further development of its sales culture,” while also pursuing efficiencies.

DBRS says that this strong domestic franchise also supports the bank’s international growth strategy, including investments in capital markets in the United States and United Kingdom, as well as banking businesses in the U.S. and in the Caribbean.

However, “some of these expansion initiatives have been more successful than others,” DBRS observes, adding that, “Longer term, RBC’s ability to successfully build these investments into competitive businesses will likely be a contributing factor to its ratings.”

It notes that, over the last 12 months, RBC has been expanding its international capital markets operations, and it has begun restructuring the U.S. banking business in an effort to improve efficiency while increasing customer satisfaction.

DBRS says that it “does not anticipate any meaningful positive results” from this restructuring effort in the near term, given the US economy and the still-weak US housing markets. “At the same time, losses from this business are manageable relative to Royal’s overall earnings and capital,” it adds.

IE