Royal Bank of Canada took a $1 billion goodwill impairment charge in the second quarter as the economic downturn hit the bank’s international banking business, the bank said Friday.

The bank reported a net loss $50 million for the quarter ended April 30, down from net income of $928 million in the year earlier period.

The loss per share was 7¢, down from earnings per share of 70¢ a year ago.

“The goodwill impairment charge is a non-cash item and does not affect our ongoing operations or our capital ratios,” RBC said.

The bank warned last month that it would take the good will charge, reflecting the prolonged challenging economic conditions, particularly in the United States.

Despite the charge, RBC president and CEO Gordon Nixon said most of the bank’s business segments performed well in the second quarter.

“Our underlying results are solid,” he said in a conference call on Friday.

Canadian banking net income was $581 million, down 4% or $23 million from last year.

Wealth management net income was $126 million, down 31% or $56 million over last year due to the impact of capital markets declines on fee-based revenue, and transaction volumes.

“Wealth management has been impacted by market conditions,” Nixon said, but he added that the segment’s performance is set to improve as the economy recovers. “The business is very well positioned for the future, and we see significant opportunities and growth as equity markets continue to improve and investor confidence returns.”

RBC is focused on expanding its wealth management product line and attracting new advisors going forward.

The company’s insurance net income was $113 million, up 9% or $9 million over last year and flat from last quarter.

International banking had a net loss of $1,126 million, down from net income of $38 million last year and net loss of $144 million last quarter. The net loss in the quarter was primarily due to the non-cash goodwill impairment charge and the continued challenges in the United States.

“The U.S. economy is still experiencing many difficulties and the business remains challenged as a result of the provisions for credit losses reflected by the weak environment,” Nixon said.

The bank is conducting a significant restructuring effort on its U.S. business model to become more competitive in the U.S. market, he said.

Meanwhile, capital markets net income was $420 million, up $407 million from a year ago driven by higher revenue from our sales and trading businesses, particularly U.K. and U.S. fixed income, money markets, and U.S. based equity businesses.

RBC’s return on common equity was -1.4%, down from 15.7% in the year-earlier period.

The bank’s Tier 1 capital ratio has grown to 11.4% from 9% in the past two quarters.

“In the short term, we believe it is extremely important to be well capitalized because our capital strength provides us with a competitive advantage in the marketplace and substantial flexibility,” said Gordon Nixon, president and CEO of RBC in a conference call on Friday.

But Nixon added that the bank would scale back its capital level as the economic environment improves and opportunities emerge. “Over time, our ratios will likely trend down as we take advantage of attractive ways to deploy capital.”

While Nixon said he was unsure as to how long it would take for economic conditions to improve, he said promising signs are emerging.

“In the context of the global capital markets, we are starting to experience stabilization,” he said. “Credit spreads are beginning to ease, volatility has moderated from its recent peaks and investor confidence is increasing.”

IE