U.S. federal enforcement officials are turning their sights to the Royal Bank of Canada as they crack down on financial institutions amid mounting public anger over a plan to bail out banks exposed to the credit crisis at the expense of taxpayers, according to officials.
Canada's largest bank is at the top of the list for enforcement agents at the Securities Exchange Commission who are pursuing financial institutions implicated in the collapse of the $330-billion auction-rate securities market, according to two federal officials.
The collapse of the market in the spring left many Americans unable to access funds they believed would be there for them to pay for short-term needs like college tuition and medical expenses, according to the SEC.
The disclosure is the first time officials at the agency have acknowledged they are preparing a federal enforcement action against RBC, and follows a parallel probe being pursued by state authorities. The pending enforcement action would make RBC one of the first Canadian banks to be called to account for its role in the credit crisis.
An RBC executive said the bank was working with regulators, and indicated management at the bank's capital markets operations expected to reach a comprehensive settlement with U.S. authorities.
The bank faces an estimated payout of $1 billion based on precedent-setting agreements negotiated with other U.S. and international institutions by state and federal authorities to buy back securities held by individual customers, charities and small businesses, and to reimburse those clients for damages.
RBC is also the target of a class-action law suit from customers of the bank alleging there was mis-selling of the securities pursuant to "top down management directives", according to a filing submitted to in a U.S. District Court by law-firm Girard Gibbs.
Did newly-retired RBC Capital Markets chairman Chuck Winograd see this coming? Is that why he retired?
Ironically, the governor of the Bank of Canada gave a press conference this morning about the state of our economy standing in front of the RBC's logo. Carney, contradicting Sweater Vest Steve's assurances, warned that "any slowdown in the U.S. economy would have consequences for Canada". Well of course it will and, as he noted, it already has.
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