When downtown L.A.’s City National Bank agreed to merge with Toronto’s Royal Bank of Canada, City National Chief Executive Russell Goldsmith said the deal would let his bank do more for its customers by leveraging RBC’s much bigger balance sheet.

But regulators are looking into an allegation that the banks are already working together, even though the deal has yet to be approved – and that’s against the rules.

A June 29 letter from Carol Evans, an assistant director of the Division of Consumer and Community Affairs at the Federal Reserve, asked City National and RBC to respond to an allegation made by an unidentified person who said that the two banks had conspired to jointly extend credit to a City National customer.

Evans asked City National to respond directly to that accusation as well as shed light on any other collaboration or plans to collaborate that the two banks might have had.

A City National spokeswoman said the bank does not comment on its communications with regulators.

Though it’s a single allegation from an unnamed accuser, it could prove to be an unwanted wrinkle in a merger that observers expected would proceed without a hitch. The banks have already gone out of their way to work with community groups that have been effective in holding up other bank deals, most notably the proposed sale of Pasadena’s OneWest Bank to Livingston, N.J., lending firm CIT Group Inc.

City National, L.A.’s largest bank, has about $32 billion in assets. RBC has nearly $800 billion on its balance sheet.

“Some of our most successful clients need capital markets or have bigger borrowing needs than we could do prudently,” Goldsmith told the Business Journal earlier this year. “This is going to create more capacity for us to do things.”

Puerto Pobre

While much of the world has been focused on the Greek saga, there’s another heavily indebted tourist destination – one much closer to home – causing concern for American fund managers: Puerto Rico.

Drew Zager, a managing director at Morgan Stanley Private Wealth Management in Century City, has been sounding the alarms on Puerto Rico for a while now.

Zager recently told the Business Journal that the fundamental weaknesses of Puerto Rico’s economy – such as its high youth unemployment, shrinking population and massive debt load that’s equal to 95 percent of its gross domestic product – are why he continues to have a negative outlook on the island’s debt.

Prev

For reprint and licensing requests for this article, CLICK HERE.