Royal Bank of Canada today announced that, it will offer to purchase, at par, auction rate securities held by its U.S. retail brokerage clients.

The repurchase offer comes as part of a settlement with the United States Securities and Exchange Commission, New York Attorney General’s office, and the North American Securities Administrators Association.

In a statement, RBC said it “neither admits nor denies allegations of wrongdoing.”

The repurchase offer is being extended to approximately 2,200 clients, in the wealth management and capital markets divisions of RBC Capital Markets Corporation, as well as from JB Hanauer & Co. and Ferris, Baker Watts, Inc., two firms recently acquired by RBC.

In August, several Wall Street investment banks, including J.P. Morgan and Morgan Stanley, agreed to buy back auction rate securities to settle investigations by the N.Y. Attorney General’s office and the Office of Financial Regulation of the State of Florida. The agreements settled allegations that the firms made misrepresentations in their marketing and sales of auction rate securities. The firms neither admitted nor denied allegations of wrongdoing.

RBC’s repurchase offer represents approximately US$850 million of auction rate securities, of which more than 85% are AAA-rated. Of this dollar amount, more than 70% are auction rate preferred securities for which other broker dealers were lead underwriters and auction agents.

The impact of the repurchase offer to RBC’s fourth quarter 2008 results is currently estimated to be approximately US$30 million on a pre-tax basis. This is based on the estimated difference between par value and current valuations and a penalty of US$9.8 million RBC has agreed to pay to the N.Y. Attorney General’s office and the state securities commissioners associated with the North American Securities Administrators Association.

The actual financial impact to RBC of the repurchase offer will depend on the number of clients who accept the repurchase offer, and market conditions at the time they accept.

IE