RBC (TSE:RY) Subsidiary to Pay $31M Redlining Settlement to DOJ
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RBC (TSE:RY) Subsidiary to Pay $31M Redlining Settlement to DOJ

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City National, a subsidiary of the Royal Bank of Canada, is losing $31 million as a result of its discriminatory behavior.

City National, a subsidiary of the Royal Bank of Canada, or RBC (TSE:RY) (NYSE:RY), has agreed to pay $31 million to settle a racism-fueled charge with the U.S. Department of Justice (DOJ). The penalty is the largest redlining settlement in the history of the DOJ.

City National, which was acquired by RBC in 2015, was being investigated by the DOJ for excluding certain communities from its mortgage services. The DOJ claimed that City National had only opened one branch in areas inhabited primarily by Black and Latino communities in the past. The bias became more conspicuous between 2017 and 2020 when the company failed to market and underwrite mortgages in those neighborhoods.

The settlement calls for City National to create a $29.5 million loan subsidy fund for Black and Latino borrowers. The rest, $1.75 million, will be used to propagate its loan services and fund financial education programs for minority borrowers.

Although City National denied the allegations, it agreed to cooperate with the DOJ to offer fair access to credit for all races.

RBC, one of Canada’s largest banks, has a Medium Risk score of 20.21, including a Social Risk Score of 11.1, according to the latest data from ESG tracking firm Sustainalytics. This apart, RBC has a significant Controversy Level based on considerable issues with the Business Ethics, Customer, Society & Community parameters. In comparison, other bank stocks hold a lesser Controversy Level. The incident with City National could push the risk score further up.

Is RY a Good Stock?

Wall Street is cautiously bullish about RBC stock, with a Moderate Buy rating based on six Buys and three Holds. Moreover, the average RBC price target is C$143.33 indicating a 7.41% upside.

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