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Fines of $612M another problem for RBS, parent of Citizens Bank

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By Thomas Olson
Thursday, Feb. 7, 2013, 12:01 a.m.
 

A global interest rate-setting scandal and $612 million in fines against Royal Bank of Scotland could push RBS into selling its Citizens Bank franchise, but only as a last resort, said industry analysts on Wednesday.

RBS agreed to plead guilty to felony wire fraud and to pay a total of $612 million to U.S. and British authorities over allegations that the Scottish bank helped manipulate global interest rates through a Japanese subsidiary between 2006 and 2010, said the Justice Department.

No individuals have been indicted, but the Justice Department and British authorities are still investigating.

The Scottish bank plans to cut $470 million from its bank bonus pool, including clawing back from workers bonuses given in earlier years, according to Reuters.

RBS becomes the third global financial institution, after Barclays and UBS, to reach a settlement over the so-called Libor (London inter-bank offered rate) scandal. Libor rates are a global benchmark for determining rates on many business and consumer loans, such as home mortgages and credit cards.

A Justice Department statement called the bank's conduct “a stunning abuse of trust” and said it “undermined the integrity and the competitiveness of financial markets everywhere.”

U.K.-based spokesmen for RBS could not be reached. Spokesmen for RBS Citizens Financial, the U.S. parent of Citizens Bank, declined to comment.

Citizens Bank — Western Pennsylvania's second-largest retail bank, with 132 branches — is part of RBS Citizens Financial Group, based in Providence, R.I., which is Royal Bank of Scotland's American banking franchise.

The fine likely means RBS will have to “raise more capital or to shrink,” said Anthony Carfang, partner at Treasury Strategies Inc., a major bank consultant in Chicago. “But the amount ($612 million) is small, relative to the value of their U.S. operation,” which is worth “many times that $612 million,” he estimated.

“You wouldn't sell your car to pay a parking ticket,” said Carfang.

The U.K. government, which owns 81 percent of RBS, has been pressuring the bank for months to sell its U.S. operations, say analysts. The government stake stems from bailing out RBS at a cost of nearly $73 billion in 2008.

Possible suitors tend to be foreign banks, such as Toronto Dominion or TD, Scotia Bank or BNP Paribas, said Nancy Atkinson, senior analyst at Aite Group.

“If Citizens went on the block, I'd have a hard time betting on a U.S. bank taking it over,” she said.

The only American bank with enough financial heft and without much branch overlap might be U.S. Bancorp, Minneapolis, she said.

The largest U.S. banks — Bank of America, JPMorgan Chase, Wells Fargo and Citibank — are less likely candidates to acquire RBS Citizens, if it were available, say analysts. Not only would they likely run afoul of antitrust regulators' concerns about deposit market concentration, but the federal government does not want “too big to fail” banks to get even bigger.

“Regulators have told the biggest banks not to even think about buying another big bank,” said Nancy Bush, an analyst for SNL Financial. “So it becomes a question of who would RBS even sell to.”

Bush also said foreign banks' interest in gaining U.S. footholds has waned since the 2008-09 financial crisis because regulations here have stiffened.

Thomas Olson is a staff writer for Trib Total Media. He can be reached at 412-320-7854 or tolson@tribweb.com.

 

 
 


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