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Citizens Bank's Scottish parent may sell stake in franchise

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By John D. Oravecz
Monday, Feb. 25, 2013, 10:39 a.m.
 

Royal Bank of Scotland appears to be taking steps to deal with mounting pressure from the U.K. government to jettison its Citizens Bank franchise in the United States, including the Pittsburgh region's second-largest bank.

On Thursday, RBS will issue its latest financial results and discuss its intention to sell a 15 percent to 25 percent stake in RBS Citizens within two years. It would be a first step in eventually selling off all of RBS Citizen's, according to a report in The Wall Street Journal.

Citizens Bank — the region's second-largest retail bank, with 132 branches — is part of RBS Citizens Financial Group, in Providence, R.I., which is Royal Bank of Scotland's banking unit in the United States.

By selling off a partial stake, RBS can get an idea how much potential buyers are willing to pay, said Nancy A. Bush, an analyst for SNL Financial.

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

RBS CEO Stephen Hester is nearing the end of a five-year restructuring plan, which has shrunk the bank's balance sheet by more than $1 trillion but has still left U.K. taxpayers sitting on a paper loss of $21 billion on its stake.

While the plan may take time to implement, banks or other acquirers may be interested in bidding for RBS Citizens sooner, attracted by its 1,500 retail branches in 12 eastern states and the Midwest.

Analysts have said possible bidders likely will be foreign banks, such as Toronto Dominion or TD, Scotia Bank or BNP Paribas. The only American bank with enough financial heft and without much branch overlap might be U.S. Bancorp, Minneapolis, they 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, analysts say. 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.

Bush said large regional banks like U.S. Bancorp or PNC Financial Services Group in Pittsburgh might want to buy RBS Citizens, but regulators would be unlikely to approve such a merger. “They don't want to make a very large institution,” she said. More likely would be a deal with TD Bank, which “wouldn't have this size problem,” she said. A sale to a private equity investor also is possible.

Regional banks such as PNC and U.S. Bank are focusing on the Southeast, she said. In 2011, PNC acquired the American retail banking operation of Royal Bank of Canada with 400 branches. “I don't even know why PNC gets mentioned,” on Citizens, Bush said. A PNC spokesman declined to comment.

RBS Citizens also could be split up geographically to more than one buyer. “It would be difficult, but it can be done,” she said.

Reuters and Bloomberg News contributed to this report. John D. Oravecz is a staff writer for Trib Total Media. He can be reached at 412-320-7882 or joravecz@tribweb.com.

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