Scots plan to shed stake in bank
The taxpayer-owned Royal Bank of Scotland said on Friday that it will segregate about $62 billion in soured investments to clean up its books and accelerate the divestment of RBS Citizens Financial, its American banking subsidiary.
The bank plans an initial public offering of 20 to 25 percent of RBS Citizens in late 2014, then will sell the remaining stake in offerings in 2015 and 2016, said Providence, R.I.-based RBS Citizens.
RBS Citizens is the parent of Citizens Bank, the second-largest retail bank in Western Pennsylvania. Citizens has about 130 branches in the region and holds about 8 percent of deposits.
“We have a clear plan that will facilitate our becoming an independent, standalone bank within three years,” RBS Citizens CEO Bruce Van Saun said in a statement.
Van Saun, who took over as CEO on Oct. 1, said the bank would “continue to maintain a strong business relationship with RBS,” a signal that Citizens intends to keep servicing corporate clients' global needs.
RBS Citizens officials declined to comment further on Friday. But in a recent interview with the Tribune-Review, Van Saun said shedding British control — the British government owns 81 percent of Royal Bank of Scotland — would give RBS Citizens more operating capital and flexibility.
“From Citizens' standpoint, being public would also raise the visibility of the company,” said the CEO.
“And we can control our own performance better than we can control” Royal Bank of Scotland's, he said of RBS Citizens' struggling parent.
Linda Harper, spokeswoman for Royal Bank of Scotland, declined in an email to say whether the bank had been courted by any banks interested in buying RBS Citizens.
Royal Bank of Scotland made the announcements in its earnings report, which showed that the third-quarter net loss narrowed to $1.33 billion from $2.25 billion in the same period last year.
The divestiture move is part of a plan to get the bank in shape so the government can sell its majority stake. But there will be a cost — Friday's move will result in a charge of $6.4 billion to $7.2 billion in the fourth quarter. Shares slumped 7.9 percent to $10.85 on the news.
The government had considered the possibility of splitting the bank into “good” and “bad” parts. The bad bank would have managed the soured investments. But the government concluded that such a split would do more harm than good, in part because it would distract management at a crucial moment.
Instead, RBS will form an “internal bad bank,” meaning it will segregate the soured investments, which represent about 5 percent of the bank's funded assets, and manage them separately. The goal is to sell or write off 55 percent to 70 percent of such assets by the end of 2016.
“While there is inevitable uncertainty associated with running down such assets, we have a clear aspiration to remove all these assets from the balance sheet in three years,” Chief Executive Ross McEwan, who took charge of the bank last month, said in a statement.