Citizens can’t shake rumors of sale

As the Rhode Island economy brightens, one dark cloud from the financial crisis refuses to go away: a potential sale of Providence-based Citizens Bank.
The largest bank in Rhode Island by total assets and one of the state’s largest employers, Citizens has been a subject of speculation since its owner, The Royal Bank of Scotland Group, was bailed out by the British government in 2008.
British taxpayers own 81 percent of RBS and as the bank’s revenue has picked up, executives have begun negotiating with U.K. regulators about a path to re-privatization.
But multiple reports this fall suggested that the U.K.’s Financial Services Authority wants RBS to sell its U.S. subsidiary and further slim its balance sheet before leaving government ownership.
That set off speculation – again – among bank, business and government leaders in Rhode Island about the future of the state’s leading bank.
“I have been in touch with executives of Citizens for the last two years and these rumors are perpetual due to the government oversight and unpredictability in the U.K.,” said Greater Providence Chamber of Commerce President Laurie White. “I don’t believe there is anything to [the sale rumors] at this point in time, but I think the rumors will begin to circulate again every time the analyst calls are held and remarks are made.”
The local impact of a sale would depend, of course, on the identity of the buyer and how much of their business now overlaps with Citizens Bank.
In general, a purchase by another regional U.S. bank with an existing presence in the eastern part of the country would seem to pose the most significant threat of major consolidation of branches and corporate offices.
Citizens was RBS’ first major foray in the United States in 1988, so there was no overlap of existing branches or services and the bank retained its name and Providence headquarters. But most of the financial institutions floated as possible Citizens buyers already have some presence here and would likely look to take advantage of economies of scale.
“Potentially there would be more branch closings and layoffs with more overlap from the buyer,” said Nancy Atkinson, an analyst with Aite Group LLC in Boston.
Atkinson sees the most likely buyer of Citizens to come from an American regional bank like Pittsburgh-based PNC Financial Services Group Inc., or a Canadian bank like Toronto-Dominion Bank (owner of TD Bank in this country.)
“The Canadian banks weathered the financial crisis better than just about anywhere else in the world,” Atkinson said. “TD is already a player in the Northeast and would have a special interest in Citizens.”
TD’s footprint in the Northeast includes seven branches in Rhode Island and Bristol County, Mass., and $137.3 million in local deposits.
Through the recent acquisitions of Banknorth and Commerce Bank, TD has headquarters in Portland, Maine, and Cherry Hill, N.J., so it’s unclear where Citizens’ Providence headquarters would fit in if it were acquired.
Unlike TD, PNC Bank does not have a presence in New England, although it does overlap with Citizens in Pennsylvania, New York, New Jersey, Ohio, Michigan and Illinois.
In the last four years, PNC has expanded through acquisitions of National City Bank of Cleveland and the Royal Bank of Canada’s U.S. operations, which Atkinson said might be a deterrent to another large purchase.
Richard Bove, an analyst with Rochdale Securities in Florida, calls PNC the “natural buyer” among American banks for Citizens, but said the Pittsburgh firm is not showing an appetite at the moment.
Bove mentioned M&T Bank of Buffalo, N.Y., and KeyBank of Ohio as longshot candidates, but thought outside of PNC, a Canadian bank was more likely. The fact that many U.S. banks are still trying to shore up their balance sheets after ill-advised, pre-recession spending sprees is another reason RBS may fight to hang on to Citizens, which has become one of its most profitable ventures and a hedge against continued economic stagnation in Europe and Britain.
In response to a request for comment about a Citizens sale, an RBS spokesman cited remarks of CEO Stephen Hester, who told analysts last month that while he couldn’t rule it out, Citizens remained a part of his company’s core strategy that would make little sense to sell at a deep discount.
TD Bank is the seventh-largest bank by U.S. deposits and PNC Bank the sixth largest, according to Federal Deposit Insurance Corporation figures.
The fifth-largest bank in the country, U.S. Bancorp of Minneapolis, has also been mentioned as a possible Citizens suitor and Atkinson said an institution of that size may start to raise regulator eyebrows.
With 5,350 Rhode Island employees, Citizens was the fifth-largest employer in the state and fourth-largest private-sector employer in 2011.
Asked what kind of impact a sale could have on the state’s economy, University of Rhode Island Economist Leonard Lardaro, who produces a monthly market-conditions index, said it was impossible to say without knowing the specifics of any deal, but it certainly wouldn’t help.
“It’s just another thing that we don’t need to happen,” Lardaro said. “How many corporate headquarters do we have? How much does charitable giving take a hit? There is also the image problem.”
White said state business and political leaders will continue to keep a close eye on potential developments.
“I am confident that the RBS team knows how strongly everyone feels about its presence here,”she said. •

No posts to display