Citizens’ planned IPO way to help pay U.K. debt

Providence-based RBS Citizens Financial Group has chosen a new leader specifically to prepare for a partial IPO planned for 2015, replacing Chairman and CEO Ellen Alemany, named one of 10 CEOs to watch this year by American Banker.
Whether Alemany is truly ready for retirement, as was announced, remains to be seen. But the changes set in motion by the parent company, Royal Bank of Scotland PLC, are being closely watched by the Rhode Island financial community amid speculation about the bank’s future. At stake locally is the state’s ability to maintain, or even add to, jobs as a result of the public offering of a 25 percent stake in RBS Citizens, which employs 5,400 in Rhode Island.
“RBS took a bailout from the U.K. government and the bank is under great pressure from the government to … begin to repay the capital infusion,” said Robert Cusack, portfolio manager for Providence-based investment advisers WhaleRock Point Partners. “So the management of RBS has come up with a plan to do an [initial public offering] of stock for a portion of their holding in Citizens.”
The Financial Times on May 3 reported that, “Senior Conservative politicians have been stepping up efforts to prepare for a re-privatization of RBS … before the 2015 general election.”
According to Cusack, “These are political judgments, not business judgments. It’s all about the pressure. The elected officials in the U.K. want to be able to say to their constituents they’re pressing this private company to return all this taxpayer money that’s been invested in it.”
In 2008, the British government pumped $71 billion into the bank “to keep RBS afloat,” according to an Oct. 21, 2011 article in Dealbook, a financial news service produced by The New York Times.
“Just the announcement of the IPO took some of the pressure off RBS,” Cusack said. “RBS will wait as long as they can because they think the value of Citizens is rising. So they’re in no hurry to sell Citizens. In fact, I believe they really have no interest in selling Citizens.
“The valuation of banks is not back to what it was prior to the crisis. But they are up in value significantly from the bottom,” he said. To prepare for the IPO, RBS Citizens Financial Group announced earlier this month that Alemany “has decided to retire from RBS in September 2013.”
Alemany joined RBS in 2007 after 20 years in varied leadership roles at Citigroup, including CEO of its Global Transaction Services business.
According to a succession plan established last summer, the press release said, RBS Group Finance Director Bruce Van Saun will succeed Alemany as chairman and CEO of Citizens Bank and RBS Americas.
Alemany has been credited with steadying Citizens following the national real estate and financial-services-sector bust, as well as shielding the bank from the problems of its British parent company.
For the past nine years, Alemany was named among the most powerful women in banking by American Banker, which ranked her No. 4 in 2012.
“Ellen has managed the Citizens Bank, Charter One and RBS Citizens franchises to profitability in a time of great headwinds for the industry, building a strong foundation that positions the company for future progress,” said Arthur Ryan, lead director of RBS Citizens Financial Group and a member of the RBS board.
Alemany was not immediately available for comment last week, but released a statement via the company: “I am proud of all that our RBS Citizens Financial Group colleagues have accomplished for our customers over the course of the past five years – a time of significant change in our industry,” Alemany said. “Through it all, we have strengthened our customer base while staying true to who we are – a regional bank that really knows and cares about the communities we serve.
“Having served with Bruce as a member of the RBS Group executive committee, he is the right leader to shape our future growth,” she said.
Replacing Alemany was not a surprise, said Julie Conroy, retail-banking research director for the Boston-based Aite Group, which provides strategic advice on IT, business and regulatory issues in the financial-services industry.
“I think all of her rave reviews were on her strong operational competency,” said Conroy. “That’s great as you’re trying to grow a business and execute a plan. I think the reason we’re seeing this change of leadership is the person coming in has a strong financial competency and they are prepping for an IPO. “I wouldn’t be at all surprised to see another bank that wants to grow in its own market snap her up,” said Conroy. “I would say someone with her skill set would be very much in demand in this market.”
There have been rumblings about changes at Citizens for a while, Conroy said.
“The parent company is under pretty significant pressure to turn things around back home and Citizens is a healthy bank in an attractive market in the Northeast,” she said.
“Its capital ratio is 14 percent. That’s a key measure of strength,” Conroy said. “The typical peer group number is 10 percent or 11 percent.
“Lots of folks that would be a logical buyer for the bank aren’t, because of the ‘too-big-to-fail’ debate. A lot of legislators are looking to rein in the megabanks and it would take a fairly sizeable bank to acquire Citizens,” said Conroy.
The logical bank to acquire Citizens is the Canadian TD Bank, said Cusack.
“But that wouldn’t be good for the state of Rhode Island,” said Cusack. “There is a lot of back-office overlap and a lot of people would be laid off.”
Anthony Botelho, who worked in various commercial lending and management positions at Citizens from 2000 to 2011, thinks the planned IPO is a strategy that doesn’t signal more of the same in Rhode Island, but could end up being a good thing for the Ocean State.
“I wouldn’t suspect there will be a lot more IPOs. I think this is somewhat unique to that organization, not unique to banking,” said Botelho, now president and CEO of Freedom National Bank, which has branches in Greenville and Cumberland and a loan office in East Providence. “It’s probably a strategic move on their part versus [signaling that there] are going to be a lot of IPOs in Rhode Island.”
Although no one can be certain how the changes will play out, Botelho takes a hopeful perspective on the planned IPO.
“You would hope that with some additional capital, positives come of it. There are really good folks at Citizens, good former colleagues,” Botelho said. “I hope it turns out to be … more job creation for the state of Rhode Island.” •

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