2014 Government Regulations & Business Summit
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By Howard Mustoe
LONDON - Royal Bank of Scotland Group Plc, Britain’s biggest government-owned bank, may consider selling Citizens Financial Group Inc., a U.S. unit, after Chancellor of the Exchequer George Osborne said the lender should be more U.K.-focused.
The U.S. constitutes the Edinburgh-based bank’s second- biggest market after the U.K., accounting for 22 percent of revenue at the end of 2010, or 6.9 billion pounds ($10.8 billion). RBS owns Citizens, a consumer and commercial unit it bought in 1988 and which generates 9 percent of revenue, and Stamford, Conn.-based RBS Securities Inc., an investment- banking unit.
“We believe RBS’s future is as a major U.K. bank with the majority of its business in the U.K. and in personal, SME and corporate banking,” Osborne told the House of Commons in London on Monday.
Osborne’s statement “will encourage some to expect perhaps the sale of the U.S. retail and commercial banking business of the group, Citizens,” Deutsche Bank AG analysts led by London-based Jason Napier said in a note to clients today.
CEO Stephen Hester, 51, has cut the bank’s assets by about 1 trillion pounds since he took over from Fred Goodwin in 2008 as the lender neared collapse.
Citizens forms part of the bank’s so-called core unit. An RBS spokesman declined to comment on the possibility of a U.S. disposal.
The bank’s British insurance unit, which includes Direct Line and Churchill, must be sold by 2013 to comply with a European Union ruling following the bank’s receipt of 45.5 billion pounds in state aid from 2008 to 2009. It’s also designated a core unit.
RBS’s “non-core’ assets, those it’s said publicly it intends to sell, are worth 153.9 billion pounds, or 11 percent of its 2010 balance sheet.
Past disposals include the 2010 sale of more than 300 branches for 1.65 billion pounds to Banco Santander SA, Spain’s biggest bank.
U.K. regulatory change and alterations in client demand mean the RBS investment bank, Global Banking and Markets, “will have to shrink further in order to be sustainable,” Hester said last month.
The government, which owns 83 percent of RBS, said yesterday that the unit would be significantly reduced as it scaled back “riskier activities.”
The ICB proposals, which the government supports, mean banks will no longer be allowed to use their consumer units to provide cheap funding for investment-banking divisions. An RBS official declined to comment on the analyst report.
RBS is also selling a 1.4 billion-pound portfolio of commercial mortgages to Blackstone Group LP, providing as much as 600 million pounds of debt to help fund the deal, according to three people with knowledge of the deal in November.
RBS also provided a loan in September to help Patron Capital Ltd. purchase 24 U.K. hotels that the bank had seized after Jarvis Hotels Ltd. defaulted on loans.