By William Hamilton
PBN Staff Writer
PROVIDENCE – Citizens Financial Group Inc. today posted a $726 million operating profit for the first half of 2008, a decline of $515 million, or 41.50 percent, from the year-ago period’s $1.24 billion.
Its parent company, Edinburgh-based Royal Bank of Scotland plc, said the lower profit reflected non-cash losses of $702 million: on its U.S. retail and commercial portfolio, impairment losses rose to $388 million, from $94 million for the same period in 2007; while on SBO loans (serviced by others), first-half impairment losses amounted to $324 million, up from $69 million in the year-ago period.
Citizens’ total income grew from $2.68 billion in the first six months of 2007 to $2.75 billion in the same period this year – an increase of $65 million, or 2.42 percent.
Interest income at Citizens increased 1.27 percent compared with a year ago, to $1.92 billion in the first half of 2008, thanks to “a focus on disciplined management of our deposit base without substantially increasing rates,” RBS said.
The U.S. bank’s non-interest income improved slightly to $831 million in the first half of 2008, a year-over-year increase of 5.19 percent.
Total customer deposits increased to $104.8 billion on June 30, from $99.9 billion on June 30, 2007.
Corporate loan balances at Citizens grew 16 percent year over year. But volume in its consumer-loan business declined, as demand dropped and the bank applied tighter pricing and credit standards for home equity and auto lending.
“We continue to evaluate opportunities to optimize capital allocation by exiting or reducing exposure to lower growth or sub-scale segments, and recently announced an agreement to sell 18 rural branches in the Adirondacks regions to Community Bank,” RBS wrote in the 2008 interim report released today.
Citizens previously had said it was selling the banks in upstate New York to Community Bank System Inc. (NYSE: CBU), to realign its distribution network so it could expand in larger metropolitan areas of New York. (READ MORE) Community Bank also will acquire about $135 million in loans and $630 million in deposits.
The entire RBS Group reported a first-half loss of 761 million British pounds, as it absorbed 5.9 billion pounds (or $11.4 billion) in write-downs as the fallout from the subprime implosion continued.
It was the first loss for the United Kingdom’s second-largest bank since RBS went public 40 years ago, according to Bloomberg News. For the same period in 2007, RBS reported a 3.65 billion pound profit.
RBS said it was anticipating that “the credit environment will become more challenging, and are positioning ourselves accordingly.”
“The difficult conditions in the financial markets look set to be compounded by a deteriorating economic outlook, with consensus forecasts pointing to slowing growth in many countries,” RBS said. “In recognition of this, our main priority, and indeed our main challenge, is to position our businesses to enable them to remain supportive of our customers whilst operating within a risk appetite appropriate to market conditions.
“Whilst the dislocation of global financial markets which began in 2007 makes this task more complex, it also has the effect of increasing the risk premium available on most business lines. We now have many new products and services to offer to our enlarged customer base, and these provide us with opportunities for income growth, whilst the synergies arising from the integration of the newly acquired businesses promise meaningful efficiency gains.”
RBS CEO Fred Goodwin called the companywide loss “unsatisfactory,” Bloomberg News said. But the credit markets are “thawing,” Goodwin added. “There is business getting done, [although] it doesn’t feel like we are getting back to the good old days.”
Citizens Financial Group Inc., a commercial bank holding company with about 25,000 employees at 1,600 branches in 13 states and non-branch offices in about 40 states, is owned by the Edinburgh-based Royal Bank of Scotland Group plc. Additional information is available at CitizensBank.com or www.rbs.com.
