(In third paragraph, corrects to Treasury Select Committee,
from Parliamentary Commission on Banking Standards.)
* RBS must shrink investment bank further - UKFI
* Market sale most likely for Britain's RBS stake - UKFI
* UKFI informed of RBS Libor probe earlier this year
By Matt Scuffham
LONDON, Oct 23 Royal Bank of Scotland
should consider the future of its U.S. business Citizens and
reduce the size of its investment bank, the agency in charge of
Britain's stake in the bank said.
"I would confirm that among the strategic issues we have
discussed with management are the U.S. operations and the
investment bank," said Jim O'Neil, chief executive of UK
Financial Investments which oversees the government's 82 percent
stake in RBS.
"The investment bank shape and size ultimately should be
smaller than it is today," O'Neil told parliament's Treasury
Select Committee on Tuesday.
The future of Citizens has been under scrutiny as it does
not fit with RBS's narrowed focus on its home market, although
Chief Executive Stephen Hester was expected to try to delay any
sale until a turnaround of the business was more advanced.
Citizens and its subsidiaries, which operate more than 1,500
branches across 12 states and employ 20,900 staff, could fetch
more than 9 billion pounds ($14 billion), analysts have
Hester did not rule out a sale when asked about Citizens
last month, saying his focus was on improving its profitability.
Analysts have said Canadian group Toronto Dominion Bank
and Brazilian lender Itau Unibanco were
O'Neil also said RBS and Lloyds Banking Group
- 40 percent government-owned - should both complete
restructuring programmes by the end of next year, paving the way
for the government to start selling its stakes in the banks.
RBS chairman Philip Hampton said last week the bank was
preparing for the government to start selling its shares in 2014
and was laying the groundwork for a possible share sale to both
institutions and to individual investors.
Earlier this year, Britain held talks with Abu Dhabi about a
possible investment in RBS. O'Neil said UKFI was open to
proposals that offered value for money to the taxpayer but
considered a sale to institutions to be more likely.
"It is most likely some kind of market transaction but we do
not rule anything out. It might be institutions or it might be a
very broad offering including retail. We cannot rule anything
out that offers value for money to the taxpayer," he said.
Taxpayers are sitting on a paper loss of over 20 billion
pounds on RBS after the government pumped 45 billion into the
bank to keep it afloat on 2008.
RBS last week withdrew from a government plan that insured
its riskiest loans, clearing an important hurdle on the path
towards freeing itself from state ownership.
The bank's immediate future is clouded by an ongoing probe
into manipulation of Libor and other interest rates.
O'Neil said UKFI was informed of the investigation by RBS
earlier this year. Some analysts have said RBS could face a
worse punishment than Barclays.
($1 = 0.6237 pound)
(Reporting by Matt Scuffham; Additional reporting by Steve
Slater; Editing by Dan Lalor)