* RBS says Citizens could be sold, but not for a while
* Could look for quicker sale, pressure from regulator
* T.D. Bank, regional banks likely to look at good assets
* Citizens valuation seen $8.8-$13.6 billion
By Steve Slater and Matt Scuffham
LONDON, Nov 16 Royal Bank of Scotland
made 30 U.S. acquistions as it expanded during the past quarter
of a century, and the talk now is that retrenchment means its
31st deal will see it selling the lot.
Citizens - valued at up to $13.6 billion by Credit Suisse -
is increasingly seen as an adjunct to RBS, whose chief executive
Stephen Hester is focused on British retail and commercial
banking and a slimmed down investment bank.
While RBS, 81 percent state-owned since a bailout,
maintains Citizens is a core asset, it is coming under political
and regulatory pressure to consider a sale.
"I think it will happen in the next year or two. It makes
sense for business reasons and timing," said Chira Barua, senior
banks analyst at Sanford Bernstein in London.
"This is a franchise that could be far more profitable for
one of the U.S. or Canadian banks. There is much more
cross-selling potential for them and they would be able to milk
the franchise better than RBS does," he said.
Hester has said Citizens may be sold, although he would
prefer it did not happen now. "It would be selling an asset
before it has maximised its value and before the market is
profitably valuing financial assets. And so it would not help
shareholder value," he said this month.
The danger is the decision may not be left to Hester.
UK Financial Investments, which looks after Britain's stake
in RBS and also in Lloyds, and the Financial Services
Authority have written to the board saying it should consider
selling Citizens, people familiar with the matter have said.
UKFI head Jim O'Neil told lawmakers last month the future of
Citizens was "among the strategic issues" he had discussed with
Britain could begin selling its 81 percent stake in RBS
before the next election in 2015. A sale of Citizens would
provide investors with a clearer picture of what they would be
The FSA wants banks to bolster capital. There is also
political pressure to cut executive pay.
Ellen Alemany, who has run Citizens for five years, gets far
more than Hester, having been paid 11 million pounds ($17
million) in total in the past two years including past and
future long-term performance awards.
All together, that has left suitors aware of the
opportunity, even if RBS has not been actively touting the
business, several bankers said.
Citizens could fetch $8.8-$13.6 billion, Credit Suisse
analysts estimated, adding a sale was a matter of time and would
be part of RBS's next phase of restructuring.
Citizens, a good franchise in the attractive north-east
United States, should attract a slim premium to its book value,
bankers said. That would be appealing for RBS, whose shares
trade at about half that metric.
Canadian group Toronto Dominion Bank was seen as the
most likely buyer, as a deal would lift it to the fifth-biggest
bank in the United States, from ninth, and yield big synergies.
TD Bank held informal discussions with RBS about Citizens,
the New York Post newspaper reported in August.
"People ask about businesses all the time. We are not in
active discussions with anybody in relation to the sale of
Citizens," an RBS spokesman said on Friday.
T.D. Bank declined to comment.
U.S. regional banks PNC and U.S. Bancorp and
other Canadian names such as Bank of Montreal would
also take a look, bankers said, as could Brazilian company Itau
Unibanco or Japanese lender Mitsubishi UFJ,
two of the world's 20 biggest banks.
TD Bank may tie up with a regional U.S. bank to make a deal
more digestible, and M&T Bank, Fifth-Third,
Huntington or KeyCorp could be interested in
parts of the network, Credit Suisse analysts said.
The problem for suitors is that RBS would want cash, and
Citizens would take some swallowing, even in pieces. Risk
appetite is low across an industry where executives are wary of
the economic and regulatory outlook. That said, the threat of
another economic dip could spur the FSA or RBS into action.
"What happens if the U.S. gets into a recession next year if
we fail to resolve the fiscal cliff? Citizens will definitely be
impacted. That is one stroke that can upset the recovery story
and push it back three or four years," Bernstein's Barua said.
UPS & DOWNS IN AMERICA ...
RBS said its U.S. retail and commercial arm made a
nine-month operating profit of 554 million pounds, 19 percent of
the group's total and up 54 percent as costs and bad debts fell.
While RBS has had a presence in the United States since
1960, its adventure there only took off with the 1988 purchase
of Citizens, based in Rhode Island.
Subsequent deals have swelled its assets to $132 billion,
ranking Citizens as the 15th biggest U.S. bank. It has 1,400
branches across 13 states and about 19,000 staff.
One deal, the 2004 purchase of mid-west bank Charter One for
$10.5 billion prompted an analyst to accuse former chief
executive Fred Goodwin of megalomania, and stoked fears RBS was
leaving its capital cushion perilously thin.