A Citizens Financial Sale Would Face High Hurdle in Regulators

Less is known about Toronto-Dominion's leanings. It held informal talks to buy Citizens, the New York Post reported on Aug. 3.

The potential initial public offering is a response to pressure on RBS from the Financial Services Authority, the U.K.'s banking regulator, to boost its capital ratios. The British government owns an 81% stake in RBS following its 2008 bailout.

Based on past comments by Stephen Hester, chief executive of RBS, the potential IPO of Citizens is not a maneuver to smoke out potential buyers for it, but just a pragmatic compromise with its regulators. Selling part of the company would bring in some capital, without completely divesting from the U.S., says a person with familiar the matter who asked not to be named.

"Selling Citizens today would be a little bit like selling RBS shares for the government," Hester said during the company's third-quarter conference call in November. "It would be selling an asset before it's maximized its value and before the market is profitably valuing financial assets. It wouldn't help shareholder value. It would give us obviously a nominally higher capital ratio."

The public offering of Citizens would follow a similar path the company undertook with its Direct Line insurer unit. The company took 30% of the company public in October, nearly two years after it announced it would do so.