Royal Bank of Scotland Group (RBS) will sell a 25% stake in its Citizens Financial Group unit in the U.S. and shrink its investment bank to boost capital, the British bank said Thursday.
RBS plans to sell the stake in Citizens, the Providence, R.I., bank it acquired in 1988, in a public offering within two years, officials said, confirming news reports that had circulated for days. Britain's biggest taxpayer-owned lender is under pressure to strengthen capital and stem its widening losses.
"We did reach an important accommodation in recent days with the government, our majority shareholder, and the regulators in relation to their well-publicized concerns across the industry on capital," Chief Executive Stephen Hester said. "The two revisions to our strategy that go with that are a further shrinkage of our markets business, with the capital there coming down significantly further over the next couple of years" and the intention to start selling Citizens, Hester said.
Bank of England Governor Mervyn King said in November U.K. banks may need to build up the capital they hold against potential losses and asked the Financial Services Authority to investigate and report back in March.
RBS' core Tier 1 capital ratio rose to 10.3% at the end of December. Under the stricter Basel III rules, the measure stood at 7.7%, less than the 8.5% minimum those regulations will require. RBS will boost that ratio to closer to 9% this year, officials said.
News reports that RBS would announces plans for a Citizens offering surfaced late last week, and prompted speculation that other big U.S. players might offer to buy out the entire unit. Names like PNC Financial Services Group (PNC), Toronto-Dominion Bank (TD) and U.S. Bancorp (USB) emerged as parties that could seek to buy the $132 billion-asset Citizens outright.
However, the odds of a full sale are low, experts say, because of U.S. regulators' reluctance to allow more megabanks and business challenges facing some of the potential suitors.
Citizens had $141 billion of assets, $104 billion of deposits and 1,420 branches in 13 states primarily in the Northeast and Midwest as of Sept. 30.
Meanwhile, RBS posted a wider full-year loss after it set aside a further 1.1 billion pounds ($1.6 billion) to compensate clients wrongly sold insurance and swaps.
The net loss swelled to 5.97 billion pounds ($9 billion) from 2 billion pounds in the year-earlier period, RBS said Thursday. Analysts had predicted a loss of 5.1 billion pounds, according to the median estimate of nine surveyed by Bloomberg.
Operating profit at the investment bank rose to 1.5 billion pounds in 2012 from 900 million pounds. The unit posted an operating profit of 139 million pounds in the fourth quarter compared with a loss of 109 million pounds in the year-earlier period. RBS said it plans to reduce assets allocated to the unit by about 20 billion pounds, without providing further details.
Hester has faced calls to shrink the securities unit after RBS was forced to pay regulators a $612 million fine this month for rigging benchmark interest rates such as Libor. Investment banking chief John Hourican said he would step down following the settlement, which showed that for years traders routinely rigged Libor to boost the profitability of their derivatives positions.
RBS will recoup about 302 million pounds from bankers by cutting its bonus pool and clawing back compensation to meet the 381 million-pound cost of settling the Libor rigging-scandal. The lender said it will reduce the amount it allocates for investment bankers' bonuses for 2012 to 215 million pounds from about 360 million pounds for 2011.
