Citizens Financial Group Inc. is exploring the sale of its supermarket branches on Long Island as the bank slims down on orders from its European parent, the Royal Bank of Scotland, according to industry sources.
Citizens aims to solicit bids in the next two weeks for 27 branches inside Stop & Shop stores in Suffolk and Nassau Counties, one source said.
The Providence, R.I., bank is reluctant to sell its half dozen Stop & Shop branches in other parts of New York, but may have to relinquish them if it wants to exit Long Island, another source said. That is because Stop & Shop grants in-store banking contracts to one bank per state.
That would make Citizens' small and languishing New York network a boon for a handful of local banks with buying power, particularly People's United Financial Inc. The Bridgeport lender has about 80 branches inside Stop & Shop stores in Connecticut. It wants to get bigger on Long Island after buying a bank there last year.
Another potential suitor, New York Community Bancorp Inc. of Westbury, N.Y., is interested in taking over Citizens' contract with Stop & Shop, which runs through 2017, one of the sources said. But it operates branches inside Stop & Shop rival Pathmark, a situation that may keep it out of the bidding process.
PNC Financial Services Group Inc. has Stop & Shop branches in New Jersey. But the Pittsburgh company only has two offices in New York and is focused on closing its purchase of Royal Bank of Canada's RBC Bank USA in Raleigh, N.C.
Valley National Bancorp in Wayne, N.J., and Investors Bancorp Inc. in Short Hills, N.J., are two other banks with growth ambitions in the New York area that sources pegged as potential suitors.
A Citizens spokesman wrote in an e-mail that "we do not comment on speculation." Representatives of New York Community, People's United and Valley National declined to comment.
Officials of Stop & Shop Supermarket Co., PNC and Investors Bancorp did not return calls for comment.
Citizens, with 1,500 branches in 12 states, said last month it would close lackluster branches and lay off some employees to save money but did not say how many or where. It has shuttered 11 in 2011, up from four last year, according to the Federal Reserve.
Citizens began doing business in Long Island Stop & Shop stores in 2006, but never got much traction in the market without complementary standalone branches.
Supermarket branches only tend to work near regular branches where people prefer taking out loans and opening accounts. Staffing in-store sites can be tough. The hours are long and workers need to be especially good at sales.
Citizens' Long Island branches held less than $100 million at midyear after years of mixed growth, according to the Federal Deposit Insurance Corp. It is unclear if Citizens aims to sell any loans associated with them.
Citizens lost nearly $2 billion on bad construction and credit card loans in 2008 and 2009 before returning to profitability in 2010. It has earned $380 million through the first nine months of the year.
New York investment bankers and U.K. investors have for years urged Royal Bank of Scotland to sell the $131 billion-asset Citizens or its Ohio subsidiary, Charter One Bank. But the Edinburgh conglomerate has been committed to fixing the franchise. It pumped more than $3 billion into Citizens in 2009 while launching it on a five-year turnaround plan.
Citizens sold its Indiana branches in 2009 to Old National Bancorp. Citizens sold upstate New York branches in 2008 to Community Bank Systems Inc.