Royal Bank of Scotland PLC may try to hold on to Citizens Financial Group, its Providence, R.I., banking unit, analysts said last week after reports swirled that the embattled Edinburgh company might sell Charter One Financial Inc.
The British media reported last week that Royal Bank is looking to sell Cleveland-based Charter One — which Citizens, its U.S. subsidiary, bought in 2004 — as part of an effort to sell noncore assets in Asia and the United States and appease U.K. regulators, the company's biggest stakeholder.
However, analysts said that RBS probably views Citizens, acquired in 1988, as a more desirable franchise given its presence on the East Coast.
"My hunch is that [Charter One] is the least profitable," said Mike Trippitt, a banking analyst at Oriel Securities in London. If Royal Bank "is going to cut back, it makes sense for that to be the area for them to do it."
Citizens Financial operates 1,600 branches, including 400 with the Charter One brand in Indiana, Ohio, Illinois, and Michigan. The Citizens brand operates in Connecticut, Delaware, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, and Vermont.
A Royal Bank spokesman declined to comment, and a spokeswoman for Citizens Financial did not return a call for comment.
Pawel Uszko, a banking analyst at Fox-Pitt Kelton Cochran Caronia Waller LLC in London, said Royal Bank is now paring its overseas presence under pressure from the U.K. government, which owns a 70% stake in the company.
Royal Bank's U.S. banking division had $161 billion of assets and $97 billion in deposits at the end of the first quarter of 2008. It does not break out earnings for Charter One and has not yet reported full-year 2008 earnings. Overall income from its U.S. banking operations was $2.75 billion at June 30, up 2.6% from a year earlier. On Jan. 19, RBS said its overall losses in 2008 could reach $41.3 billion.
"Citizens in the U.S. is actually quite a good brand," Mr. Uszko said. "I think it has got impairment provisions below industry average. It's pretty strong."
Mr. Trippitt said Charter One is a less attractive business than Citizens Financial because it is not the top player in its key markets, Illinois, Michigan, and Ohio.
"Citizens, in New England and in Philadelphia, has a pretty good presence — a very strong presence in fact," Mr. Trippitt said. "I think, probably, [RBS chief executive] Stephen Hester eyes nothing as sacred. He'd look at selling anything. But realistically, in New England and Philadelphia, the business [has a] very good return on equity."
Mr. Hester, who took the reins at Royal Bank last year, said in a conference call with analysts in January that the company was treading carefully while considering the sale of overseas assets. "One of the ironies, if we aren't careful in this position as a bank … , you may end up getting rid of your good bank and just being left with a bad bank if you are using disposals as your key tool in a market where disposals are not easy," Mr. Hester said.
Gerard Cassidy, an analyst at Royal Bank of Canada's RBC Capital Markets Corp., said several parties could be interested in Charter One, possibly including BNP Paribas SA, KeyCorp, and Bank of Montreal. He said he expects the assets to fetch relatively low bids, in the range of 5% of deposits or less, given the flood of federally assisted deals in the market.
"This is not the time to be selling a bank," Mr. Cassidy said. A spokeswoman at BNP said it does not comment on market rumors. KeyCorp and Bank of Montreal did not return calls seeking comment.