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Too-big-too-fail worries in the U.S. make the full sale of Royal Bank of Scotland's Citizens Financial Group in Providence, R.I., highly unlikely, despite speculation about potential buyers.
February 25 -
Royal Bank of Scotland Group will signal next week it plans to sell a 15% to 25% stake in Citizens Financial Group in Providence, R.I., according to a person familiar with the plan.
February 23 -
Receiving Wide Coverage ...And RBS Makes Three: Royal Bank of Scotland has reached a settlement with U.S. and U.K. regulators over its involvement in the Libor rate-rigging scandal. The settlement includes a combined $612 million fine. As previously speculated, RBS' Japanese unit pled guilty to criminal wrongdoing. Per Dealbook, this involves "a single count of felony wire fraud to settle the case." John Hourican, the head of RBS's investment bank, resigned as part of the settlement and his and other investment bankers' bonuses will be clawed back. Tangentially, an FT article, written prior to the formal settlement announcement, reports that U.K. Business secretary Vince Cable plans to "revive a radical plan to return Royal Bank of Scotland to the private sector by distributing free shares to the public," though it's unclear how likely this plan is to be implemented. The settlement makes RBS the third "giant global bank" to settle with regulators over the rate-rigging scandal.
February 6
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
However, the
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
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.
The costs of redress for past missteps are hobbling Hester's attempts to revive profit at the lender, which received the biggest banking bailout in the world in 2008. The government invested 45.5 billion-pound (nearly $70 billion) in the lender.
2012 was a "chastening year" as the bank worked to "put right past mistakes," Hester, 52, said. "We are determined to overcome the cultural and reputational baggage of pre-crisis times with the same focus we have applied to the financial clean-up from that era."
Fourth-quarter operating profit tumbled 45% to 581 million pounds. Full-year revenue dropped 6.9% to 25.9 billion pounds in 2012, missing the consensus analyst estimate, Vivek Raja, a banking analyst at Oriel Securities Ltd. said in a report to clients Thursday. RBS also said it expects growth in the U.K., its biggest market, to remain subdued.
"These results look pretty weak in terms of revenue, and the outlook for the business doesn't look great either" said Shailesh Raikundlia, a London-based analyst at Espirito Santo Investment Bank who rates RBS a sell. "Their very low capital position is a big concern for us. All of these one-off hiccups they keep reporting are killing their capital."
Hester, who took over from Fred Goodwin in 2008, has cut assets by 907 billion pounds from their peak, eliminated more than 36,000 jobs and scaled back the securities unit following the bailout. The bank is trying to complete the "most important" parts of its restructuring in 2013, he said.
It will be up to the government to decide when to start selling its holding and when the bank can resume dividend payments, he added. The bank would "ideally" start paying dividends again at the earliest opportunity, he said.
Those efforts to reduce the government's stake are being hampered by regulatory fines for manipulating Libor and provisions for customer redress.
The firm set aside an additional 650 million pounds to compensate clients wrongly sold interest-rate swaps to the 50 million-pound provision it made in August. The bank earmarked 450 million pounds more to compensate clients who were forced to buy insurance they didn't require to cover loans repayments, bringing the total cost of mis-selling payment-protection insurance to more than 2 billion pounds.
