Citizens Financial Group Inc. of Providence, R.I., continued to be one of the main success stories for Royal Bank of Scotland Group PLC during the first half.
Royal Bank, of Edinburgh, reported Thursday that Citizens' net contribution to its earnings rose 79% from a year earlier, to $1.4 billion in the first six months of the year. Most of the jump came from Citizens' purchase of Charter One Financial Inc. of Cleveland in August 2004. Charter One earned $516 million in the first six months of this year.
During the first half Royal Bank got 18.7% of its $6.9 billion of profits from Citizens.
Excluding Charter One, Citizens' net income rose 12%, to $887 million, and its contribution to its parent's earnings grew 13%.
"This is a strong performance given the banking environment," said Lawrence Fish, CEO of Citizens in an interview on Thursday.
The $149.7 billion-asset Citizens also reported that it completed its conversion of Charter One's systems last month - five months ahead of schedule.
However, during a press conference Thursday morning in Scotland, Sir Fred Goodwin, Royal Bank's group chief executive, reiterated that its U.S. team will probably focus now on organic growth, rather than looking for more acquisitions.
Charter One presents huge organic growth opportunities, and "in terms of value for money, it would be best for our guys to focus on that for the time being," Sir Fred said.
Mr. Fish said integration of Charter One could take a year or more, and that the company is unlikely to do any deals until that is done. After that "I am sure we will go back to doing what we have done historically," he added. In the last dozen years Citizens has made more than 20 acquisitions.
In presenting his company's results, Sir Fred highlighted the $1.4 trillion-asset Royal Bank's diversity, in terms of products and geography, and how that diversity lets his company deliver and sustain relatively stable results. However, he would not confirm recent rumors about its interest in buying a stake in Bank of China, beyond telling reporters that Royal Bank is exploring possibilities.
During a separate earnings conference call, Mr. Fish told analysts that despite being preoccupied with the Charter One conversion, which involved moving 3 million customer accounts to Citizens' systems, "the old Citizens continues to move ahead nicely."
Mr. Fish was quoted in Citizens' earnings statement as saying that it reported double-digit loan growth in New England and the Middle Atlantic, and that credit quality "remained among the very best" among the largest banking companies.
"The business in the U.S. is quite diversified - besides that, it is low risk," he told analysts.
Citizens' average loan balances grew 17%, and average deposits rose 9%. At midyear it had $96 billion of loans and $102 billion of deposits.
However, Citizens said the benefits of loan and deposit growth were partially offset by a narrowing interest margin caused by the flattening of the yield curve. Excluding the Charter One acquisition, net interest income at Citizens rose only 7%, to $1.31 billion.
Citizens' other acquisitions last year also boosted its income. A 26% increase in noninterest income reflected a joint venture it formed with Kroger Co. and the acquisitions of the merchant credit card acquirer Lynk Systems Inc. and the credit card business of People's Bank of Bridgeport, Conn.
Mr. Fish also told analysts that the $2.1 billion acquisition of Mellon Financial Corp.'s Middle Atlantic retail and business banking businesses in 2001 "continues to be a success," and that Citizens now has the No. 2 deposit share in Philadelphia. He also said it has surpassed Bank of America Corp. to be the No. 1 Small Business Administration lender in New England.
Royal Bank said its first-half profits rose 18%, mostly on strong earnings from its corporate banking and financial markets group, which, excluding Citizens, rose 23%.
Meanwhile, in keeping with the diversity theme, Royal Bank said it wants to be one of the top players in the U.S. syndicated loan market. In the first half it ranked No. 11 among lead arrangers of syndicated deals. The amount of loans it arranged rose 1.1%, to $8.2 billion.
Last year it ranked No. 20, according to Bloomberg.
Johnny Cameron, the chief executive of Royal Bank's corporate banking and financial markets division, said he thought it might make it to the top 10 in the first half. It continues to see a lot of opportunities in the United States, and syndicated lending will be an important focus, he said.
There are now only "three serious corporate banks" in the United States, Mr. Cameron told analysts, but he did not name them. "A country the size of America needs more than three."
