Royal Bank of Scotland is likely to kick off a new round of expansion in the United States if it succeeds in its bid for National Westminster Bank PLC, according to banking analysts and market sources.
Noting that Royal Bank's Providence, R.I.-based U.S. unit, Citizens Financial Group Inc., has run up against geographical limits to expanding in New England, analysts said Royal is now much more likely to seek to duplicate what it has achieved through Citizens by acquiring a bank in another part of the United States and combining back offices to cut costs.
"If the Natwest acquisition is successful, they'll have a much larger organization with a much larger capital structure and a lot more options they can work with," said John Leonard, a banking analyst at Salomon Smith Barney in London. "They already have a good, solid base in the U.S. and are in a much stronger position to move than a brand-new player."
A spokeswoman said Lawrence Fish, chairman and chief executive of Citizens Financial, declined to comment.
Several analysts cautioned that if Royal succeeds in its $38 billion bid for Natwest it is unlikely to make a significant move until the British banks have been integrated. That, they predicted, could take two years.
"In the short term they're likely to be busy elsewhere," said Mark Phin, a banking analyst at Williams de Broe in London. "But in the medium term they have geographic limits to where they can go in the U.S., and we would expect them to expand rather than divest."
Royal entered the U.S. market through its acquisition of Citizens in 1988. Natwest followed a similar course in the 1980s but ran into severe problems with nonperforming loans in the late 1980s and early 1990s and later sold off its U.S. retail operations to Fleet Financial Group, which last year merged with BankBoston Corp.
Citizens has grown steadily through small acquisitions in Rhode Island, Connecticut, and Massachusetts and now has about $28 billion of assets. Most recently, it bought UST Corp. of Boston and the commercial banking business of State Street Corp. there.
According to market sources, Royal has been studying other foreign banks with retail operations in the United States, such as ABN Amro NV and HSBC Holdings PLC and has concluded it could emulate them by running operations in different parts of the country with combined back offices.