The strikingly low price Citizens Financial Group Inc. has agreed to accept for its New York supermarket branches reflects a lack of demand for deposits — and for those particular branches.
Deposits are cheap right now because most banks have more than they need. And only two large banks in the New York area have a serious interest in supermarket banking, which tends to be a hit-or-miss strategy.
Those realities would enable People's United to win a discarded property on the cheap if the deal closes as expected. It agreed to pay just a 1% premium for the $325 million in deposits it is to acquire.
Citizens Financial, based in Providence, R.I., is whittling down in the U.S. Its parent, Royal Bank of Scotland Group PLC, is under presssure like other European institutions to set aside more capital to absorb losses because of regulatory changes.
The deposit premium it agreed to is exceedingly cheap, even by fire-sale standards. First Niagara Financial Group Inc. in Buffalo, as part of its broader deal to buy nearly 200 branches from HSBC Holdings PLC,
Citizens officials declined to comment Tuesday beyond the press release announcing the deal.
People's United has incentives to buy Citizens' languishing supermarket franchise, which mostly operates on Long Island. Citizens has had trouble time making money at those locations because it lacks stand-alone branches in the area. People's United has regular branches on Long Island after making an acquisition there in 2010. Jack Barnes, the chief executive of People's United, noted that in the press release.
"People's United currently serves customers at 37 traditional branch locations on Long Island and Westchester County," Barnes said. "As a result, following the closing of this transaction we expect a lift to traffic in both in-store and traditional branches within these markets."
