ROYAL Bank of Scotland chief executive Stephen Hester is expected to outline a range of options for its Citizens Bank operations in the US this week including a £10 billion flotation or outright sale of the business.
Hester is not expected to announce specific plans but is thought likely to fire the starting gun on a review of a division some believe should no longer be considered “core”.
One banking source said: “We don’t expect an announcement of a sale, perhaps a nod towards looking at options. A sale could be one or two years away.”
Citizens is headquartered in Providence, Rhode Island. It has more than 1,400 branches and 18,950 staff, operating over 12 states. The bank has non-branch and commercial outlets in 30 states, mainly on the eastern coast of America.
The group, owned by RBS since the late 1980s and built up through a mixture of organic growth and a series of bolt-on acquisitions in the 1990s, specialises in small business and household loans and deposits, and includes a sizeable mortgage business.
Citizens has turned profitable again in the past few years after making a £113 million loss in 2009 as recession and the housing crash swept America. Profits in 2011 rose 57 per cent to £479m. City supporters of a sale of the business cite a healthier trading and stock market backdrop for regional banks in the US with a recovering housing market.
“That should help push up the price RBS could get for the assets if it wanted to sell, and so make a divestment more attractive,” one analyst said.
Citizens has previously been valued at between £6bn and £10bn and the proceeds would make a substantial contribution to restoring RBS’s balance sheet. As revealed in The Scotsman yesterday, a possible sale of Citizens will be unveiled alongside plans by RBS to shrink further its investment banking operations.
It is unlikely that even if it opts to sell Citizens, RBS would completely withdraw from the US, which is considered a key market in its ability to operate internationally. One option is initially to sell a stake in Citizens.
Hester will this week point to the best operational performance at RBS since he took over in 2008. A consensus underlying profit of about £3.5bn compares with £1.9bn last time.
Nonetheless he will come under further pressure over a series of costly scandals that have plunged the bank to an expected pre-tax loss of about £6bn, against £800m last time.
The losses are an accumulation of fines or compensation for mis-selling payment protection insurance (PPI), interest rate swaps, IT failures and rigging the Libor inter-bank rate. It also includes adjustments for credit rating on its debt.
The bank will pay a reduced bonus to investment bankers of about £300m, against £390m last time. It is clawing back bonuses from past and future payments to help pay the £391m Libor fine. No individuals will be named until next month. Hester has already waived his bonus.
Lloyds chief executive Antonio Horta-Osorio is likely to be quizzed at the annual results on Friday on speculation that the £750m sale of 632 branches to the Co-op Bank may be derailed.
The City consensus forecasts a Lloyds statutory pre-tax loss in 2012 reduced to £544m from £3.5bn in 2011, the latter loss caused by massive provisions for PPI mis-selling.