ROYAL Bank of Scotland has come under further pressure to sell its Citizens division in the US and make more cuts to its investment banking business.
The future of Citizens was re-ignited yesterday after it emerged there had been talks between RBS and the agency in charge of the taxpayers’ stake.
Jim O’Neil, chief executive of UK Financial Investments (UKFI), told MPs: “I would confirm that among the strategic issues we have discussed with management are the US operations and the investment bank.
“The investment bank shape and size ultimately should be smaller than it is today.”
O’Neil said that all investment banks were dealing with the capital requirements of Basel III and he felt that most of them would consequently be smaller over time.
“We are asking [RBS] the questions. What do you think is the right size and shape [of the investment banking operation]?” O’Neill said to members of the Treasury Select Committee, adding that RBS had a strong UK retail and corporate banking franchise that was its “backbone”.
RBS chief executive Stephen Hester has not ruled out a sale, though he has so far resisted calls to do so.
Citizens and its subsidiaries, which operate more than 1,500 branches across 12 states, mainly along the eastern American seaboard, could fetch more than £9 billion, City analysts have estimated.
Analysts say the most likely buyers if Citizens came on the market are Canada’s Toronto-Dominion Bank and Brazil’s Itaú Unibanco. TD Bank — already one of the largest regional retail banks on the US east coast — may also bid.
O’Neil sidestepped questions from the committee about whether UKFI had held talks earlier this year with the Abu Dhabi sovereign wealth fund about selling to it some or all of its 82 per cent stake in RBS.
He said UKFI periodically had talks with other institutional investors about possibly selling its shares in the bank but it was “very difficult for us” to comment on specific investors because of the demands of confidentiality.
“We have had no formal proposal from investors for our shares. We speak to a variety of shareholders who have expressed an interest,” O’Neil added. UKFI also monitors the taxpayers’ near-40 per cent stake in Lloyds, owner of Bank of Scotland and Scottish Widows.
O’Neil told MPs that he did not think imposing a deadline for a partial stake sale in the banks was in taxpayers’ interests because it could eventually suggest a forced sale. He said although “we don’t rule anything out”, it was more likely that UKFI would eventually sell its stake via a “market transaction”, possibly involving institutions and retail investors, rather than to one single buyer.
RBS and Lloyds had suggested 2013 would be the last year of restructuring, he said, paving the way for a return to profitability and dividends thereafter. But he said UKFI remained “mindful of market opportunities”.
Robin Budenberg, chairman of UKFI, revealed to the committee that Chancellor George Osborne and the Treasury joined the agency in signing off on Hester’s £1 million bonus this year, which sparked an outcry before the RBS boss voluntarily waived it.
COMMENT, PAGE 33
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