ONE thing leaps out from the unexpected Royal Bank of Scotland losses and the decision to get rid of as much as possible of its toxic debts in the next two years (i.e. at knockdown prices): Citizens, the US retail bank which RBS bought back in 1988, will have to be sold quickly to make up for the capital hit.
RBS lacks sufficient capital reserves for a rainy day. And the rain could pour down if Fannie Mae, the giant US mortgage lender, gets anywhere near winning its legal action against RBS (and other banks) over alleged manipulation of the Libor interest rate. Just think what US courts did to BP over the Gulf oil spill.
As there is no prospect of the Treasury putting up more cash, that means selling off what is left of the family silver. Citizens was always going to be sold but the delay in turning RBS around means the timetable is going to be accelerated. RBS boss Ross McEwan now aims for a partial listing of the US retail bank next year, and a complete exit by 2016.
With the American economy recovering, Citizens would make a good buy for a new entrant to the US market. It operates in 12 states and has more than 1,400 local branches. The business could go for upwards of £8 billion, though some analysts put the figure as high as £10bn.
One suggested bidder is Toronto-Dominion, Canada’s second biggest bank group. TD held abortive discussions with RBS last year regarding Citizens, but they could not agree on a value. TD wants to expand into the United States. In 2010, it acquired three failed US banks from the Federal Deposit Insurance Corporation.
Value will hinge on potential interest from US banks. However, Citizens is probably too small to tempt big operators such as JPMorgan Chase, Bank of America or Citibank. Two mid-sized groups, US Bancorp and PNC, might be in the frame though they will want to avoid a bidding war. Citizens has a new chief executive, Bruce Van Saun, who was sent Stateside this year to beef up mortgage revenues prior to an IPO (flotation). But with the speeding up of the sale, he probably won’t have a chance to do that.
Which means flogging Citizens might not raise enough cash to fill the capital black hole at RBS.
Vodafone move marks new goal for US buyers
YET another UK asset in American acquisition sights is Vodafone, whose share price jumped yesterday on rumours of a takeover bid from AT&T.
At the big Telecommunication Network Operators conference in Brussels last month, AT&T’s boss, Randall Stephenson, claimed that the slow pace of advanced wireless adoption in the European Union presented a “huge opportunity for somebody.” Now we know whom.
Vodafone is in the frame because it is selling its stake in Verizon, another US telecoms firm. This makes it both cash rich and free of domestic anti-trust problems for a US buyer. On the other hand, AT&T was up to its armpits in the PRISM spying scandal, which might result in strong EU opposition to its expansion into Europe.
We have not heard the last of US M&A in Europe. With the US Federal Reserve continuing to print dollars and pump them into the financial system, it was only a matter of time before US investors started buying up Europe.