Comment: Citizens float | Runway expansion

Royal Bank of Scotland has fired the starting pistol for the flotation of its US arm, Citizens Financial, paving the way for billions of dollars to start flowing in from across the Atlantic.

Gareth Mackie. Picture: Ian Georgeson
Gareth Mackie. Picture: Ian Georgeson

Although the filing with the US Securities & Exchange Commission (SEC) shows the lender is aiming to raise about $100 million (£59.4m), that figure is expected to rise sharply once the investment banks managing the float start gauging investor demand.

However, the initial public offering (IPO) will not be plain sailing for RBS, which is 80 per cent owned by UK taxpayers and racked up losses of £8.2 billion last year.

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A “stress test” by the US Federal Reserve in March highlighted some serious shortcomings in Citizens’ ability to deal with future financial shocks, and the firm’s SEC filing, which runs to a hefty 243 pages – excluding appendices – includes some stark risk warnings.

Citizens admits that the Federal Reserve’s exercise showed the lender had “significant deficiencies” in its capital planning processes, including inadequate governance and weak internal controls. In a move that may raise eyebrows on this side of the Atlantic, it also claims that separating from its Edinburgh-based parent could adversely affect its business and profitability “due to the RBS Group’s recognisable brand and reputation”.

RBS has lost £46bn since it was bailed out during the 2008 financial crisis – £1bn more than the taxpayer had to stump up for its rescue – and chief executive Ross McEwan conceded in February that it was the “least-trusted bank in the least-trusted ­sector in the entire marketplace”.

With a parent like that, now might be the right time for Citizens to stand on its own two feet, although plans for a flotation could yet be derailed if a takeover approach emerges. Japanese financial groups Mitsubishi UFJ and Sumitomo Mitsui are among those said to have considered a bid.

Analysts reckon Citizens could sell for about $10bn, which would go some way towards repaying taxpayers. A sale could also trigger a windfall of more than $12m for chief executive Bruce Van Saun if he were not kept on in an equivalent position by a new owner. Not bad, considering he has only been in the job since October.

Runway plans must not be left in the air

The bitter battle over runway expansion in the south-east of England looks set to rumble on for another year after the competing sides submitted their revised cases yesterday.

Heathrow says its £15.6bn blueprint, including a third runway, could benefit the UK economy by at least £100bn and create 100,000 jobs.

Gatwick argues its £7.8bn plan will create 120,000 jobs along with a second runway at the West Sussex airport, while a rival proposal for Heathrow eschews a third runway in favour of extending current infrastructure.

The option for “Boris Island” in the Thames estuary did not make the shortlist drawn up by the Airports Commission, headed by former Financial Services Authority chief Sir Howard Davies. However, the commission is studying the scheme and is expected to make a decision later this year on whether the project should be taken forward.

Whichever option makes the cut, the outcome will affect all travellers passing through London. The wrangling has dragged on long enough and politicians must be ready to push the button when Davies publishes his final report next summer.

Twitter: @garethmackie