Royal Bank CEO backs US holdings

Stephen Hester, Royal Bank CEO

The incoming chief executive of Royal Bank of Scotland suggested yesterday that most of its US units, which include Citizens Financial Group, will not be sold off as a result of a companywide strategic review he has underway.

Stephen Hester, who was appointed to the post last month after the previous chief executive was let go as part of a capital infusion from the British government, had said last month there would be "no sacred cows" spared in the review.

That won't be finished until early next year. But Hester said on a conference call with reporters yesterday that he expected most of Royal Bank's US units to perform well on financial measurements, such as return on equity.

"It is my anticipation that by far the largest part of the American businesses of all kinds will be able to present that picture to us," Hester said. "I certainly don't have a gun aimed at good quality businesses."

In addition to Citizens, which has the second largest number of bank branches in Massachusetts with 259, Royal Bank operates financial businesses in Connecticut such as payment services for business customers and RBS Greenwich Capital. Hester, however, did not specifically rule out a sale of any US operations.

In an earnings statement yesterday, Royal Bank said its US retail and commercial banking units, including Citizens, saw "modest" income growth in the first nine months of this year. But total expenses rose in the third quarter, reflecting higher deposit insurance fees and marketing costs. Impairments, or bad loans, in its US retail and commercial portfolio also rose sharply in the third quarter, and operating profits in the United States for the first nine months of the year were 40 percent lower than the same period in 2007.

The Edinburgh-based bank stands to receive up to $31 billion from the British government as part of rescue efforts by global leaders to shore up financial institutions weakened by the credit crisis and slowing economy.

Unlike a similar US rescue plan, the British government required its banks to meet certain lending standards to receive the money, as well as install government directors on their boards. The arrangement led to the departure of Royal Bank's past chief executive, Sir Fred Goodwin, the architect of its US expansion strategy.

In the conference call yesterday, Hester noted he was born in Ithaca, N.Y., where his father taught chemistry before the family returned to the United Kingdom.

Ross Kerber can be reached at kerber@globe.com.