Citizens Financial hangs in the balance
If Scottish owner decides to sell, timing doesn’t favor regional bank
British regulators are pressuring the Royal Bank of Scotland Group to shed portions of the company as it prepares to accept more government bailout assistance, which could lead it to sell its Citizens Financial Group in the United States.
The Scottish banking giant, which would be more than 80 percent owned by the British government according to UK press reports, is expected to announce what it will sell off as soon as today. In a statement, the company said its decisions “will include some divestments not initially contemplated.’’
Citizens Financial, based in Providence, is Boston’s second largest banking institution, with $153 billion in assets and 23,000 employees in 12 northeastern states.
The Royal Bank’s chief executive, Stephen Hester, has said he is fighting with financial regulators to maintain ownership of Citizens.
“It remains RBS’s goal that any required divestments do not threaten its recovery plan which is already underway,’’ the company said.
A spokeswoman for the Royal Bank declined to comment. Treasury officials in Britain could not be reached.
If the Royal Bank is forced to sell Citizens, such a deal would come at difficult time on the US banking scene. Many of the nation’s largest banks are still climbing back from losses and government bailouts of their own, and are being conservative with their capital while the economy remains slow and regulators monitor them closely.
A few banks have emerged as healthy enough to be buyers, including JPMorgan Chase & Co.; TD Bank, part of TD Bank Financial Group of Toronto; and Wells Fargo & Co. of San Francisco.
None of the banks commented specifically on Citizens, but a spokesman for JPMorgan Chase said, “We look at everything.’’ A TD Bank spokeswoman said, “We would never say never.’’
Cornelius Hurley, director of Boston University’s Morin Center for Banking and Financial Law, said other large banks that might have found Citizens attractive in the past, such as Bank of America Corp. or Citigroup Inc., are out of the acquisition business for now. He suggested that if a deal is done, “There’s going to be a heavy hand of government-to-government orchestration.’’
That would be not only on the UK side but here as well, as US authorities could exercise influence over what size bank might buy Citi zens, and whether the buyer already has a presence in the Northeast. JPMorgan Chase and Wells, for instance, do not overlap with Citizens’ footprint in the region, while TD Bank and another large local player, Sovereign Bank, owned by Spain’s Banco Santander, would likely have to close branches and lay off workers if either were to buy Citizens, Hurley and a number of bank executives interviewed said.
Layoffs and branch closings in this environment, Hurley said, are “not going to play well to the grandstands.’’
For the Royal Bank, this would be a poor time to sell Citizens. If it is able to hold on to the franchise longer, it would almost certainly fetch a better price once the economy improves and Citizens gets past its own problems. Citizens Financial posted a $165 million loss in the third quarter, excluding its Pennsylvania operations, and has taken $1.3 billion in net charge-offs for bad loans so far in 2009.
Regulators at the British Treasury and the European Union are pressuring troubled banks to pare back their holdings in order to improve competition in Europe. And they have signaled that they want their banks to focus on European customers and markets. In exchange for billions of dollars in additional government help, the Royal Bank - which lost $34 billion last year - may have to sell its insurance unit, hundreds of branches, and some investment-banking assets, including a commodities venture in San Francisco.
RBS reported a net loss of $1.7 billion for the first half of this year, and there is more bad news on the horizon, as it had bad debts of $12.6 billion. Hester warned in August that the bank’s health might not substantially improve until 2011. The company reports third-quarter earnings this Friday.
The Royal Bank yesterday announced a new round of job cuts, affecting 3,700 (14 percent) of its retail banking staff.
Citizens, too, has gone through major job reductions over the past year. And most members of the team that helped build Citizens under former chief executive Lawrence Fish have left the company.
Beth Healy can be reached at bhealy@globe.com. 
