Bruce Van Saun, RBS Citizens Financial Group’s new chief executive, has one year and one looming challenge: transform a profitable but lackluster bank into a dynamic enterprise that will attract investors when it launches an initial public offering at the end of 2014.
Van Saun, a New Jersey native, has spent the last few years across the Atlantic as a group finance director for Royal Bank of Scotland, Citizens’ parent company. He took the helm of the Providence-based financial services company Tuesday, promising to boost revenues and profits.
In an interview, Van Saun said he will look at closing offices and cutting staff across the 12 states where Citizens has operations to lower costs. But, he added, his main focus will be to increase the bank’s revenues by expanding profitable businesses such as auto and student loans and wealth management.
He said the bank should be willing to invest in slightly more risky ventures to gain bigger returns and increase the interest rates on commercial loans, which have been lower than necessary in an effort to be competitive in recent years.
“Our overall objective is to become a top-performing regional bank,” Van Saun said. “We have some good foundation blocks to build upon.”
Van Saun, 56, who has worked for the Royal Bank of Scotland since 2009, succeeds Ellen Alemany, who is retiring after leading Citizens for more than six years. He arrives at a crucial time for the bank, when its long-term future is still undecided.
The fate of Citizens has been unclear since the global financial crisis of five years ago, when Royal Bank of Scotland, reeling from bad loans, bad investments, and huge losses, was taken over by the British government in a $70 billion bailout. British politicians have talked of selling Citizens as a way to repay British taxpayers.
George Osborne, the British government’s top financial official, suggested in June that the key question was no longer if RBS would unload Citizens, but rather how it would divest the US subsidiary to extract the maximum payoff.
Van Saun dismissed the idea of selling Citizens — at least for now. At a New York financial services conference last month, he acknowledged that Royal Bank of Scotland had considered selling Citizens, but decided the timing wasn’t right and the list of potential suitors too thin.
Instead, Citizens will sell a minority share — 25 percent — through an initial public offering in 2014. Van Saun said the IPO will help indicate how much investors think the bank is worth.
John S. Carusone, president Bank Analysis Center Inc., a consulting and investment banking firm in Hartford, said Citizens needs to boost its profits by about 50 percent, or $300 million, to become a top-performing bank and that will receive a premium price for its stock. Citizens is on track earn $606 million this year, Carusone said.
One of the challenges facing Van Saun is Citizens’ efficiency ratio, which measures profitability compared with how much banks spend to make money. For example, according to federal filings, Citizens last year spent 70 cents to generate every $1 of profit. Similar regional banks were more efficient: BB&T of Winston-Salem, N.C., spent about 58 cents to generate $1 of revenue and PNC Financial Services Group of Pittsburgh spent 67 cents.
This shows that boosting revenues alone won’t produce the profits that Citizens is seeking, said Carusone. He said Citizens needs a three-pronged approach that cuts costs, increases loan rates, and raises fees on customer accounts.
Citizens has probably been reluctant in recent years to raise fees and prices for fear of turning off customers, Carusone said, but that may be unavoidable now. “It’s hard to be transformative for an organization without having an impact on consumers,” Carusone said.
Citizens will sell a minority share through an IPO in 2014. Van Saun said it will help indicate how much investors think the bank is worth.
Citizens officials said there are no plans for the bank to raise customer fees.
Citizens is the second largest bank in Massachusetts and one of the largest in the United States. It began as a small community bank in Rhode Island, but with the backing of Royal Bank of Scotland, it hungrily acquired other banks, expanding its footprint into the mid-Atlantic and Midwest.
Once a major player in the Boston area’s civic and charitable scenes, Citizens’ involvement has faded in recent years as turmoil affected its parent company. Van Saun, who lives in New Jersey, said he plans to spend two days a week in Boston and raise the bank’s local profile. He has already made the rounds, including a cocktail party at the bank’s offices in the Financial District where he met with Citizens’ major corporate, commercial real estate, and nonprofit clients.
For Van Saun, this new position is a return home. He worked for Bank of New York Mellon Corp. until 2009, when he was recruited by RBS to come to Scotland and help right the bank. Van Saun, a graduate of Bucknell University in Lewisburg, Pa., is married with three children.
Van Saun said he wouldn’t have taken the new job if he thought Citizens’ future was shaky.
“I’m voting with my feet,” Van Saun said. “I think the bank has a long-term future. If I thought it was going to be sold in six months, I wouldn’t have signed up for this.”Deirdre Fernandes can be reached at email@example.com. Follow her on Twitter @fernandesglobe.