Royal Bank of Scotland’s plan to sell its entire stake in Citizens Financial Group within three years would unshackle the Providence-based bank from its troubled parent company and potentially give it freedom to grow, analysts say.
The Royal said Friday that it would accelerate an initial public offering to sell a 25 percent stake in its US subsidiary to late next year and sell the rest of its interest through subsequent stock offerings in 2015 and 2016.
Citizens Bank, once among the region’s fastest growing banks, has essentially stalled since the 2008 global financial crisis drove RBS to the edge of collapse, requiring the British government to take control of the financial company in a $70 billion bailout. Since then, RBS has focused on cleaning up bad loans, bad investments, and huge losses and repaying the British government.
Citizens, meanwhile, has seen its deposits drop, its charitable giving decline, and its role as corporate leader fade in cities such as Boston.
A separation from RBS could help Citizens regain its momentum, said Gerard Cassidy, a bank analyst with RBC Capital Markets in Portland, Maine. As an independent bank, Citizens, with 1,400 branches in 12 states, could become the largest New England-based bank
“They’ll control their own destiny,” Cassidy said of Citizens. “It will be positive for customers, employees, and potential new shareholders.”
The Royal bought Citizens in 1988, helping to finance an acquisition spree that transformed the tiny Rhode Island institution into one of the nation’s largest regional banks. Political, not financial, pressures likely drove RBS to accelerate its breakup with Citizens, analysts said.
British government officials have grown increasingly impatient with the pace of RBS’s recovery and its repayment of taxpayers there.
This summer, the British finance minister, Chancellor of the Exchequer George Osborne, called for RBS to sell its American subsidiary. A week before, the Royal Bank of Scotland’s previous chief executive, Stephen Hester, who wanted to retain more control of Citizens, was ousted.
For RBS, Citizens has been a profit center and springboard into the US market. The Citizens group’s operating profit for the third quarter of 2013 was $219 million, almost as much as The Royal’s Irish subsidiary lost during that same period.
“RBS has been forced to make some very painful decisions,” said Ian Gordon, a British bank analyst with Investec Bank.
RBS chief executive Ross McEwan sidestepped questions during a call with analysts Friday about how much politics played into the bank’s broad restructuring, which included the Citizens sale. He added, however, that winning the support of Prime Minister David Cameron’s government was important.
The accelerated sale of Citizens likely means that RBS will not get the best price for the bank in stock offerings, analysts said. Citizens’ third-quarter profits shrunk by 38 percent from the same quarter of 2012, and the bank is far less efficient than other regional competitors.
It needs time to turn around before it could fetch a premium price, said Gordon, the Investec analyst.
Bruce Van Saun, who became chief executive of Citizens last month, has said he wants to boost revenue and profits and will look at closing offices and cutting staff, as well as expanding profitable businesses such as auto and student loans and wealth management. In a prepared statement Friday, he said, “We’re excited about moving forward into the next phase of our evolution as a company.”
Citizens is said to be considering the sale of its Charter One branches in Chicago, according to news reports. Citizens bought Charter One in 2004 for $10 billion. Today the franchise has $6 billion in deposits and operates more than 100 branches.
Citizens officials have declined to comment on the potential sale.
Citizens will need to show progress in the next few months, before the public stock offering planned for the second half of 2014, said Cassidy, the RBC Capital Markets analyst.
“The number one objective of this company is to bring down costs with respect to revenue,” Cassidy said. “When they decide to go public, they need to have their game plan in place.”
RBS has hired Morgan Stanley as an adviser on its initial public offering.