Royal Bank of Scotland to sell stake in Citizens

Struggling Royal Bank of Scotland reported a larger-than-expected loss of some $9 billion for 2012.
Facundo Arrizabalaga/EPA
Struggling Royal Bank of Scotland reported a larger-than-expected loss of some $9 billion for 2012.

LONDON — After substantial losses, the Royal Bank of Scotland disclosed plans Thursday to sell assets and further reduce its investment banking business to appease regulators and its biggest shareholder, the British government.

The bank said it planned to sell a stake in Citizens Financial Group, the Providence lender it bought in 1988, through an initial public offering in two years. It also said it would continue to reduce its investment banking operations by cutting risky assets and eliminating jobs.

The moves are intended to help bolster capital levels and refocus operations, part of a multiyear turnaround effort initiated by Stephen Hester, the bank’s chief executive.


The Royal Bank of Scotland ‘‘is four years into its recovery plan, and good progress has been made,’’ Hester said in a statement. ‘‘We are a much smaller, more focused, and stronger bank. Our target is for 2013 to be the last big year of restructuring.’’

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Like many rivals, Royal Bank of Scotland is struggling with the legacy of the financial crisis and legal issues. Thursday it reported a bigger-than-expected loss, tied partly to its legal troubles.

The bank, in which the British government holds an 82 percent stake after a bailout in 2008, posted a loss of $9 billion in 2012, much larger than the $3.03 billion loss recorded in 2011. Analysts had expected a loss of $7.74 billion.

The rising losses reflect the bank’s regulatory and legal problems.

Toronto-Dominion Bank chief executive Ed Clark firmly denied speculation that the bank, the parent of TD Bank in the United States, might try to buy Citizens Bank to expand its US footprint.


In an earnings call with analysts and investors Thursday, Clark said the bank would be interested in an acquisition only if it fit into its strategy and met other requirements.

“We do not believe that a transaction to acquire RBS Citizens Bank is available that meets this criteria,” Clark said.

The Royal Bank of Scotland said that it had set aside an additional $1.67 billion to compensate clients to whom it had improperly sold insurance products, bringing the total provision to $3.34 billion. The bank, based in Edinburgh, agreed this year to pay $612 million to British and US authorities to settle accusations of rate-rigging.

‘‘Along with the rest of the banking industry, we faced significant reputational challenges,’’ Hester said in the statement. ‘‘We are determined to overcome the cultural and reputational baggage of precrisis times with the same focus we have applied to the financial cleanup from that era.’’

Eager to get back some of the$69 billion it invested in the Royal Bank of Scotland, the British government recently increased pressure on the bank’s management to expedite the reorganization.


Some analysts said the government could start selling parts of its investment in the bank, even at a loss, before the next general election, which is set for 2015. The bank’s shares are trading at about half of what the government paid in 2008.

Richard Hunter, head of equities at Hargreaves Lansdown stockbrokers, said signs suggested that the bank’s turnaround efforts had started to pay off, but that ‘‘the ongoing absence of a dividend and overhang of the government stake are negatives which need to be resolved.’’

Todd Wallack of the Globe Staff Contributed to this report.