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    Pressure builds on parent of Citizens Bank

    Citizens is a bright spot for embattled Royal Bank of Scotland, but pressure from the British government could force the lender to sell its subsidiary

    The key question, British finance minister George Osborne (above) has suggested, isn’t whether Royal Bank of Scotland should divest Citizens Bank to pay off taxpayers. Rather, it’s about the most profitable way to do it.
    The key question, British finance minister George Osborne (above) has suggested, isn’t whether Royal Bank of Scotland should divest Citizens Bank to pay off taxpayers. Rather, it’s about the most profitable way to do it.

    For years Citizens Bank downplayed its British pedigree, focusing on its roots as a scrappy Rhode Island institution that grew into the 12th-largest retail bank in the United States.

    Citizens branded itself a local bank, keeping its color shamrock green rather than adopting the royal blue of its parent, Royal Bank of Scotland. When Bank of America charged into the Boston market a decade ago, Citizens’ top managers gave their cellphone numbers to clients to emphasize the personal touch of a hometown bank. Executives boasted that decisions were made in Providence and Boston, not in the United Kingdom.

    But these days, Citizens is finding it far more difficult to distance itself from its owners across the Atlantic, where its fate and future will be decided. Pressure is building on the British government, which took over Royal Bank of Scotland during the global financial crisis, to sell Citizens and repay British taxpayers who financed the once-failing bank’s nearly $70 billion bailout.


    Just last month, the coalition government of Prime Minister David Cameron effectively ousted the Royal’s chief executive, a strong proponent of holding on to Citizens. Meanwhile, Cameron’s finance minister, Chancellor of the Exchequer George Osborne, suggested in a closely watched speech 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.

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    The answer, of course, has big implications for Citizens, for its 19,000 employees spread across 12 states, and for the Massachusetts economy. Citizens is the state’s second-largest bank with 254 branches and about 3,400 employees. It gave $3.3 million to Massachusetts charities last year.

    “Eventually, RBS is going to have to make a fish-or-cut-bait decision on whether they are committed to staying in the United States,” said Gerard Cassidy, an analyst with RBC Capital Markets in Portland, Maine.

    Citizens was once a key player in the global ambitions of Royal Bank of Scotland, which in 1988 acquired what was then a tiny Rhode Island bank. With veteran Boston banker Lawrence Fish at the helm, Citizens expanded rapidly, buying 30 banking and financial services firms in less than 20 years.

    In Britain, RBS was also growing quickly, making risky bets on real estate and mortgage-backed securities and buying up rivals. When the financial crisis and global recession hit, RBS nearly collapsed, forcing the British government to bail out the bank and take an 81 percent ownership stake.


    Citizens avoided much of the risky lending and investment that battered RBS, and came through the recession in good shape. But its parent company’s problems and uncertainty over Citizens’ future have slowed what was once a banking juggernaut.

    Citizens has not made an acquisition since 2007. Total deposits at Citizens have fallen by 7 percent since 2007 to $95 billion at the end of 2012, according to data reported to federal regulators. The number of branches has dropped from 1,600 to 1,400.

    While the recent financial crisis has cooled industry mergers and acquisitions and forced many banks, including Bank of America, to close branches to cut costs, other regional banks, similar to Citizens, have continued to build deposits, according to the Federal Deposit Insurance Corporation.

    Atlanta-based SunTrust Banks Inc., for example, increased deposits by 14 percent from 2007 to 2012. Deposits at BB&T of Winston-Salem, N.C., grew by 56 percent during the same period.

    Citizens has also faded from the civic scene here. Fish, who stepped down as chief executive in 2007, sat on boards of several local charities and nonprofits, including the Federal Reserve Bank of Boston, and typically made lists of the city’s most powerful people. The current chief executive, Ellen Alemany, lives in New York, and her main office is in Stamford, Conn.


    Top executives declined to be interviewed for the story, but have said in the past that they are committed to the region and plan to grow the markets they serve.

    Citizens continues to make investments, spokesman Jim Hughes said, including a $900 million technology upgrade, which will add more modern ATMs, enhanced online and mobile apps, and a new commercial loan system.

    He attributed the decline in deposits to a strategy to shed less profitable certificate of deposit accounts. He also noted that Citizens is delivering solid earnings for Royal Bank of Scotland and its shareholders.

    In fact, if RBS were to divest Citizens, it would lose one of its biggest earners at a time when it needs profits. Hobbled by the struggling European economy and other problems, RBS this year earned its first quarterly profit since 2011. Last year, it posted a pretax operating loss of nearly $8 billion.

    Citizens, in contrast, made an operating profit of $1.2 billion in 2012, up 39 percent from the previous year. Nonetheless, said Simon Maughan, the head researcher at Olivetree Financial Group in London, RBS is facing increasing political pressure from the British government to unload its US subsidiary.

    “Things have changed,” Maughan said. “It’s much more up for grabs.”

    Royal Bank of Scotland would have several options, from finding a buyer to spinning off Citizens through an initial public stock offering to selling off its various business units piecemeal.

    In a sign that RBS could spin off Citizens, RBS recently named Bruce Van Saun as a successor to Alemany, who is retiring in September. Van Saun helped develop a plan to sell a minority stake in Citizens to investors through an IPO scheduled for 2015.

    As far as buyers, Canadian banks, which weathered the financial crisis better than their US counterparts, are likely candidates, analysts said.

    Canada’s Toronto-Dominion Bank — one of the largest regional retail banks on the East Coast through its TD Bank subsidiary — is often mentioned as a potential buyer, even though the bank’s chief executive squashed rumors about an acquisition earlier this year.

    Ian Gordon, an analyst with Investec Bank PLC in London, said the selection of a new chief executive to replace Stephen Hester could indicate how much longer Citizens will remain part of Royal Bank of Scotland. Hester, who has run RBS since 2008, announced in mid-June that he would step down.

    The time may not be right for RBS to divest Citizens, since it will only become more profitable as the US economy improves, Gordon said. But if the British government exerts a strong influence on naming the next RBS chief, he added, “it could be seen as potentially hastening the sale of Citizens.”

    Deirdre Fernandes can be reached at Follow her on Twitter @fernandesglobe.