UK Treasury chief: Time for RBS to jettison RI’s Citizens Bank

June 20th, 2013 at 3:52 pm by under Nesi's Notes, On the Main Site

Citizens_ATMThe Citizens Financial Group saga has taken another dramatic turn.

Britain’s finance minister, Chancellor of the Exchequer George Osbourne, delivered his closely watched annual Mansion House Speech to bankers in London on Wednesday night, and he left no doubt that he and the rest of U.K. Prime Minister David Cameron’s cabinet want the Royal Bank of Scotland to sell off Providence-based Citizens altogether.

UK Financial Investments, the company created to manage taxpayers’ stake in RBS and other bailed-out banks, has “made it clear that the government has no strategic interest in RBS owning one of the largest regional banks in the U.S. – and the method of exit from Citizens must achieve maximum value for all shareholders,” Osbourne declared in the speech.

While it was hardly a secret that Osbourne wants RBS to get rid of Citizens, the chancellor’s decision to make the demand publicly will ratchet up the pressure on the bank’s board, which so far has only planned to float a 25% stake in an IPO next year.

The dispute over what to do with Citizens comes down to a basic disagreement. The U.K. government wants Royal Bank of Scotland to simplify its business and focus its lending on British businesses, partly to speed up its privatization; RBS executives don’t want to sell Citizens under pressure for less than it’s worth, and they’re likely unhappy about what a Citizens sale would signal about the bank’s shrinking ambitions globally.

“It should be a UK and European commercial bank with an investment banking operation that supports its clients,” one unnamed Osborne ally told the Financial Times.

That disagreement looks like a big reason why RBS CEO Stephen Hester is stepping down – and, adding to the turmoil, one of the names being floated to replace him is Bruce Van Saun, the executive who is supposed to become Citizens’ new CEO this fall. Hester is still making the pro-Citizens case as he heads out the door.

“There is a positive case for Citizens as part of the long-term [RBS] business mix,” Hester told The Daily Telegraph’s Kamal Ahmed in an exit interview last weekend. Osbourne has suggested breaking up RBS by dividing its good assets and bad assets; according to Ahmed, Hester argues in Citizens’ case “that an asset exposed to a recovering American economy and with room – denied in the UK – for expansion is not a bad asset.”

But as City A.M.’s Allister Heath writes, Hester isn’t the one calling the shots, which makes it “glaringly obvious” why the CEO is leaving. “Forget about the spin: Osborne is in charge (though how that tallies with his view that only experienced financiers should run City firms is unclear),” Heath writes. “He publicly ordered RBS to sell its Citizens business in the US last night.”

The FT suggested the government would require RBS to self-fund such a breakup, and the bank might need to sell more of Citizens to come up with the necessary cash. RBS bought Citizens in 1988.

Meanwhile, Moody’s Investors Service lowered its outlook for Citizens from stable to negative on Wednesday, which the rating agency said “reflects increased uncertainty about its future profile because of the heightened uncertainty surrounding the direction of its parent.” Moody’s described Hester’s departure as “the most immediate manifestation of the rising uncertainty at the parent.”

On the plus side, Moody’s said, “RBS Citizens’ financial profile is supported by high capital ratios and solid asset quality relative to peers. However, its profitability although improving, is below average.”

• Related: Citizens Bank’s future cloudy as spin-off announcement looms (Feb. 27)

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6 Responses to “UK Treasury chief: Time for RBS to jettison RI’s Citizens Bank”

  1. Eric says:

    Sell Citizens. Since RBS put their claws into that organization, they did nothing by ruined it as bank–both for their consumers and their employees.

    They are just as crooked as CVS.

    Just another big RI based corporate twisted business that chews up people and spits them out.

    Hopefully, when they cut ties with RBS, they will be bought by a better company or will stand alone and try to regain it’s integrity as a place of employment and a bank that actually offers true quality services and products instead of smoke and mirrors glazed with empty promises…

    1. Truman says:

      Citizens bank has been a bank that keeps the customer at the heart of what they do. citizens bank is a business like every other business out there, they are in business to make money but in a legal way. Employees care about there job and the service they provide. It is unfair to make a statement that is false and has no physical evidence to support. rbs would not be smart to sell off a growing bank in a rebuilding us economy. The chance for anyone to “buy low sell high” is an amazing opportunity. Results would show improvement and strength of being an asset to an also rebuilding British government.

      1. Bob says:

        Good grief…this comes straight from the Citizens HR department. I hear it every day. Citizens is a bank that “Keeps the customer at the heart of what they do”. Yeah…true enough…as long as it doesn’t require any outlay of people, technology or money. Yeah…their hearts are in the right place but they don’t have anything close to the resources required to match the experiences routinely delivered by all of their competitors at a fraction of the fee.

        You can believe whatever you want, but talk to their customers (if you can find one) and see what they have to say about this..

      2. Eric says:

        “Keeps the customer at the heart of what they do”—It must be their new slogan. Wasn’t last year’s motto “Good banking is Good Citizenship ?

        Yean that Truman must be one of those Cool-Aid drinking butt kissing managers that work for CFG!

        Have you seen their computer screens? They look like they are from Radio Shack from 1983! You go to get help there and the workers need to click on 25 different screens to do anything!

        The bank is CHEAP are not good to their employees nor their customers. They are a smoke and mirrors organization.

  2. Eric says:

    Hey, Truman:
    1. During the banking crisis, RBS fell to its knees and is 85% owned by the british govt.
    2. During that year, they gave none of their employees raises (and will do anything possible since then to find excuses to still do so to their workers) and cut other benefits (heard thru the grapevine) while the big wigs still rewarded themselves with enormous bonuses.
    3. Citizens still isn’t that bright, for they were one of 38 Studios largest investors (bet they are raising their bank fees in attempts to make up for their losses).
    4. Do you find that keeping branches constantly understaffed and an average wait time to see a teller is usually about 20 minutes and 45 minutes to meet with a bank rep? Yeah, that’s customer service to the max!

    I say that if Citizens can cut the cord with RBS, it would be a great way for the company to rebuild itself in hopes to regain a better reputation and hopefully become a place where poeple would want to work…

  3. Beaker says:

    What Eric said.

    Benefit cut? Check. Lack of leadership? Check. Disgruntled employees who are sick and tired of working for a sinking ship? Yes. Working there is like watching an old, sick grandparent slowly die. You can’t wait for it to be over.

    Citizen’s is a joke and I hope it is wiped from the map.