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When RBS staggered last month, it was coy about the issue of selling the 13-state U.S. banking franchise that operates under the Citizens and Charter One brands. RBS says Citizens isn't on the block one moment, then that everything is on the table the next. Which is it? No one knows because RBS' chief Stephen Hester hasn't clarified the contradictory statements. And although Citizens executives constantly remind the media that the bank didn't get involved in subprime mortgages and has a "healthy" (Citizens' choice of words, not necessarily ours) ratio of capital to total assets of 9.29% (which if it weren't foreign owned would make it a prime Troubled Asset Relief Plan participant), its parent's woes could stifle its future, so an acquisition by another bank may be its best hope. Of course, the lack of a subprime portfolio, a decent capital ratio
and a relatively attractive base of operations in the affluent suburbs
of Boston and Philadelphia could draw bidders hungry for deposits and
an expanded customer base. So, how long before Hester is looking at a
reasonable offer? After all, he has a responsibility to his
shareholders (including the government, which controls 58% of its
shares and according to the Independent could take an activist investor role) to maximize value, so if a fair offer comes forward, he may have to entertain it. Which banks might bid? A few factors will likely contribute to
possible bidders for Citizens: a complementary regional footprint and
some government capital from TARP. Of course those two factors would
seem likely to produce a rush to bid on Citizens. However, given the
state of banking, it's not that simple. In fact it's easier to say who
won't bid. For example, Citigroup Inc. has a ton of its own troubles,
which means it will probably slim down rather than bulk up. Bank of
America Corp., Citizen's main rival in New England, is busy digesting both
Countrywide and soon Merrill Lynch & Co. J.P. Morgan Chase &
Co. is integrating Washington Mutual Inc. PNC Financial Services, a Pennsylvania and Midwest
rival, is buying National City. Sovereign Bancorp, a chief rival in
both Pennsylvania and New England, is merging with Spain's Banco
Santander SA. TD Bank, another rival in New England and the mid-Atlantic
states, is integrating Commerce Bancorp. And Wachovia Corp. is being
swallowed by Wells Fargo & Co. In fact, there may be more banks on
the sideline than chasing Citizens, which may be one of the many
reasons RBS is coy about a sale of Citizens. However, there are a handful of banks that might be interested, such as Capital One Financial Corp., Regions Financial, SunTrust Banks Inc. and maybe even Morgan Stanley. Although Capital One is known for its credit cards and auto loans, it has a growing retail banking business, which it may choose to build out to buttress a likely slowdown (related to the recession) in its lending businesses. Its branch network is heavily concentrated in the New York metro region (thanks to its purchase of Northfork Bank), a bridge to Citizens' New England and Midwest operations. And Capital One sold $3.56 billion in preferred stock and issued warrants to Treasury to buy 12.7 million in common shares at an initial exercise price of $42.13 a share as part of TARP. That money could go toward buying Citizens. Regions and SunTrust may not be as obvious as Capital One. They barely border Citizens' two main branch networks, but they both raised TARP funding and seem to be looking for deposits. They both abut Citizens' branch network from the south. Regions, which borders Citizens' Midwestern Charter One operations, recently completed a sale of $3.5 billion in preferred shares and warrants to the government as part of TARP. SunTrust, which only borders Citizens in Maryland, raised $3.5 billion in cash through the sale of preferred stock and warrants to the government. For Regions and SunTrust, a purchase would offer northern expansion. Morgan Stanley at first glance may seem like the least likely of the
group to bid, but since converting to a bank holding company in
September, it is reportedly interested in buying depository
institutions. While a recent Wall Street Journal story suggested
private banks serving wealthy customers, such as Boston Private
Financial Holdings and City National Corp., as chief targets, neither
would offer the depository base that Citizens, the nation's 10th-largest bank, offers. But buying Citizens would basically turn Morgan
Stanley into a universal bank akin to Citigroup and J.P. Morgan Chase,
something the Journal story notes Morgan Stanley has trepidations
about. But if it is interested in the universal bank model, then
Citizens' branch network is a good start. Of course if RBS is willing to separate the Charter One and Citizens operations, it might attract more bidders from smaller regional institutions. RBS actually has already shown some willingness to entertain such a notion, having sold Charter One's Indiana branches to Old National Bancorp last month. - Matthew Wurtzel See story about RBS' troubles from The Independent Categories Deal Video
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While Americans digested their holiday dinners, the British
government took control of the Royal Bank of Scotland Group plc. But as
Americans headed out on Black Friday, the 1,600 branches of Citizens
Financial Group, RBS' U.S. unit, operated normally. 
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