LONDON Royal Bank of Scotland (RBS.L) made 30 U.S. acquisitions as it expanded during the past quarter of a century, and the talk now is that retrenchment means its 31st deal will see it selling the lot.
Citizens - valued at up to $13.6 billion by Credit Suisse - is increasingly seen as an adjunct to RBS, whose chief executive Stephen Hester is focused on British retail and commercial banking and a slimmed down investment bank.
While RBS, 81 percent state-owned since a bailout, maintains Citizens is a core asset, it is coming under political and regulatory pressure to consider a sale.
"I think it will happen in the next year or two. It makes sense for business reasons and timing," said Chira Barua, senior banks analyst at Sanford Bernstein in London.
"This is a franchise that could be far more profitable for one of the U.S. or Canadian banks. There is much more cross-selling potential for them and they would be able to milk the franchise better than RBS does," he said.
Hester has said Citizens may be sold, although he would prefer it did not happen now. "It would be selling an asset before it has maximized its value and before the market is profitably valuing financial assets. And so it would not help shareholder value," he said this month.
The danger is the decision may not be left to Hester.
UK Financial Investments, which looks after Britain's stake in RBS and also in Lloyds (LLOY.L), and the Financial Services Authority have written to the board saying it should consider selling Citizens, people familiar with the matter have said.
UKFI head Jim O'Neil told lawmakers last month the future of Citizens was "among the strategic issues" he had discussed with RBS. [ID:nL5E8LN6VE]
Britain could begin selling its 81 percent stake in RBS before the next election in 2015. A sale of Citizens would provide investors with a clearer picture of what they would be buying.
The FSA wants banks to bolster capital. There is also political pressure to cut executive pay.
Ellen Alemany, who has run Citizens for five years, gets far more than Hester, having been paid 11 million pounds ($17 million) in total in the past two years including past and future long-term performance awards.
All together, that has left suitors aware of the opportunity, even if RBS has not been actively touting the business, several bankers said.
Citizens could fetch $8.8-$13.6 billion, Credit Suisse analysts estimated, adding a sale was a matter of time and would be part of RBS's next phase of restructuring.
Citizens, a good franchise in the attractive north-east United States, should attract a slim premium to its book value, bankers said. That would be appealing for RBS, whose shares trade at about half that metric.
Canadian group Toronto Dominion Bank (TD.TO) was seen as the most likely buyer, as a deal would lift it to the fifth-biggest bank in the United States, from ninth, and yield big synergies.
TD Bank held informal discussions with RBS about Citizens, the New York Post newspaper reported in August.
"People ask about businesses all the time. We are not in active discussions with anybody in relation to the sale of Citizens," an RBS spokesman said on Friday.
T.D. Bank declined to comment.
U.S. regional banks PNC (PNC.N) and U.S. Bancorp (USB.N) and other Canadian names such as Bank of Montreal (BMO.TO) would also take a look, bankers said, as could Brazilian company Itau Unibanco (ITUB4.SA) or Japanese lender Mitsubishi UFJ (8306.T), two of the world's 20 biggest banks.
TD Bank may tie up with a regional U.S. bank to make a deal more digestible, and M&T Bank (MTB.N), Fifth-Third (FITB.O), Huntington (HBAN.O) or KeyCorp (KEY.N) could be interested in parts of the network, Credit Suisse analysts said.
The problem for suitors is that RBS would want cash, and Citizens would take some swallowing, even in pieces. Risk appetite is low across an industry where executives are wary of the economic and regulatory outlook. That said, the threat of another economic dip could spur the FSA or RBS into action.
"What happens if the U.S. gets into a recession next year if we fail to resolve the fiscal cliff? Citizens will definitely be impacted. That is one stroke that can upset the recovery story and push it back three or four years," Bernstein's Barua said.
UPS & DOWNS IN AMERICA ...
RBS said its U.S. retail and commercial arm made a nine-month operating profit of 554 million pounds, 19 percent of the group's total and up 54 percent as costs and bad debts fell.
While RBS has had a presence in the United States since 1960, its adventure there only took off with the 1988 purchase of Citizens, based in Rhode Island.
Subsequent deals have swelled its assets to $132 billion, ranking Citizens as the 15th biggest U.S. bank. It has 1,400 branches across 13 states and about 19,000 staff.
One deal, the 2004 purchase of mid-west bank Charter One for $10.5 billion prompted an analyst to accuse former chief executive Fred Goodwin of megalomania, and stoked fears RBS was leaving its capital cushion perilously thin.
($1 = 0.6300 pound)
(Additional reporting by Laura Noonan in London, Jessica Toonkel in New York, and Cameron French in Toronto; Editing by Dan Lalor)