U.K. Financial Investments Ltd., the steward of the government’s 81 percent stake in Royal Bank of Scotland Group Plc, suggested the lender sell its U.S. unit to increase shareholder returns.
The firm wrote to RBS to raise the prospect of a sale of Citizens Financial Group Inc., the consumer and commercial lender acquired in 1988, UKFI Chief Executive Officer Jim O’Neil told a panel of lawmakers today. The letter also detailed the benefits of scaling back the Edinburgh-based lender’s investment banking operations.
“Among the strategic issues we discuss with management are the U.S. operations, are the investment bank,” O’Neil told the Treasury committee. “We view it as part of our ongoing role to continue to ask strategic questions in a market where everything to do with banks is continuing to evolve and change.”
RBS will retain Rhode Island-based Citizens because it’s a “core” part of the bank and will be more valuable in three years’ time, CEO Stephen Hester told reporters in August. Canada’s Toronto-Dominion Bank held informal talks to buy the unit, the New York Post reported on Aug. 3, without saying where it got the information.
RBS fell 1.4 percent to 277.70 pence in London trading today, just more than half what the government paid for its stake when it bailed out the lender in 2008.
Chairman Philip Hampton signaled last week the Treasury may try to cut its holding in RBS by 2015 after the bank left a government insurance program that covered its most toxic assets.
UKFI hasn’t received any “formal proposal” from investors for its stake in the lender, O’Neil said today.
“Hampton hopes to see a sell-down of UKFI’s stake commence before the election,” Ian Gordon, a London-based analyst at Investec Plc who rates the stock a sell, said in a note to clients today. “It’s a worthy aspiration, but one unlikely to be realized.”
Hester has cut assets by more than 800 billion pounds ($1.28 trillion), eliminated 36,000 jobs and scaled back RBS’s securities and Irish units since he took over from Fred Goodwin in 2008. RBS said in January it would cut about 3,500 jobs at the investment-banking division, run by John Hourican, and sell or close its unprofitable cash equities, mergers advisory and equity capital markets divisions.
“We do have a positive view that the investment bank shape and size ultimately should be probably smaller than it is today,” O’Neil said.
UKFI approved Hester’s 963,000-pound bonus for 2011, Chairman Robin Budenberg told the committee. Hester waived the award after the opposition Labour Party said it would seek a Parliamentary vote on the award.
“We were involved in a misjudgement about what that reaction would be,” Budenberg said. “What happened then was something that it was very difficult for anyone to control.”