RBS Makes $692 Million Gain on U.S. Unit Before U.K. Share Sale

Royal Bank of Scotland Group Plc made a $692 million gain on the value of its U.S. consumer unit in the second quarter, helping to boost earnings before the U.K. government reduces its stake.

The bank’s 40.8 percent holding in Citizens Financial Group Inc. increased 13 percent in value in the period through June 30 as shares in the Providence, Rhode Island-based lender rose. RBS can record that as an accounting gain, said Joseph Dickerson, an analyst at Jefferies International Ltd. in London.

Chancellor of the Exchequer George Osborne may start reducing the British government’s 79 percent stake in RBS as early as September, a person with knowledge of the matter has said. RBS is selling its stake in Citizens as Chief Executive Officer Ross McEwan seeks to reverse seven annual losses by shrinking international operations to focus on U.K. consumer and commercial lending.

“There has been a significant spike up in the value of Citizens’ shares,” RBS chairman Philip Hampton told investors at the bank’s annual general meeting in Edinburgh last week. “It’s a very good thing for shareholders.”

Citizens shares rose from $24.15 on April 1 to $27.31 on June 30, boosting the value of RBS’s 219 million shares by about $692 million, according to calculations by Bloomberg.

RBS cut its stake in Citizens, led by Bruce Van Saun, from 70.3 percent in March after taking the company public in September.

Currency Swings

The translation of the gain in shares in RBS’s accounts isn’t immediately clear. Currency fluctuations will be one factor in determining the outcome, because the lender reports in pounds instead of dollars, said Jonathan Tyce, an analyst at Bloomberg Intelligence.

RBS is scheduled to report second-quarter earnings on July 30. A spokesman for the bank declined to comment.

Although the bank has made about $7.1 billion from selling shares in Citizens, and owns a stake worth about $5.9 billion at the close of trading on June 30, it’s still made a loss on building the U.S. bank. RBS took a 4 billion-pound ($6.3 billion) writedown on the value of the company in fourth-quarter earnings and a 320 million-pound loss in the first quarter after the value of its stake fell over that period.

The bank will make some “incremental small writebacks from the significant writedown,” RBS Chief Financial Officer Ewen Stevenson told investors at its AGM last week. It’s “extremely unlikely” that the full amount of the writedown will be erased by gains in Citizens shares before the bank sells them.

RBS must sell all of its shares in Citizens by the end of next year to meet a European Commission deadline after the bank was bailed out by taxpayers in the financial crisis.

“You can conclude we probably paid too much for it,” Hampton said.

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