RBS May Sell U.S. Retail Biz - Analyst Blog

Edinburgh, UK-based The Royal Bank of Scotland Group plc RBS is in talks with Japanese bank Sumitomo Mitsui Financial Group Inc. to vend its U.S retail bank – RBS Citizens Financial Group. First released in a report by The Wall Street Journal, the discussion is at a preliminary stage and the deal may not actually materialize.

In Nov 2013, The Royal Bank of Scotland announced that it would start the initial public offering of RBS Citizens Financial Group in mid-2014 and gradually exit this subsidiary by 2016. The public offering will take place as scheduled and the company believes the listing will help fetch a better price for the sale.

Among others, Mitsubishi UFJ Financial Group Inc. MTU is also seeking to bid in the proposed sale. Both Mitsubishi UFJ Financial and Sumitomo Mitsui Financial, the major Japanese banks, are striving to strengthen their footprint in the U.S through this deal.

The latest revelation should not come as a surprise as the Royal Bank of Scotland, which was bailed out with £45 billion by the British government during the financial crisis, is striving for growth with several restructuring initiatives that include cost reduction measures, increased focus on markets where it has a strong presence and long-term growth prospects, and improvement in its capital ratios.  

Notably, in Jan 2014, RBS Citizens Financial Group inked a deal with U.S. Bank National Association – the lead bank of U.S. Bancorp USB – to sell its Chicago branch network of its Charter One Bank franchise. The deal is expected to close by mid-2014.

At a time when Royal Bank of Scotland is burdened with numerous litigations and operational inefficiencies, we remain optimistic about the possible sell off, as it will not only enhance the company's capital levels but shift its focus on more profitable markets and pave the way for sustainability and growth in the long run.

Royal Bank of Scotland currently holds a Zacks Rank #5 (Strong Sell). Some better-ranked stocks in the foreign banks space include Hong Kong's Hang Seng Bank Ltd (HSNGY) and Argentina-based Grupo Financiero Galicia S.A. GGAL. Both the stocks carry a Zacks Rank #1 (Strong Buy).