Latest RBS hit may speed up sale of U.S. arm Citizens

Tue Jan 28, 2014 9:12am EST
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By Matt Scuffham and Steve Slater

LONDON (Reuters) - Royal Bank of Scotland's (RBS.L: Quote) latest 3 billion pound hit for past misdeeds will leave the state-backed bank low on capital, potentially pushing new boss Ross McEwan to speed up a sale of its Citizens banking business in the United States.

RBS, 82 percent owned by the UK government, revealed the new provisions in a profit warning rushed out on Monday, which is likely to leave the bank with a 7- 8 billion pound ($13.26 billion) loss for 2013.

The bank was already planning a partial flotation of Citizens this year and to sell the entire business by the end of 2016. Analysts value it between $9 billion and $15 billion.

RBS's capital position is under strain from the new charges, higher regulatory standards and also because the bank is not rebuilding capital as quickly as planned. 2013 will mark RBS's sixth successive loss-making year following its 45 billion pound taxpayer bailout in 2008.

CEO McEwan had lifted RBS's capital targets in one of his first moves in November, saying he wanted to dispel any impression that RBS was "travelling light" on capital.

His aim is to lift RBS's core Tier 1 capital ratio - a measure of financial health - to 11 percent by the end of 2015 and to 12 percent or more a year later, based on international bank capital rules known as Basel III.

But RBS said on Monday that ratio would drop to between 8.1 and 8.5 percent at the end of 2013, below the minimum 8.5 percent which regulators want it to hold by the start of 2016. Banks are also expected to hold an extra cushion above the minimum, and investors expect most big lenders to hold 10 percent or more.

"The range (8.1-8.5 percent) looks low as compared to the 11.5 percent level that we think the bank will need as a largely domestic UK and Irish bank," Bernstein analyst Chirantan Barua said.   Continued...

A man walks past a Royal Bank of Scotland building in central London January 28, 2014. REUTERS/Paul Hackett