RBS Finance Chief to Groom Citizens for Offering, Replace CEO Alemany

Royal Bank of Scotland is pushing ahead with its plan to divest at least part of its U.S. subsidiary, sending its top financial executive to take over Citizens Financial Group from current chief Ellen Alemany.

Bruce Van Saun, the group finance director for RBS, will replace Alemany on Oct. 1, RBS said on Thursday. The transition had been expected, as was Van Saun's specific mandate: to finish whipping Citizens into shape for a partial public offering by early 2015, when he says he hopes the market for bank stocks to be "healthier."

"We have built a good foundation under Ellen, and there's a bit more work to do," Van Saun said in an interview on Thursday. "We can get it where we want to get it and have it ready to go to market. Ultimately I want this to be a very strong, distinguished regional bank. … It's just around the corner."

Alemany, who is 57 to Van Saun's 55, spent almost six years running Citizens for RBS. She returned the Providence, R.I., unit to profitability after the financial crisis, while the U.K. government took an 81% stake in its British parent company. But now RBS is trading her operational experience for Van Saun's financial chops and time spent overseeing its company-wide restructuring efforts.

He spent more than a decade at Bank of New York Mellon (BK), becoming chief financial officer and vice chairman before leaving for the private-equity world in 2008. A year later, he joined RBS as group finance director, where he works directly with CEO Stephen Hester.

"He's not really the CEO of Citizens — he's going there as someone from RBS who's going to do the deal," says Sanford Bernstein analyst Chirantan Barua, who praised Van Saun's connections to the U.S. financial community. "If you are going to IPO a franchise in the U.S., Bruce is brilliant, because he knows the investor community very, very well."

But Barua expects Van Saun to have authority beyond just improving Citizens' profitability and shepherding the partial initial public offering. That could include pursuing offers to sell the entire U.S. business.

"He's going to do [the IPO], but if there are any interesting opportunities, he's a guy who would be much more able to have that conversation. It's much better to have him on the ground than in London," Barua says. "Being the CFO of RBS, which is a very complicated bank, he has the authority to go out and thrash out some deals. He has the board behind him."

Right now, Van Saun says RBS plans to sell a 20% to 25% stake in Citizens as announced in February. He did not rule out the possibility of an outright sale, but said it would take an attractive offer to sway RBS from its "baseline plan" of the partial IPO.

"You have to consider attractive offers for any asset, but we at this point are comfortable with the plan," he said.

Attractive offers are thin on the ground for most banks these days. Citizens, with $132 billion in assets and 1,400 branches, would be a monumental acquisition at a time when the regulatory environment and persistently mediocre economy have killed most banks' appetite for big-ticket M&A.

"It's an environment where larger bank deals are just not doable right now," says Jeff Davis, the managing director of Mercer Capital's financial institutions group.

Citizens might be "a great fit" for several superregional banks, "but I don't see how a deal gets done in terms of regulators," he adds, referring to Capital One's (COF) long and fraught, if ultimately successful, effort to buy ING's U.S. online banking business: "They barely got that through the approval process … and ING Direct, they're a bit smaller than RBS Citizens."

Some of the likeliest suitors for Citizens, including PNC Financial Services (PNC), have downplayed their interest in immediate large-scale acquisitions; another potential swain, Toronto-Dominion (TD), has flat-out said it's not interested in Citizens right now.

Van Saun says RBS would be content with its planned partial IPO, and pointed to the Spanish bank Santander's public listings of its subsidiaries around the world. RBS hopes to emulate that model of "a very stable, long-term situation that is advantageous to both the subsidiary and the parent," he said.

"Our view all along is that Citizens is an important part of RBS, and we would like to keep Citizens part of the core," he added. "The fact that we would want to float off a part of Citizens doesn't mean we're heading to the door or backing to the exits."

Whatever Citizens' ultimate fate, Van Saun says he plans to spend the next two years trying to improve the bank's return on equity and boosting its commercial lending business.

Citizens' return on equity last year was 8.3%, up from 6.3% a year earlier but still below the 2012 median of 9.4% for publicly listed banks with more than $50 billion in assets, according to SNL Financial.

"We've made progress financially but we're certainly below the peer group in terms of return on equity. That's something we need to take a look at and close that gap. Some of that is a result of overcapitalization relative to peers, so we're having some discussions with the regulators in terms of how we could address that," he says, adding that he'd like to convert some of Citizens' equity capital back into subordinated debt.

From an operational standpoint, "there is some good momentum in the commercial side of the business, and we have thought over time to grow the commercial side and balance out from a more consumer-oriented book," Van Saun says. "On the consumer side we have opportunities to further penetrate our existing markets and get a bigger share of wallet."

His new role and Alemany's retirement mean that the male-dominated banking industry is losing yet another one of its most prominent women executives. In 2012, American Banker Magazine put Alemany fourth on its annual list of the Most Powerful Women in Banking.

Citizens did not make her available for interviews on Thursday, but she said in an internal memo to employees that she had first approached RBS CEO Hester last summer about stepping down. She did not say what she plans to do next.

"Decisions like this are never easy, but I feel that now is the right time to make a leadership change based on what is best for our company, for me and my family," she wrote. "I'm confident we are on the right path and in a strong position, uniquely well-suited to move forward."

Heather Landy contributed reporting