RBS Said to Plan IPO for its U.S. Citizens Financial Unit

Royal Bank of Scotland Group, Britain's biggest government-owned lender, will signal next week it plans to sell a 15% to 25% stake in Citizens Financial Group in Providence, R.I., according to a person familiar with the plan.

No deal is imminent and the process will likely take about two years to complete, said the person, who asked not to be named because they were not authorized to speak publicly on the matter. RBS (RBS) will announce the move when it reports full-year earnings on Thursday.

The Edinburgh firm has been under pressure from U.K. Financial Investments Ltd., the steward of the government's 81% stake in RBS, and lawmakers to sell the U.S. consumer and commercial lender it acquired in 1988. RBS Chief Executive Officer Stephen Hester told reporters in August the bank would keep hold of Rhode Island-based Citizens because it's a "core" part of the firm that will be more valuable in three years.

The Telegraph newspaper in London reported Friday that RBS would announce plans for the Citizens Financial IPO in the coming week. No sources were cited in the Telegraph report, which said RBS would start by selling a 25% stake and consider disposing of more later. RBS also would entertain selling the entire unit to another bank, it said. A full sale of Citizens Financial could ultimately raise 8 billion pounds ($12 billion), the Telegraph report said.

Canada's Toronto-Dominion Bank (TD) held informal talks to buy the unit, the New York Post reported on Aug. 3, without saying where it got the information.

An RBS official declined to comment when contacted by Bloomberg News.

Citizens Financial had $141 billion of assets, $104 billion of deposits and 1,420 branches in 13 states primarily in the Northeast and Midwest as of Sept. 30, according to the latest figures on the Federal Deposit Insurance Corp. website.

The unit is led by Ellen Alemany, who has been credited with steadying Citizens Financial after the real estate bust and shielding it as best she could from its parent company's problems. Alemany, the chairman and CEO of Citizens Financial, was No. 4 on American Banker's 25 Most Powerful Women in Banking in 2012. It reported net income of $506 million in 2011, up substantially from $11 million in 2010, after a net loss of $740 million in 2009.

Deal speculation has swirled around Citizens Financial for years because of its parent's difficulties and need to raise money. Dealmakers recommended in an American Banker article last year that RBS selectively sell branches in U.S. markets where it has weak market share, such as Chicago and Detroit. Instead of an outright sale of the 21st-largest U.S. bank holding company by assets, which might be difficult because of its size, the investment bankers had said it would make more sense for RBS to pursue the sale of the roughly 200 branches it has in Chicago and Detroit.

A year ago Citizens Financial sold 56 branches in New York, most of them in Stop & Shop stores, to People's United Financial (PBCT) in Bridgeport, Conn., for $3.25 million. That deal was considered a bargain for People's United.

At RBS, Hester has cut assets by more than 800 billion pounds ($1.2 billion), 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 last year it would cut about 3,500 jobs at the investment-banking division and sell or close its unprofitable cash equities, mergers advisory and equity capital markets divisions.