RBS to buy Boston bank for pounds 875m

THE ROYAL BANK of Scotland yesterday pulled off its second major acquisition in the United States in as many months as it struck an agreement to buy UST Corporation, the biggest remaining independent bank in the Boston area, for $1.4bn (pounds 875m).

The deal - which will give Citizens Financial, RBS's New England arm, a substantial commercial operation to supplement its existing New England base - comes just six weeks after RBS bought a slice of commercial banking assets from State Street, another American bank, for $350m in April.

RBS, through Citizens, is offering UST shareholders $32 a share, compared with a closing price of $24.25. Citizens has protected itself against the risk of a counterbid with an option to buy 19.9 per cent at a profit of $77m.

Sir George Mathewson, the RBS chief executive, said yesterday: "This acquisition will enable Citizens to complete its transformation to a commercial bank. UST is an excellent banking group and being in Massachusetts is precisely the right place to extend Citizens franchise."

UST has $5.9bn of assets, $4.2bn in deposits and 87 branches. The bank made profits before tax of $90m last year.

Yesterday's deal will reassure those in the City who feared that Citizens had been boxed in by the recent merger of its New England rivals Bank Boston and Fleet Financial.

After the deal, Citizens will be the second-biggest bank in the New England area after FleetBoston, and will be in a strong position to pick up disaffected customers from larger banks.

FleetBoston has been ordered by Federal banking regulators to sell, or close 260 branches. Citizens has been seeking to exploit unhappiness among customers dislocated by by the merger of its two main rivals, portraying itself in an aggressive advertising campaign as the "cuddly" New England bank, smaller than FleetBoston but able to offer just as wide a range of products.

Because of the overlap between Citizens in Massachusetts and UST, Larry Fish, the head of Citizens, believes that the bank will be able to find $80m of pre-tax savings in the financial year to 30 September 2001, ensuring that the deal is earnings enhancing in its first year.

RBS will fund the deal from existing resources. RBS's shares nevertheless slipped 4p to 1,422p on concern that the bank's capital ratios might now come under strain unless it was able to offset the cost from other sources, namely small scale disposals or write-back of Far Eastern loan provisions.

Hugh Pye, banks analyst at Robert Fleming, the investment bank, said yesterday: "It is a pretty reasonable deal. It gives Citizens more geographic coverage and a wider range of products."