RBS fires starting gun on $14bn Citizens float

Speculation that RBS could sell Citizens to a Canadian or Japanese bank has not led to a deal

RBS said yesterday it plans to sell 140 million shares in Citizens at between $23 and $25 to raise up to $3.5bn, and might sell another 21 million shares if demand is strong enough, bringing the total raised to around $4bn (Getty)

Royal Bank of Scotland has started the process for an initial public offering of its US bank Citizens Financial Group, which is set to value the Rhode Island-based subsidiary at up to $14bn (£9bn).

The divestment of Citizens is seen as a crucial part of rebuilding RBS, which is still 81 per cent owned by the British government after it was bailed out in 2008.

RBS is under heavy pressure to divest non-core assets and focus on domestic businesses. The Citizens IPO could be the biggest flotation by a bank in the US this year.

Speculation that RBS could sell Citizens to a Canadian or Japanese bank has not led to a deal, so for now at least the IPO is the focus.

RBS said yesterday it plans to sell 140 million shares in Citizens at between $23 and $25 to raise up to $3.5bn, and might sell another 21 million shares if demand is strong enough, bringing the total raised to around $4bn.

The actual price will be revealed in a fortnight’s time when the shares start trading on the New York Stock Exchange.

The move means up to 29 per cent of Citizens could be sold. RBS has said it expects to fully divest Citizens by the end of 2016.

The decision to spin off the business – which was initially taken by the former chief executive of RBS, Stephen Hester – was complicated earlier this year when Citizens was one of the US banks that did not pass a “stress test” set by the Federal Reserve, so news of the planned terms for an IPO is a positive development for British taxpayers and investors.

RBS’s chief executive, Ross McEwan, said: “The planned divestment will significantly improve RBS’s capital foundation and is a further important step in making RBS a strong and secure bank that continues to fully support the needs of its customers.”

He added: “Today’s launch is an important milestone for both RBS and Citizens.”

Citizens has filed an S-1 registration statement with the US Securities and Exchange Commission in preparation for the flotation.

In the filing, Citizens said it is the 13th-largest retail bank in the US with $130bn of assets, loans of $88.8bn and deposits of $91.7bn as of 30 June. The bank said it made revenues of $5bn.

Citizens became a wholly owned subsidiary of RBS in 1988 and grew substantially through more than 25 acquisitions, including the purchase of Bank of New York Mellon’s retail branch network in 2001 and the 2004 acquisition of Charter One.

These deals expanded Citizens’ footprint throughout New England and into the mid-Atlantic and the midwest regions of the US, transforming a local retail bank into one of the biggest US lenders with almost $170bn in assets, before the global financial crisis brought its parent company in Edinburgh to its knees.