Magazine article American Banker

Citizens Emerging as Top Growth Contributor for RBS

Magazine article American Banker

Citizens Emerging as Top Growth Contributor for RBS

Article excerpt

Royal Bank of Scotland Group PLC said Tuesday that it would continue to look to the United States as an engine for earnings and business growth.

The $759 billion-asset Edinburgh company reported Tuesday that the $69 billion-asset Citizens Financial Group Inc. of Providence, R.I., its flagship U.S. unit, ranked among its best-performing subsidiaries at midyear and is providing a growing share of earnings.

Fred Goodwin, Royal Bank's chief executive officer, talked at length about its growth and acquisition strategies. He said it expects Citizens to help fuel profits in coming years, acting as a U.S. platform for expanding organically and through acquisitions.

He spoke during a conference call to discuss first-half earnings. The group's pretax earnings rose 10% from a year earlier (before currency conversion) to $5.6 billion.

Citizens' pretax income totaled $685 million, up 16% in dollar terms but only 4% in pounds sterling, which have appreciated against the dollar. That was 12.3% of Royal Bank's total. (Citizens separately reported record net income of $401 million, up 45%.)

Fred Watt, Royal Bank's finance director, said Citizens turned in "a very strong performance," getting growth in income, loans, and deposits. He also noted that Citizens added 237,000 retail customers, largely through the branches it bought from Mellon Financial Corp. in 2001.

Michael Helsby, an analyst with ING Financial Markets in Liverpool, said that Citizens "did very, very well" in comparison to other members of the Royal Bank group. Loans at Citizens rose 25%, deposits 22%. Results were solid despite margin compression, he added.

Citizens' earnings are growing faster than those of the group as a whole, and the unit is the key to Royal Bank's future growth, said Hugh Pye, an analyst with BNP Paribas in London.

He is looking for Citizens to produce $1.5 billion in profits this year, 13% of the group total. "It already makes a healthy contribution, " he added.

Citizens' real value for Royal Bank, both analysts said, is its ability to buy U.S. companies and add customers here. "Clearly, they are hot on the trail" of acquisition targets, Mr. Helsby said.

During the conference call, Mr. Goodwin stressed that Royal Bank remains interested in making deals, big and small. …

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