Magazine article American Banker

RBS: Strengths Trump Pressures on Citizens Unit

Magazine article American Banker

RBS: Strengths Trump Pressures on Citizens Unit

Article excerpt

Citizens Financial Group Inc.'s parent company said Wednesday that deposit growth and stable credit quality in its U.S. business should help lessen the impact of the slowing housing market.

Royal Bank of Scotland Group PLC said during a conference call highlighting second-half trends that Citizens, of Providence, R.I., is not a "big player" in the mortgage market, though it said it had some concerns about the broader impact of the market's sluggishness.

"The reasons for the housing market slowing down are not because people have gone off of houses, but point to a more general [economic] slowing down," said Sir Fred Goodwin, the group chief executive at the $1.5 trillion-asset Royal Bank of Scotland. "But a big part of our business in the United States isn't leveraged off of spending, it's actually leveraged off of savings."

The Edinburgh company said in a press release it issued before the conference call that loan and deposit volumes at the $164 billion-asset Citizens are "growing" but margin pressure, especially for new deposits, is diminishing the benefit of the increased volume.

One good sign for deposits, according to Sir Fred, was that pricing is "still pretty competitive, but it's rationally competitive at this juncture."

Despite warnings on credit quality from a handful of other banking companies, Royal Bank of Scotland said credit quality in Citizens' loan portfolio is stable, and he noted that Citizens does not lend to subprime borrowers.

Mike Trippitt, an analyst with Oriel Securities Ltd. in London, said in a research note published Wednesday, "The general economic and consumer slowdown is impacting Citizens' operating performance, but the impairment charge position appears robust."

About 35% of Citizens' first-half revenue came from mortgage and consumer loans, while deposits accounted for 46%, Mr. Trippitt wrote. …

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