RBS may hurry sale of US arm after profit warning

28th Jan 2014 14:18

Royal Bank of Scotland (RBS) may speed up the sale of its US banking business Citizens after issuing a profit warning, according to market speculation on Tuesday.The state-backed lender on Monday night issued a surprise pre-close trading update in which it revealed it is set to make a £8bn loss in the year to December after being hit by around £3.1bn of provisions for litigation and mis-selling costs.The provisions come on top of a £4bn to £4.5bn loss from the creation of its new 'bad bank'. RBS was already planning a partial flotation of Citizens this year and to sell the business by the end of 2016 but the provisions have left the bank low on capital. Of critical importance analysts emphasised that for the most part RBS had simply brought forwards charges which had already been expected for 2014 and beyond.Morgan Stanley estimated RBS would take £10.5bn of conduct and litigation costs between 2013 and 2016. Chief Executive Ross McEwan said the other eight members of his executive committee, including Citizens Chief Bruce van Saun, would join him in not taking a bonus for 2013. "Fronting up to our past mistakes is very expensive," said McEwan, as he pointed out the majority of these provisions related to activities prior to 2008."This is about leadership [...] this team is not responsible for past mistakes. But we are the leaders running the company now."RBS Finance Director Nathan Bostock said an accelerated run-down of loans under its 'bad bank' and the sale of Citizens would be crucial for the bank's capital in future.Once the sale of Citizens is completed, it will remove risk-weighted assets from RBS's balance sheet. That could also encourage the mostly state-owned lender to speed up the process, as Citizens' risk-weighted assets account for about 14% of the RBS group.Bernstein analyst Chirantan Barua told Reuters the Citizens sale, along with improving economic conditions in Britain, could add 150 to 200 basis points to RBS's capital ratio."Are there any risks? If the UK macro reverses or the Citizens IPO (float) is botched, the capital level will come under regulatory pressure. However, both risks look unlikely to us," he added.Citizens is estimated to have a value of between $9bn to $15bn (between £5.42bnand £9.04bn).Shares rose 3.31% to 343.20p at 15:10 on Tuesday.RD