PNC or BMO could buy Citizens, top banking analyst suggests

If Royal Bank of Scotland is forced to sell off Providence-based Citizens Financial Group, the majority of experts think the most likely buyer would be Canada’s TD Bank Group. But not everyone agrees with the conventional wisdom.

Richard Bove, the influential bank analyst at Rochdale Securities, thinks the top candidate is Pittsburgh-based PNC Financial Services Group, Patty Tascarella reports for the Pittsburgh Business Times:

“I think they’re No. 1, top of the list without any question,” Bove said. “If you look at mergers, the ones that work the best are in-market. PNC’s move into the southeast is high-risk, they’re in a market they aren’t familiar with, they’re pleased with what’s happening there, but if they can buy a bank that’s sitting on top of the same markets they’re in, the economies of scale for a merger of that nature are phenomenal.” …

Gerard Cassidy, a financial analyst at RBC Capital Markets, told the Philadelphia Business Journal that he believes PNC is too consumed with its expanded southeast footprint to contemplate another purchase at this time.

Bove suggested another Canadian financial institution as a potential Citizens acquirer — Montreal-based BMO Financial Group (NYSE: BMO) — which has 1,600 branches, a deposit base of $180 billion and does business in the United States as Chicago-based BMO Harris Group. …

Fifth Third Bancorp, based in Cincinnati, could also be a possibility, Bove added.

Part-nationalized RBS is under growing pressure in Britain to sell Citizens after officials at the Financial Services Authority and taxpayer-backed UK Financial Investments made the suggestion to RBS CEO Stephen Hester. But his management team is strongly resisting the idea.

“Plan A is that Citizens remains a core part of the bank,” an unnamed senior RBS executive told the Financial Times, explaining that the bank is only likely to get the right price from, in the FT’s words, “an existing US operator with an overlapping business and compelling business synergies.”

Terry Murden, business editor at U.K. newspaper The Scotsman, nevertheless suggested Hester may be forced to sell Citizens. “This is a story that won’t go away,” Murden wrote Wednesday. “Financial tipsters in the City expect RBS to offload Citizens to further shore up its balance sheet at a time of continuing pressure in the eurozone.”

Independent analysts think RBS could get $12 billion for Citizens right now, while executives inside the bank think the Providence-based lender is worth $14 billion to $16 billion, according to Murden.

“Hester may have a fight on his hands persuading his masters that he should hold out until there is a better time to sell,” he wrote. “But a fire sale of assets to resolve a capital crisis that has not yet, and may never, occur smacks of panic, or perhaps political pressure to offload parts, if not the whole, of RBS ahead of the [next British] general election.”

Ian Gordon, an analyst at Investec Securities, echoed Murden’s concerns and downgraded his rating on RBS shares from “hold” to “sell” this week.

“It is not clear to us that either UKFI or the FSA’s reported ‘engagement’ in relation to Citizens is entirely consistent with optimising shareholder value,” Gordon said in The Daily Telegraph. “A fire-sale to plug any perceived capital shortfall may, in our view, prove short-sighted.”

• Related: RBS should take hard look at Citizens, UK official tells MPs (Oct. 23)

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