Report: RBS to start selling stake in RI’s Citizens next week

Breaking news tonight out of London. Philip Aldrick and Helia Ebrahimi report for The Daily Telegraph:

Royal Bank of Scotland will next week reveal plans to float its US retail bank, Citizens, in a deal expected to raise more than £8bn for the state-backed lender. …

The potential initial public offering (IPO) would be one of the largest ever spin-outs from a UK bank ….

However, no bankers have been appointed and the process is likely to take around two years to complete.

On Thursday, RBS is expected to outline plans to initially sell a small stake in Citizens, of about 25%, and to keep open its options for future disposals. Bank insiders also hope that the prospect of a float could draw out prospective bidders willing to pay a full price for the business, although RBS will not run a formal “dual track” process. Canada’s TD Bank is one likely suitor.

Citizens’ future has been in question ever since U.K.-based RBS, which bought Citizens in 1988, was rescued by the British government in the fall of 2008 at the height of the financial crisis. RBS remains 82% owned by British taxpayers. The speculation has picked up steam since last summer’s New York Post report that TD Bank had discussed Citizens with RBS and subsequent stories about British regulators pressuring RBS to sell.

Citizens is the second-largest bank in Rhode Island by deposits, with a 21% market share and $9.6 billion in local assets, according to FDIC data as of June 30, 2012. TD Bank – which expanded to Rhode Island in 2010 – had a 0.29% market share and $130 million in assets at the same time, nearly double from a year earlier. Buying Citizens would be a quick way for TD to expand its presence in Northeastern retail banking.

For Rhode Island, one of the biggest questions is how Citizens’ local presence would be impacted if the bank was merged with another institution such as TD: Citizens was Rhode Island’s second-biggest for-profit employer as of 2011, according to the state, behind only CVS Caremark.

• Related: Full coverage of a possible Citizens Financial Group sale (Nov. 28 to Aug. 6)

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