By Steve Slater
LONDON, Jan 15 (Reuters) - Royal Bank of Scotland's sale of a $2.3 billion stake in Bank of China shows its new CEO is acting quickly to reverse years of overseas expansion and could see assets including its U.S. bank Citizens on the block.
Chief Executive Stephen Hester's strategic review is taking shape and other options include selling RBS Insurance, Coutt's private bank or Asian retail operations.
Hester is likely to be sounding out buyers for the assets, but the injection of 20 billion pounds ($29.2 billion) of taxpayer's cash has eased the pressure for a fire sale, while a shortage of cash-rich buyers could leave deals on ice.
'I'm not expecting him to sell large chunks except in extremis,' said Bruno Paulson at Bernstein Research.
'You can do quite a lot of overhauling without selling, such as shrinking the investment bank, cutting costs, refocusing. There's more to changing a business than selling assets.'
Key to Hester's plans will be the urgency he puts on repaying 5 billion pounds of government preference shares -- needed before he can restart paying dividends -- and how much damage more writedowns and rising bad debts inflict.
Hester said when he arrived in October there would be 'no sacred cows' in his review. He also said RBS will remain an international bank.
The former Credit Suisse investment banker showed that, when he cleaned up problems at UK bank Abbey National in 2002, he will act quickly.
'Hester's reputation from Abbey was coming in and pretty determinedly selling things, even if pricing is tough for selling,' said a banker who asked not to be named.
He expected Hester to consider several asset sales in parallel given high risks of deals falling through at present, with the final decision dependent on how damaged the balance sheet is by the deteriorating economy.
The background noise is almost unprecedented.
In recent days a profit warning from Deutsche Bank , the threat of a rights issue at stalwart HSBC , big job cuts at Barclays and a looming break-up of Citigroup have undermined any 2009 optimism.
Hester has given himself until end-June to unveil his strategy, but a broad outline is expected when 2008 results are delivered on Feb. 26.
CITIZENS SCRUTINY
His plan for Citizens is attracting the most scrutiny.
The Rhodes Island-based business is facing stiff headwinds and a sale would remove a hefty amount of risk-weighted assets from the balance sheet.
Interest could come from the likes of Bank of America , JPMorgan or Wells Fargo, but each faces its own problems.
No-one is likely to pay a premium over book value, analysts believe, and Citizens' stable position in retail deposits and commercial banking could fit Hester's plans to return RBS to banking basic.
An auction of RBS Insurance has dragged on since April 2008 and Hester is expected to decide whether to keep or sell it by the full-year results. RBS now appears more likely to keep it as suitors have withdrawn and its defensive characteristics have grown more attractive.
Private equity companies Apollo Management and BC Partners have teamed up to revive the flagging auction, but a sale appears unlikely to fetch the 5 billion pounds or more RBS had wanted.
Paulson said both Citizens and insurance provide decent enough returns for Hester to want to keep them if he fails to attract good offers, which appears unlikely.
'If things get distressed enough he could have to sell it (insurance), but we're not there yet,' Paulson said, noting buyers of U.S. bank assets 'are looking to buy them for virtually nothing' in the current environment.
RBS's capital cushion is comfortable after the injection from taxpayers, but the concern is it will erode quickly due to fourth-quarter writedowns and corporate bad debts.
The government -- now a 58 percent shareholder -- may also urge undue emphasis on helping domestic credit flow.
What is clear is that Hester will dramatically shrink the investment banking arm by deleveraging the business, removing risky trading activities and focusing on corporate banking.
(Editing by Andrew Macdonald) ($1=.6841 Pound) Keywords: RBS/ASSETS (steve.slater@reuters.com; +44 207 542 4367; Reuters Messaging: steve.slater.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
LONDON, Jan 15 (Reuters) - Royal Bank of Scotland's sale of a $2.3 billion stake in Bank of China shows its new CEO is acting quickly to reverse years of overseas expansion and could see assets including its U.S. bank Citizens on the block.
Chief Executive Stephen Hester's strategic review is taking shape and other options include selling RBS Insurance, Coutt's private bank or Asian retail operations.
Hester is likely to be sounding out buyers for the assets, but the injection of 20 billion pounds ($29.2 billion) of taxpayer's cash has eased the pressure for a fire sale, while a shortage of cash-rich buyers could leave deals on ice.
'I'm not expecting him to sell large chunks except in extremis,' said Bruno Paulson at Bernstein Research.
'You can do quite a lot of overhauling without selling, such as shrinking the investment bank, cutting costs, refocusing. There's more to changing a business than selling assets.'
Key to Hester's plans will be the urgency he puts on repaying 5 billion pounds of government preference shares -- needed before he can restart paying dividends -- and how much damage more writedowns and rising bad debts inflict.
Hester said when he arrived in October there would be 'no sacred cows' in his review. He also said RBS will remain an international bank.
The former Credit Suisse investment banker showed that, when he cleaned up problems at UK bank Abbey National in 2002, he will act quickly.
'Hester's reputation from Abbey was coming in and pretty determinedly selling things, even if pricing is tough for selling,' said a banker who asked not to be named.
He expected Hester to consider several asset sales in parallel given high risks of deals falling through at present, with the final decision dependent on how damaged the balance sheet is by the deteriorating economy.
The background noise is almost unprecedented.
In recent days a profit warning from Deutsche Bank , the threat of a rights issue at stalwart HSBC , big job cuts at Barclays and a looming break-up of Citigroup have undermined any 2009 optimism.
Hester has given himself until end-June to unveil his strategy, but a broad outline is expected when 2008 results are delivered on Feb. 26.
CITIZENS SCRUTINY
His plan for Citizens is attracting the most scrutiny.
The Rhodes Island-based business is facing stiff headwinds and a sale would remove a hefty amount of risk-weighted assets from the balance sheet.
Interest could come from the likes of Bank of America , JPMorgan or Wells Fargo, but each faces its own problems.
No-one is likely to pay a premium over book value, analysts believe, and Citizens' stable position in retail deposits and commercial banking could fit Hester's plans to return RBS to banking basic.
An auction of RBS Insurance has dragged on since April 2008 and Hester is expected to decide whether to keep or sell it by the full-year results. RBS now appears more likely to keep it as suitors have withdrawn and its defensive characteristics have grown more attractive.
Private equity companies Apollo Management and BC Partners have teamed up to revive the flagging auction, but a sale appears unlikely to fetch the 5 billion pounds or more RBS had wanted.
Paulson said both Citizens and insurance provide decent enough returns for Hester to want to keep them if he fails to attract good offers, which appears unlikely.
'If things get distressed enough he could have to sell it (insurance), but we're not there yet,' Paulson said, noting buyers of U.S. bank assets 'are looking to buy them for virtually nothing' in the current environment.
RBS's capital cushion is comfortable after the injection from taxpayers, but the concern is it will erode quickly due to fourth-quarter writedowns and corporate bad debts.
The government -- now a 58 percent shareholder -- may also urge undue emphasis on helping domestic credit flow.
What is clear is that Hester will dramatically shrink the investment banking arm by deleveraging the business, removing risky trading activities and focusing on corporate banking.
(Editing by Andrew Macdonald) ($1=.6841 Pound) Keywords: RBS/ASSETS (steve.slater@reuters.com; +44 207 542 4367; Reuters Messaging: steve.slater.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
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