Under Project Rainbow,
The Royal Bank of Scotland Group plc
) has sold some of its branches to private equity firms Corsair
Capital and Centerbridge. Corsair Capital and Centerbridge have
invested roughly £600 million and plan to reinstate these
branches as a new bank.
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U.S.-based Corsair Capital has teamed up with Centerbridge as
well as other investors including the Church of England's
investment fund and Standard Life Investments in bidding for
these branches. However, the private equity group will take on
the role of the anchor shareholder and wait for the venture to
break even at the price at which it was acquired, before the
initial public offering (IPO) of the new bank. The IPO is
anticipated to take place in 2015.
The branches on sale are Natwest branches in Scotland and the
parent company's branches in England and Wales. These have
roughly £21.5 billion in consumer deposits and serve small
businesses and consumers.
Apart from Corsair Capital and Centerbridge, other final round
bidders included W&G Investments Plc, the investment vehicle
) former director of finance, Andrew Higginson. Another bid was
also made by AnaCap Financial Partners, in collaboration with
U.S. private equity giant
The Blackstone Group L.P.
Royal Bank of Scotland is yet to tide over its troubles and
remains 81% owned by the U.K. taxpayers. Further, private
ownership looks unlikely in the near future. The bank has been
ordered by the European Union to sell as many as 315 branches to
comply with state-aid regulations.
After years of muted approach, the Treasury is adopting a
proactive strategy toward The Royal Bank of Scotland. The British
administration had demanded reduction of both the bank's
investment unit and U.S. unit and requires the bank to refocus on
its U.K. business.
In compliance with the orders, Royal Bank of Scotland divested
its stake in Global Merchant Services (WorldPay) and RBS Sempra
Commodities. It has also initiated the spin-off of the insurance
business as the Direct Line Group through an IPO.
However, we are encouraged by Royal Bank of Scotland's efforts to
restructure its business. With the divestment of its
non-profitable units, we believe that the bank will be able to
regain its former glory.
Royal Bank of Scotland currently carries a Zacks Rank #4 (Sell).
A well-performing foreign bank is
Sumitomo Mitsui Financial Group, Inc.
), which carries a Zacks Rank #1 (Strong Buy).