RBS to wipe out profit with US bank writedown

Royal Bank of Scotland is likely to write down the value of its US bank, Citizens by about £4bn (€5.4bn) next week, industry sources said, potentially wiping out much of the state-backed bank’s annual profit.

The writedown of goodwill would be because the US bank is not worth as much as RBS paid for it, and serves as another reminder of the hefty price paid for past acquisitions by former chief executive Fred Goodwin.

RBS, 80% owned by the UK government after being rescued in 2008, sold 29% of Citizens Financial Group in September and is expected to reduce its stake to about a third this year, which would mean Citizens being deconsolidated from RBS Group.

The goodwill writedown is an accounting issue and will not impact RBS’s capital position. Indeed, the deconsolidation would boost RBS’s capital strength when it takes place.

RBS is expected to report a pre-tax profit of about £4.1bn for 2014, according to the average forecast from a poll of six analysts by Reuters. The bank estimated the goodwill it was carrying for Citizens was £4.3bn at the end of 2013, its last published estimate.

RBS is selling Citizens as part of a retreat to its core UK retail and commercial banking business.