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RBS Citizens Financial Group Inc., the U.S. branch of The Royal Bank of Scotland Group plc (RBS - Snapshot Report), is en route to expand its commercial banking business by hiring 70 employees. The new commercial bankers will be engaged in Pittsburgh and other existing markets as well as new cities like Atlanta, Charlotte, N.C., Dallas, Washington, D.C. and Los Angeles.

RBS Citizens plans to focus on sectors like health care, technology and franchising, while concentrating on companies with yearly revenues of more than $500 million. Moreover, the bank intends to provide acquisition finance, cash management and hedging services and attain capital markets business.

The Real Purpose Behind the Expansion

RBS Citizens has been vying for expansion to appear lucrative for the impending divestiture from its UK-based parent company. In Nov 2013, The Royal Bank of Scotland had declared that it would start the initial public offering (IPO) of RBS Citizens in mid 2014 and gradually exit this subsidiary by 2016.

A new chief executive was appointed for RBS Citizens to prepare it for the IPO by boosting returns, expanding balance sheet and enhancing the mortgage banking, auto finance and small business banking activities of the bank.

Additionally, RBS Citizens has been simultaneously selling-off unproductive branches and cutting jobs to control costs. The bank divested 94 branches in Chicago to U.S. Bancorp (USB - Analyst Report) earlier this year.

The Royal Bank of Scotland filed for the IPO of RBS Citizens in May 2014.  Furthermore, the first offer of the series – around 20–25% of RBS Citizens – is expected to take place this year. Mitsubishi UFJ Financial Group Inc. (MTU - Analyst Report) of Japan and The Toronto-Dominion Bank (TD - Snapshot Report) of Canada are possible contenders in the proposed sale.

Our Take

RBS Citizens’ expansion strategy and cost-cutting initiatives are vital steps for future growth, especially after its failure to clear the Federal Reserve’s stress test. The options to get a good deal were narrowed after the bank’s capital plan was rejected by the Fed.

Currently, The Royal Bank of Scotland carries a Zacks Rank #3 (Hold).

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