RBS unit fails stress test

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Royal Bank of Scotland faces a tougher challenge selling its U.S. subsidiary after the unit failed the Federal Reserve’s stress test.

Bloomberg reports that RBS Citizens Financial Group was one of three U.S. units of foreign banks whose capital plan was rejected by the Fed in its annual test, regulators said. The Fed also failed subsidiaries of Banco Santander and HSBC, citing flaws in the quality of their capital planning.

RBS has said it would be open to takeover offers for its U.S. unit even as it prepares the division for an initial public offering this year. The bank’s options may be limited now that the Fed has found flaws in its internal processes, something that has held up other U.S. bank deals. M&T Bank’s takeover of Hudson City Bancorp, the biggest pending U.S. bank merger, has been stalled twice because regulators found flaws with M&T’s money-laundering controls.

'The Fed has been very cautious in terms of permitting larger acquisitions among the bigger banks', Jennifer Thompson, an analyst at Portales Partners, said in a phone interview. 'The fact that you now have some internal control issues would probably make a potential acquirer think twice about doing a deal'.

To access the complete Bloomberg article hit the link below:

RBS Stress-Test Failure Seen Hindering U.S. Unit Sale

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