RBS launches into US top league

ROYAL Bank of Scotland boss Fred Goodwin today said his £5.7bn takeover strike for Charter One Financial is a trailblazing deal for his US expansion plans.

The ambitious chief executive said the deal for the Cleveland, Ohio-based bank paves the way for thousands of small US acquisitions once the Charter takeover is bedded in.

The deal catapults RBS into the top tier of US banks and extends its geographical coverage to the MidWest.

America's 15th-largest bank is RBS's biggest purchase since it gobbled up NatWest for £23.6bn in 2000 and represents a bold push into new US markets, including Chicago and Detroit, from its base in the North-East.

A quarter of the Scottish bank's profit will now be made in the US, with assets of $129bn in the country and more than 1400 branches.

In London today, RBS shares fell 75p to 1647p.

RBS has succeeded in the US where most other big UK banks have failed. While it has gradually built up its presence there since the 1980s, Barclays, Midland (now HSBC) and NatWest all tried to build a US base in the 1980s and 1990s and failed, losing large amounts of money and eventually pulling out.

But RBS is paying dearly for its latest acquisition - a 24% premium to yesterday's Charter One share price. That also values the Cleveland bank at 3.1 times net asset value, significantly higher than the 2.5 times paid in recent deals for several other US banks.

'This is a highly logical and very natural acquisition,' said Goodwin. 'It opens up another range of options.' He has been searching for acquisitions in the US for some time, although RBS bought its first credit card operation - run by People's Bank - in February for $360m.

Goodwin said Charter One had been chosen for its impressive geographical reach, cultural fit, range of products and momentum. 'There aren't so many banks that offer such a good all-round package,' he said.

Charter One focuses on consumers and small-to-medium-sized businesses, a similar profile to Citizens Financial, the RBS subsidiary based in Providence, Rhode Island. Charles Koch, Charter One's chief executive since 1995, will continue as chairman and become a vice-chairman of Citizens.

Analyst Martin Cross at Teather & Greenwood, said: 'The full price paid means it will take a little longer to be earnings enhancing,' he said. 'But at this stage, we're positive on RBS shares and will continue to be so.'

RBS expects to wring cost savings of at least $185m out of Charter One in three years by merging it into other operations.