RBS Takes Cautious Road to Expansion in the U.S.
By Paul Davis
Tuesday, March 30, 2010

Royal Bank of Scotland is looking to expand in numerous U.S. markets, but plans to do so in its trademark cautious way, a top retail executive at the company said.

RBS plans to open more branches in markets where it has a small presence and to test the waters in Florida, the Carolinas and several other Southeastern states with automated teller machines, said Martin Bischoff, a vice chairman who runs consumer and business banking for RBS' U.S. operation.

But don't expect any of those expansion efforts to debut a new RBS-centered brand. There are no plans to put the company's imprint on Citizens Bank in the Northeast or Charter One Bank in the Midwest.

"We're not sure putting 'RBS' in front of Citizens would enhance the brand," he said during an appearance last week at American Banker's Best Practices in Retail Financial Services Symposium in Orlando.

In a follow-up interview, Bischoff talked more about the company's expansion plans in the U.S., saying that RBS wants to correct an "imbalance" of traditional and in-store branches in several markets.

RBS has about 1,500 branches in 12 states, with two-thirds being traditional branches. Bischoff said there are markets such as Long Island where RBS needs more traditional branches to complement a strong network of locations in Stop & Shop supermarkets. Around the New York City metro area, RBS had 36 branches and $370 million in deposits at June 30, or 0.04% market share, according to data from the Federal Deposit Insurance Corp.

"We look for a blend and in that market we clearly need more traditional branches," said Bischoff, who is no relation to former Citigroup Chairman Win Bischoff.

A recent agreement to put Citizens Bank ATMs in Sunoco convenience stores would provide RBS with data to evaluate several markets that could fit its long-term plans.

"We're not desperate" to expand, Bischoff cautioned. "Clearly we have a strong foothold and are strong in all of our markets." The immediate focus for RBS involves strengthening its position in established markets, he said.

Ken Thomas, an independent bank consultant and economist in Miami, said RBS has good timing to expand now compared with five years ago. Many of the companies that were aggressively buying or renting real estate, including Commerce Bancorp, North Fork Bancorp and Washington Mutual Inc., have been sold. He also said that the cost of adding branches is likely 15% to 25% less now. "Prices have definitely come down and people are willing to make deals," he said.

Still, Thomas, a longtime skeptic of in-store branches, would prefer to see RBS and others pare back those locations to strike a balance.

Bischoff strongly supported the model during comments at the symposium, calling it a crucial strategy to secure top-five market share. "It is the double whammy. It is the kicker," he said, warning that failure to become a big player in any given market often leaves a company "running uphill."

Establishing brand and gathering data are also important, and both will be at work as the company places ATMs in several East Coast markets. RBS earlier this month reached a deal to put Citizens-branded machines in 487 Sunocos, with roughly 25% planned in states where it lacks branches. The biggest concentration is in Florida, with 57, but RBS will also have ATMs in Maryland, North Carolina, South Carolina, Virginia and the District of Columbia.

Bischoff said the $148 billion-asset Providence, R.I., company has no immediate plans to buy or build branches in any of those states. (RBS, which bought Citizens in 1988 and Charter One in 2004, has avoided U.S. bank deals since it purchased GreatBanc Inc. in February 2007 to expand in the Chicago area.)

"This is about convenience and retention" of existing customers, Bischoff said in the interview. "But it is also about developing brand recognition."

Thomas said he does not see the Sunoco relationship as a harbinger for an aggressive expansion because such locations are typically geared toward travelers and tourists. Thomas said he would watch to see if RBS eventually expands its ATM network to supermarkets or pharmacies, which would target residents and give a strong hint as to the company's future plans.

The ATMs will have the Citizens brand, and for now the company's strategy is to keep the Charter and Citizens names despite legally consolidating them as RBS Citizens in 2007. Leaving the visible names untouched would run counter to the actions of other foreign banks. Bischoff, meanwhile, emphasized that RBS does not need a consistent brand to be successful.

"The important thing is for the customer to have a consistent experience," he said.

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