May 9--The Royal Bank of Scotland, the troubled grandparent of Citizens Bank, has no intention of selling the Pennsylvania bank as RBS restructures back to profitability, said the U.K. bank's chief executive on Friday.

"We are in business to make money for our shareholders. But I can clearly say we are not currently considering selling any of our Citizens businesses," CEO Stephen Hester answered the Tribune-Review in a conference call with reporters.

RBS owns Citizens Financial Group, Providence, R.I., which owns Citizens Bank of Pennsylvania, the third-largest in the Pittsburgh region by deposits and second-most in branches with 128.

Hester fielded questions after RBS posted a quarterly loss of about $1.29 billion early yesterday. Results included more than $4.3 billion in charges from impaired loans and securities, which sank record total income of $14.65 billion for the quarter.

Speculation arose that RBS might sell Citizens, its Charter One bank or other U.S. businesses after the U.K. bank announced a global restructuring in February. That included selling businesses and cutting some 9,000 of RBS' more than 170,000 jobs over the next two years.

Of those layoffs, 1,250 are expected in the United States. The jobs cuts would occur in back-office operations, such as check processing and information technology, rather than workers who deal directly with customers. Hester declined to elaborate on U.S. layoffs, which he described as "an unfortunate consequence of getting back to health."

RBS lost owns Citizens Financial Group, Providence, R.I., which owns Citizens Bank of Pennsylvania, mostly from home equity loans outside of its branch network that were acquired from brokers, said Hester. Most of the losses stemmed from banking and other businesses outside Pennsylvania.

Citizens Bank of Pennsylvania posted a net loss of $35.7 million last quarter, compared with net income of $29.4 million the year earlier, according to data from the Federal Reserve System.

Parent Citizens Financial operates Citizens or Charter One banks in 12 states and has assets of $160.4 billion. Analysts say that were it a domestic bank included among the 19 largest banks stress-tested by the federal government, Citizens Financial would have been shown to hold adequate capital to weather the recession.

"If (Citizens Financial) needed capital to shore it up, we believe RBS would find a way to facilitate that. But we don't believe at the moment that's necessary," said Sharon Haas, an analyst for Fitch Ratings, New York.

"Citizens has been a strong franchise, and we believe we can make it stronger," said Hester, who was installed as CEO in October after the company was seized by the British government, which owns 70 percent of RBS.

But the banking giant will sustain continued losses because of "a substantial recession in all the economies where we operate," especially Ireland, said Hester.

"Even once the economy starts recovering, unemployment and loan losses will be there for some time after that," said the CEO. "So regardless, 2009 and 2010 will be difficult years for us."

Hester will "make material changes to strategy," he told analysts last fall upon succeeding CEO Fred Goodwin. He was ousted after years of pricey expansion -- including the largest-ever, $18.6 billion acquisition of ABN Amro Holding NV -- triggered heavy write-downs and hurt RBS' capital.

"You can sell the good things and keep the bad things, or you can sell the bad things and keep the good things. I chose the second route," said Hester yesterday.

RBS sold its 4.3 percent stake in Bank of China in January for $2.35 billion, nearly double its initial investment. Hester plans more such steps in restructuring RBS to make it worthwhile for the U.K. government to sell its controlling stake in the bank as soon as possible.

"It is not good for this institution to be controlled by the state," he said. "We want that passage in our history to halt."

Thomas Olson can be reached via e-mail or at 412-320-7854.

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