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Fitch Affirms RBS Citizens Financial Group's Ratings; Outlook Stable

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed RBS Citizen's Financial Group's (CFG) ratings. A complete list of rating actions follows at the end of this release.

Today's rating action on CFG was taken in conjunction with Fitch's Global Trading and Universal Bank (GTUB) review. As part of this review, Fitch affirmed the Royal Bank of Scotland Group plc's (RBSG) IDRs at 'A/F1'. (See separate press release dated Oct. 10, 2012 for additional details.)

RATING ACTION AND RATIONALE

As a wholly owned subsidiary of RBSG, CFG's long- and short-term IDRs are linked to those of its parent company. Fitch continues to regard CFG as strategically important to RBSG. This is reflected in CFG's Support Rating of '1', which articulates Fitch's belief that there is an extremely high probability that RBSG would support CFG if necessary. Therefore, any change in RBSG's IDRs could result in a change of CFG's ratings.

Fitch has also affirmed CFG's viability rating at 'bbb+', which embodies the standalone assessment of CFG. The affirmation reflects CFG solid capital strength at its current rating coupled with strong liquidity. These strengths are tempered by CFG's below peer profitability and relatively high home equity exposure.

Fitch considers CFG's capital levels to be solid and managed conservatively on both a consolidated level and at the respective banks. CFG's tangible common equity ratio totaled 10.5% at the end of second quarter, up 25bps on a linked quarter basis. Liquidity levels are also solid as CFG is primarily deposit funded with minimal reliance on wholesale borrowings or RBSG.

CFG's earnings improved on a linked quarter basis due to a one-time legal expense recognized in the first quarter. However, year-to-date return on average assets still remains low at 0.52%. Fitch expects that earnings performance will continue to perform below levels experienced pre-crisis as loan growth is sluggish and net interest margins are pressured by low rates.

Fitch also has general industry concerns surrounding home equity loans as articulated in the Fitch special report 'U.S. Housing and Bank Balance Sheets' dated Feb. 27, 2012. Given CFG's relatively higher level of home equity loans at 25% of total loans, Fitch believes CFG would be more affected if home equity loans were to underperform. Fitch recognizes that CFG's core home equity book performs adequately, and that it a disproportionate amount of losses has occurred in a portfolio of acquired home equity loans that is in run-off.

RATING DRIVERS AND SENSITIVITIES - VR, IDRs & SENIOR DEBT

As previously mentioned, CFG's IDRs are linked to those of its parent. As such, CFG's IDRs will likely be affected by any changes to the ratings of RBSG itself. In addition, although not anticipated, any changes to CFG's ownership would also prompt a review its ratings.

Fitch considers CFG's VR's to be solidly situated at their current levels. Nonetheless, positive rating momentum could occur should CFG improve its profitability levels commensurate to those of higher rated regional banks while reducing its home equity exposure. Conversely, factors that could lead to negative pressures on the VR include a reversal of improving credit trends and/or relatively high growth in commercial lending.

SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

Subordinated debt issued by CFG is notched down from its VR in accordance with Fitch's assessment of each instrument's respective nonperformance and relative loss severity risk profiles. Ratings are all primarily sensitive to any changes in the VRs of CFG.

HOLDING COMPANY RATING DRIVERS AND SENSITIVITIES

CFG's IDRs and VR are equalized with those of its operating companies and banks reflecting its role as the bank holding company, which is mandated in the U.S. to act as a source of strength for its bank subsidiaries.

Fitch has affirmed the following ratings:

RBS Citizens Financial Group, Inc.

--Long-term IDR at 'A-'; Outlook Stable;

--Short-term IDR at 'F1';

--Viability rating at 'bbb+';

--Subordinated debt at 'BBB';

--Support rating at '1'.

RBS Citizens, NA

--Long-term IDR at 'A-'; Outlook Stable;

--Short-term IDR at 'F1';

--Viability rating at 'bbb+';

--Support rating at '1';

--Long-term deposits at 'A';

--Senior Unsecured at 'A-';

--Short-term deposits at 'F1'.

Citizens Bank of Pennsylvania

--Long-term IDR at 'A-'; Outlook Stable;

--Short-term IDR at 'F1';

--Viability rating at 'bbb+';

--Support rating at '1';

--Long-term deposits at 'A';

--Short-term deposits at 'F1'.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Global Financial Institutions Rating Criteria' (Aug. 15, 2012);

--'U.S. Housing and Bank Balance Sheets' (Feb. 27, 2012);

--'Rating FI Subsidiaries and Holding Companies' (Aug. 10, 2012).

Applicable Criteria and Related Research:

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686181

U.S. Housing and Bank Balance Sheets

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=670913

Rating FI Subsidiaries and Holding Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679209

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Fitch Ratings
Primary Analyst
Jaymin Berg, CPA, +1-212-908-0368
Director
Fitch, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Christopher Wolfe, +1-212-908-0771
Managing Director
or
Committee Chairperson
Joo-Yung Lee, +1-212-908-0560
Managing Director
or
Media Relations
Brian Bertsch, +1-212-908-0549
brian.bertsch@fitchratings.com

Source: Fitch Ratings