US bank buys Boston rival

The US banking operation which Bank of Ireland sold out of last year - and which is now owned by Royal Bank of Scotland - has announced a major expansion. It is to pay $1.4 billion for UST Corp, parent of the USTrust bank of Boston, strengthening the position of its Citizens Financial subsidiary as New England's second-largest banking group.

Citizens, one of the dominant banks in Rhode Island and New Hampshire, already ranked third in the Boston area with a market share of 4.7 per cent. USTrust, with 87 branches and $5.9 billion of assets, will almost double its position in the area, which accounts for about half of the New England economy.

Bank of Ireland sold its 23.5 per cent sharholding in Citizens last year to Royal Bank of Scotland for $762.5 million (£550 million). The Irish bank acquired the stake in 1996 following the merger of its First New Hampshire bank with Royal Bank of Scotland's Citizens Financial Group.

Commenting on yesterday's move, Mr Fred Goodwin, deputy chief executive of Royal Bank, said the acquisition, together with last month's $350 million purchase of State Street's commercial banking business, would complete Citizens' transformation from a retail business built around deposit-taking into an all-round bank with its own commercial lending operations.

Mr Neal Finnegan, chief executive of UST, said the prospect of a merged Fleet Boston had changed his bank's view of its future.

"We were put in a position of rethinking our strategy and looking at the alternatives on the table," he said. "Citizens' footprint after this transaction is spectacular."

Royal Bank has agreed to pay $32 a share, valuing UST at $1.4 billion. The agreement includes a lock-out clause, giving Citizens an option to buy 19.9 per cent of UST's stock at $24.25 in the event of a competing offer. The option would give Citizens a profit of up to $77 million.

Mr Goodwin said Royal Bank had no plans to sell its US subsidiary, but the UST deal would enhance its sale-ability if that should change.