Acquisition

Royal Bank of Scotland Group PLC
04 May 2004

The Royal Bank of Scotland Group plc 4 May 2004

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN, OR INTO, THE UNITED STATES,
CANADA OR JAPAN



ACQUISITION OF CHARTER ONE FOR $10.5 BILLION (£5.8 BILLION),
PLACING TO RAISE £2.5 BILLION



Summary

The Royal Bank of Scotland Group plc (RBS) announces that its wholly owned
subsidiary Citizens Financial Group, Inc (Citizens) has entered into an
agreement, subject to approval by Charter One Financial, Inc. (Charter One)
shareholders and regulatory consents, to acquire Charter One for a cash
consideration of approximately $10.5 billion (£5.8 billion). The transaction is
expected to be completed in the fourth quarter of 2004.

The acquisition will create a bank with extensive coverage across adjacent North
Eastern and Mid Western states. Relative to US banks, the enlarged Citizens
Group will rank 7th by assets and 7th by deposits. The acquisition will increase
the proportion of RBS's profit before tax coming from the United States to about
25%.

As a result of this transaction, Citizens expects to deliver transaction
benefits (revenue benefits and cost savings) which will increase its profit
before tax by $407 million in 3 years after completion of the transaction.

On RBS's forecast for business growth and transaction benefits, the acquisition
of Charter One will meet RBS's 12% post-tax hurdle rate, and will have a broadly
neutral impact on Group earnings per share in 2005 and be accretive thereafter.

The acquisition of Charter One is considered to be low risk. Charter One is
similar to Citizens in many respects, including its emphasis on retail banking,
its focus on growth and efficiency and its strong credit quality. There is no
need for divestitures or disposals, or for branch closures. A comprehensive due
diligence exercise has been carried out. Citizens has a proven track record in
delivering the benefits of acquisitions.

RBS intends to finance the acquisition partly with the proceeds of a placing of
RBS ordinary shares, to raise approximately £2.5 billion.



Charter One

Charter One is a US retail bank, headquartered in Cleveland, Ohio, with
activities in a number of Mid Western and North Eastern states. Charter One has
an excellent track record of growing income and improving efficiency.

Charter One operates in the Mid West in Ohio, Michigan, Illinois and Indiana and
in the North East in upstate New York and Vermont. In the large metropolitan
areas of Cleveland, Detroit and Chicago, Charter One ranks #4, #5 and #6
respectively, by share of deposits. Charter One's customers and branches are set
out in the table below:

Customers (000s)
  • Personal                                                           1,719

  • Small Business                                                        98

Branches
  • Traditional                                                          456

  • Supermarket                                                          160


Over recent years, Charter One has expanded its branch network by opening de
novo traditional and supermarket branches: of its 616 branches, 142 have been
opened since the end of 2002.

At 31 December 2003, Charter One had total assets of $42.6 billion, including
$28.3 billion loans to customers (See Appendix 1). Of these loans, 76% were
consumer loans and 24% were commercial loans; over 95% of Charter One's total
loans were secured. Non-performing loans amounted to $206 million; these were
covered by provisions of $384 million. At 31 December 2003, Charter One had
customer deposits amounting to $27.2 billion.

Charter One has an excellent track record. Between 1993 and 2003, Charter One
increased its profit before tax from $161 million to $924 million (on a US GAAP
basis). Over this period Charter One grew its income by 18% per annum, through a
combination of organic growth (including expansion of its branch network through
de novo traditional and supermarket branches) and acquisitions. Over the same
period, Charter One improved its cost: income ratio from 51.3% to 42.3%.

Acquisition Rationale and Benefits

There is a compelling rationale in the geographic fit between the two
franchises: they are adjacent, but have minimal overlap. The acquisition will
extend Citizens into some densely populated areas in the Mid West, including the
important cities of Chicago, Detroit and Cleveland (which have populations of
8.4 million, 4.5 million and 2.3 million respectively). The numbers of
households and small businesses in the four Mid Western states in which Charter
One is active are respectively 60% and 50% higher than those in Citizens' four
New England states and Pennsylvania together.



There is also an attractive fit between the products of Charter One and
Citizens. Citizens already offers all the products offered by Charter One.
However, Charter One is more reliant on retail products (traditionally
mortgages, and more recently checking accounts), while Citizens has a broader
set of retail products and a significantly broader product offering for
mid-corporate customers.

The acquisition will enable Citizens to achieve a significant increase in the
scale of its activities. Citizens' personal customers and branch network will be
increased by about 70%, its loans by 65% and its deposits by 43%.

The acquired business has good prospects for future organic growth. The
additional states in which Charter One is present have large populations of
personal and business customers. Citizens will benefit from the additional
branches which have already been opened, and will continue with a branch
expansion programme.

Significant financial benefits will be possible, as a result of the transaction.
Citizens expect to achieve revenue benefits by introducing its relationship
based sales process, by expanding Charter One's retail and small business
product set and by adding mid-corporate banking on the model that exists across
Citizens' existing franchise. Cost savings are expected to be achieved by
centralising technology and processing, consolidating central functions and
combining various businesses such as consumer finance.

As a result of these initiatives, Citizens expects to deliver transaction
benefits which will increase its profit before tax by $407 million in 3 years
after completion of the transaction. Of this total, RBS estimates that revenue
benefits will amount to $378 million on an annualised basis ($222 million
contribution to pre-tax profit after associated costs and bad debts) and that
annualised cost savings will amount to $185 million, in 3 years from completion.
As in previous acquisitions, Citizens has a clear business plan to achieve IT
integration and deliver these transaction benefits. Citizens expects integration
costs amounting to approximately $420 million to be incurred.

The acquisition will create a bank with extensive coverage across adjacent North
Eastern and Mid Western states. Relative to US banks, the enlarged Citizens
Group will rank 7th by assets and 7th by deposits. The acquisition will increase
the proportion of RBS's profit before tax coming from the United States to about
25%.

The acquisition of Charter One will give Citizens significantly greater options
for in-fill acquisitions in future. The banking markets in the Mid Western 
states in which Charter One is active are relatively unconsolidated. The
combined market shares of the top 3 banks by deposits in these four states range
from 30% to 45%.



Low Risk Acquisition

The acquisition of Charter One is considered to be low risk. Charter One is
similar to Citizens in many respects, including its emphasis on retail banking,
its focus on growth and efficiency and its strong credit quality. Citizens
already has demonstrated success in maintaining organic growth in New England
while revitalising the Mid Atlantic franchise acquired from Mellon. There is no
need for divestitures or disposals, or for branch closures. Citizens has a
proven track record in delivering the benefits of acquisitions.

A comprehensive due diligence exercise has been carried out, involving over 500
man-days by the Citizens team who have done similar exercises on many occasions
previously. A substantial proportion of Charter One's commercial loans was
reviewed individually; all consumer loans were subject to statistical analysis
and modelling. The analysis of interest rate risk confirmed expectations that
Charter One's balance sheet has a bias against rising interest rates and our
financial evaluation assumes that RBS will restructure Charter One's balance
sheet to neutralise this bias.

Citizens

Citizens serves three customer groups: personal customers, small businesses and
mid-corporates. Citizens has expanded its branch network by adding supermarket
branches and through acquisitions.

Since 1990, Citizens has successfully completed 23 acquisitions. It has gained
considerable experience in forecasting and delivering transaction benefits,
assessing credit quality and converting technologies.

As a result of both strong organic growth and these successful acquisitions,
Citizens grew its assets from $5.2 billion in 1993 to $76.8 billion in 2003 and
its UK GAAP profit before tax, goodwill amortisation and integration costs from
$55 million in 1993 to $1,401 million in 2003. This advance in profits reflects
income growth of 29% per annum over the 10 years, and an improvement in cost:
income ratio from 63.2% in 1993 to 48.2% in 2003.

Financial Impact of the Acquisition

Citizens has agreed to pay $44.50 in cash per share for Charter One. This values
Charter One at $10.5 billion, or £5.8 billion. The transaction is expected to be
completed in the fourth quarter of 2004.

The agreed purchase price is 15.1 times the market consensus forecast for
Charter One's after-tax earnings in 2004, and 13.9 times the consensus earnings
forecast for 2005.

The funding requirement of $10.5 billion (£5.8 billion) will be met by the
placing (£2.5 billion) together with other funding and internal resources.
Allowing for the acquisition of Charter One, RBS's tier 1 capital ratio is
expected to be close to 7% at the end of 2004.



On RBS's forecast for business growth and transaction benefits, the acquisition
of Charter One will meet RBS's hurdle rate (12% post-tax internal rate of
return), and will have a broadly neutral impact on Group earnings per share in
2005 and be accretive thereafter.

Placing

RBS intends to finance the acquisition in part with the proceeds of a placing,
of new ordinary shares of 25p each (the 'New Ordinary Shares') to raise
approximately £2.5 billion (the 'Placing'), subject to demand, price and market
conditions. The Placing is being conducted through an accelerated bookbuilding
process being carried out by Merrill Lynch International, Goldman Sachs
International and UBS Limited. Merrill Lynch International is global
co-ordinator and joint bookrunner of the Placing; Goldman Sachs International
and UBS Limited are joint bookrunners. Details of the number of New Ordinary
Shares to be issued and the price at which they will be offered are expected to
be determined and announced as soon as is practicable after the bookbuilding
closes. Merrill Lynch International, Goldman Sachs International and UBS
Limited, in consultation with RBS, reserve the right to close the book at any
time and with RBS's agreement to alter the size of the Placing at their
discretion.

RBS has granted Merrill Lynch International, as stabilising manager, an option
to purchase, at the placing price, up to a further £250 million of RBS ordinary
shares under an over-allotment option.

Appendix 2 of this announcement sets out further information regarding the
Placing.

Comments

Fred Goodwin, RBS Group Chief Executive, said: 'This is a highly logical and
very natural acquisition for Citizens to make. As well as making good financial
sense in its own right, it opens up another interesting range of options for
Citizens to maintain their strong growth momentum, and it consolidates Citizens'
position as one of the leading banks in the United States. That it will take the
share of Group profits generated in the US to 25% is also of note.'

'Bud Koch and his team have done a great job in growing Charter One through its
present transformation from a thrift to a bank. It will be good to welcome him
to our Board, as a non-executive director, on completion of the transaction.'



General

Merrill Lynch International and Goldman, Sachs & Co are acting as joint
financial advisers to RBS and Citizens. Merrill Lynch International, Goldman
Sachs International and UBS Limited are acting as advisers in respect of the
financing of the acquisition and as joint book runners to the Placing.

Merrill Lynch International, Goldman Sachs International and UBS Limited, all of
which are regulated in the United Kingdom by The Financial Services Authority,
are acting exclusively for RBS and no one else in connection with the proposed
acquisition and the Placing and will not be responsible to anyone other than RBS
for providing the protections afforded to customers of Merrill Lynch
International, Goldman Sachs International and UBS Limited, or for giving advice
in relation to the Placing or any other matters referred to in this press
announcement.

Analysts Briefing

An analysts briefing will be held by RBS at 9.00 am on Wednesday 5 May 2004 at
280 Bishopsgate, London EC2M 4RB.

For Further information:
The Royal Bank of Scotland Group

Media                
Howard Moody                                          Tel: + 44(0) 207 672 1924
Group Director, Communications                        Mob: + 44(0) 7768 033562

Investor Relations
Richard O'Connor                                      Tel: [phone]
Head of Investor Relations          
                                                      Mob: [phone]

Certain statements made in this announcement are forward looking statements.
Such statements are based on current expectations and are subject to a number of
risks and uncertainties that could cause actual results and performance to
differ materially from any expected future results or performance, express or
implied, by the forward looking statements. Factors that might cause forward
looking statements to differ materially from actual results include, among other
things, regulatory and economic factors. RBS assumes no responsibility to update
any of the forward looking statements contained herein.

The information, and any opinion contained in this announcement does not
constitute a public offer under any applicable legislation or an offer to sell
or solicitation of an offer to buy any securities or financial instruments or
any advice or recommendation with respect to such securities or other financial
instruments either in the United States or elsewhere; nor does this announcement
constitute a solicitation to vote in favour of the proposed transaction. The
information contained herein is not for publication or distribution to persons
in the United States. The Ordinary Shares have not been and will not be
registered under the U.S. Securities Act of 1933 ('the Securities Act') and may
not be offered or sold in the United States unless they are registered with the
U.S. Securities and Exchange Commission or pursuant to an exemption from the
registration requirements of the Securities Act. There will be no public
offering of the Ordinary Shares in the United States.

In connection with the Placing, Merrill Lynch International or any person acting
for it, as stabilising manager, may over-allot or effect transactions with a
view to supporting the market price of the ordinary shares in RBS at a level
higher than that which might otherwise prevail for a limited period after the
Placing. However, there is no obligation on Merrill Lynch International or any
agent of Merrill Lynch International to do this. Such stabilising, if commenced
may be discontinued at any time and must be brought to an end after a limited
period.

                                                                      APPENDIX 1

FINANCIAL INFORMATION FOR CITIZENS AND CHARTER ONE




                                                            Citizens (1)           Charter One (2)
Profit and Loss (US$m):

Net interest income                                         2,143                          1,169
Non-interest income                                         841                            698
Total income                                                2,984                          1,867
Expenses                                                    1,438                          791
Bad debts                                                   145                            152
Profit before tax, goodwill amortisation and integration    1,401                          924
costs

Cost:income ratio                                           48.2%                          42.3%


                                                      Citizens (3)                          Charter One (4)
Assets (US$bn):

Loans                                                 43.5                             28.3
Cash and securities                                   26.3                             11.2
Other (incl goodwill)                                 7.0                              3.1
Total assets                                          76.8                             42.6

Liabilities (US$bn):

Deposits                                              62.8                             27.2
Other                                                 6.1                              12.1
Equity                                                7.9                              3.3
Total liabilities                                     76.8                             42.6

Notes

 1. Citizens financial statements for the year ended 31 December 2003
    (UK GAAP)
 2. Charter One financial statements for the year ended 31 December 2003
    (US GAAP)
 3. Citizens financial statements at 31 December 2003 (UK GAAP)
 4. Charter One financial statements at 31 December 2003 (US GAAP)



                                                                      APPENDIX 2

FURTHER INFORMATION ON THE PLACING

The Placing of New Ordinary Shares is being conducted through an accelerated
bookbuilding process being carried out by Merrill Lynch International, Goldman
Sachs International and UBS Limited (the 'Joint Bookrunners') acting as agents
of RBS. Details of the number of New Ordinary Shares to be issued and the price
at which they will be offered are expected to be determined and announced as
soon as is practicable after the bookbuilding process closes.

Placees' commitments to acquire the New Ordinary Shares will be subject to,
amongst other things, (i) the admission of the New Ordinary Shares to the
Official List of the United Kingdom Listing Authority and to trading by the
London Stock Exchange each becoming effective at or prior to 8:00am on 14 May
2004 or such later date as Merrill Lynch International, Goldman Sachs
International, UBS Limited and RBS may agree in writing and (ii) the Placing
Agreement not being terminated prior to such admission. Commitments to acquire
New Ordinary Shares made in the bookbuilding process are not capable of
termination or rescission by placees in any circumstances.

Confirmation of an allocation of New Ordinary Shares to a placee will constitute
the agreement of such placee (subject to the conditions referred to above):

 i. to acquire at the placing price the number of New Ordinary Shares allocated;
ii. that it is not a person (and that it is not acting on behalf of a person) in
    Japan or Canada and that it is outside the United States (as defined in
    Regulation S under the Securities Act) or is a 'Qualified Institutional
    Buyer' (within the meaning of Rule 144A Securities Act);
iii. that it is a person whose ordinary activities involve acquiring, holding,
    managing or disposing of investments (as principal or agent) for the
    purposes of its business or, if the placee is in the United Kingdom, that it
    is a person of a kind described in Article 19 or 49 of the Financial
    Services and Markets Act 2000 (Financial Promotion) Order 2001 or that it is
    otherwise a person to which the allotment may lawfully be made without
    observing any requirement for the New Ordinary Shares to be registered or
    made the subject of a prospectus (or equivalent document);
iv. that it will not, prior to the expiry of six months from the closing of the
    Placing, offer or sell any New Ordinary Shares to persons in the United
    Kingdom, except to persons who fall within (iii) above;
 v. that it is a person acting on its own behalf who is entitled to acquire New
    Ordinary Shares under the laws of all relevant jurisdictions and that it
    will fully observe all relevant laws in connection with the Placing; and
vi. that the Placing and the allocation and issue of New Ordinary Shares are
    governed by and construed in accordance with English law and that such
    placee submits to the non-exclusive jurisdiction of the English Courts in
    relation to any disputes arising out of or in connection with the Placing.

Settlement for the New Ordinary Shares is expected to occur three London
business days after confirmation of the price and allocation is sent to placees
but not later than 14 May 2004. Admission to listing and to trading are expected
to take place on the same day.

Acquisitions of New Ordinary Shares will be made on the basis that the placee
has not relied (i) on any information, representation and/or warranties from
Merrill Lynch International, Goldman Sachs International or UBS Limited nor (ii)
on any information, representation and/or warranties from RBS, save for the
information contained in this announcement.

Settlement of acquisitions of New Ordinary Shares will only be free of United
Kingdom stamp duty and stamp duty reserve tax ('SDRT') if the New Ordinary
Shares are not acquired in connection with arrangements to issue depositary
receipts or to transfer New Ordinary Shares into a clearance service and on the
basis that acquirers of New Ordinary Shares are not, and are not acting as
nominee or agent for, a person (or its nominee) who is or may be liable for
United Kingdom stamp duty or SDRT under Section 67, 70, 93 or 96 of the Finance
Act 1986. If all such requirements are not satisfied, or the settlement relates
to other dealings in New Ordinary Shares, United Kingdom stamp duty or SDRT may
be payable for which neither RBS, Merrill Lynch International, Goldman Sachs
International nor UBS Limited will be responsible.

RBS has agreed with Merrill Lynch International, Goldman Sachs International and
UBS Limited in the Placing Agreement that it will not, for a period of 90 days
from closing of the Placing, effect certain issues or disposals of its ordinary
shares, subject to certain exceptions.

In certain circumstances, Merrill Lynch International, Goldman Sachs
International and UBS Limited will have the right to terminate their obligations
under the Placing Agreement, in which event the Placing will not proceed.

The making of an offer in, or to residents or citizens of, certain jurisdictions
('Foreign Investors') may be restricted by laws of the relevant jurisdictions.
Foreign Investors should inform themselves about and observe any such applicable
legal requirements in their respective jurisdictions.

This announcement does not constitute an offer to sell or issue, or constitute
the solicitation of an offer, in any jurisdiction in which such offer is
unlawful.

In the unlikely event that RBS does not acquire Charter One, RBS intends to use
the proceeds of the Placing for general corporate purposes.

Application will be made for the New Ordinary Shares to be admitted to the
Official List of the UK Listing Authority and for admission to trading on the
London Stock Exchange. New Ordinary Shares allotted pursuant to the Placing will
be allotted subject to the memorandum and articles of association of RBS and
will rank pari passu with RBS' existing ordinary shares of 25p each, including
the right to participate in all dividends and other distributions declared, paid
or made after the date of this announcement on or in respect of such shares
(provided that the final dividend for 2003 which is expected to be paid on 4
June 2004 will not be paid on the New Ordinary Shares).

In connection with the Placing, RBS has granted to Merrill Lynch International,
as stabilising manager, on behalf of the Joint Bookrunners, an option (the 'over
allotment option'), with a view to supporting the market price of the RBS
ordinary shares and/or options or other securities or rights relating to the
ordinary shares at a level which might not otherwise prevail. The over allotment
option is exercisable by Merrill Lynch International, as stabilising manager,
during the period commencing with the date the placing price is announced and
ending 30 days after the date on which the Placing closes. Pursuant to the over
allotment option, Merrill Lynch International may require RBS to allot up to
£250 million of additional RBS ordinary shares, at the placing price, for the
purpose, amongst other things, of meeting over allotments, if any, made in
connection with the Placing and to cover short positions resulting from
stabilisation transactions. There is no obligation on Merrill Lynch
International to request the allotment of additional ordinary shares pursuant to
the over allotment option or to undertake any stabilising activities. If
commenced, any stabilising activities must be brought to an end at the end of
the period referred to above. Stabilisation/FSA.

'Placing Agreement' means the placing agreement entered into between RBS,
Merrill Lynch International, Goldman Sachs International and UBS Limited
relating to the New Ordinary Shares.

'New Ordinary Shares' means the new ordinary shares of 25p each of RBS proposed
to be allotted as part of the Placing.

Communication aimed at investment professionals

This Appendix is directed only at (a) persons who have professional experience
in matters relating to investments who fall within Article 19(1) of the
Financial Services and Markets Act 2000 (Financial Promotion) Order 2001 and (b)
persons to whom it may otherwise lawfully be communicated (together 'relevant
persons'). Any investment or investment activity to which this Appendix relates
is available only to and will be engaged in only with, relevant persons. Any
person who is not a relevant person should not act or rely on this Appendix or
any of its contents.


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