Citizens Financial Group makes strong debut on NYSE
Citizens Financial Group had a solid showing in its first day of public trading despite tepid investor interest in bank stocks this year.
The stock closed the day near its high at $23.08, up 7.35 percent after pricing at $21.50. That price was cut from the $23-to-$25 range that Citizen’s parent, Royal Bank of Scotland, had hoped to attract in pricing the stock. The shares hit $23.22.
At $3 billion, it is the largest U.S. bank offering in at least a decade and occurs as RBS tries to boost its capital position amid government pressure and as Rhode Island-based Citizens attempts to improve its operations.
The opening day “pop” beat the 6 percent historical average for bank IPOs on the first day and happened on a day of strong gains in the broader stock market. But the real test of its strength lies in the weeks and months ahead.
“In the long run, what matters is the company’s operations,” said Jay Ritter, a professor of finance at the University of Florida who tracks IPOs. “Nobody cares today what happened on the first day of trading for Wal-Mart or Apple.”
The IPO represents a 25 percent stake in Citizens, the second-biggest bank in the Pittsburgh area behind PNC Financial Services Group and 13th largest in the nation. Citizens has 1,230 branches in 11 states — including 131 in the Pittsburgh area.
Citizens’ IPO is the biggest bank offering since CIT Group Inc. raised $4.87 billion in 2002 and Goldman Sachs & Co. raised $3.66 billion in 1999, according to data provider Dealogic.
Bank stocks have been favorably valued this year, said Morningstar analyst Dan Werner, but they have traded poorly. The S&P Regional Banks Select Industry Index is down nearly 5 percent so far in 2014.
Meanwhile, Citizens’ performance has lagged its peers.
Citizens’ return on equity was 5 percent last year, compared with 10.7 percent at PNC and 13.4 percent at Fifth Third Bancorp, according to Bloomberg.
The investor enthusiasm in Citizens could be muted for a variety of reasons beyond the company’s performance. Citizens came on the heels of the year’s largest IPO, e-commerce giant Alibaba, which raised $25 billion in its IPO last week. Investors may have been a bit weary amid two large offerings coming on top of one another.
“It might have had some impact,” Werner said. “It depends on what asset managers had in terms of free cash. Alibaba was a big IPO, and this is another big IPO.”
Also, bank IPOs have not fared well this year. Auto lender Ally Financial is down 6 percent since its debut in April and Santander Consumer USA has fallen 25 percent since going public in January.
“The financial sector has been a weak performing sector in the IPO market,” said Kathleen Smith, an IPO exchange-traded-fund manager at Renaissance Capital. “It just hasn’t been strong, and I think some of it is investors are concerned about the demand for banks services and the regulation that is out there.”
Chris Fleisher is a staff writer for Trib Total Media. He can be reached at 412-320-7854 or [email protected].