US investors gave a tepid welcome to Royal Bank of Scotland’s initial public offering of Citizens, its US commercial and consumer bank, marking the shares up just 2 cents in early trading.
About 25 per cent of Citizens’ shares were sold in the IPO at $21.50 (£13) a share, below the expected $23 to $25 range; it raised about $3bn. RBS hoped it would pave the way for it to divest the whole of its stake in the US bank, now valued at about $12bn.
But the UK parent bank was forced to cut the price of the shares late on Tuesday night due to the perception among some investors that Citizens’ financial targets were too ambitious. “There is still execution risk looking forward and so I think people wanted to price it down a little bit to account for that,” said Citizens’ chief executive Bruce Van Saun.
Earlier this year, Citizens was one of the US banks that did not pass a “stress test” set by the Federal Reserve.
The fact that RBS still owns about 75 per cent of Citizens’ stock and is looking to sell it may also have been a factor in the reduced price, Mr Van Saun told CNBC.
The eventual divestment of Citizens is seen as a crucial part of rebuilding RBS, which is still 80 per cent owned by the British government.
“This IPO represents a key step on the path to full divestment, “ said RBS chief executive Ross McEwan. “Selling Citizens will significantly improve our capital position and help us to create a strong and secure bank.”
RBS is under pressure to focus on domestic businesses. There had been speculation that RBS could sell Citizens to a Canadian or Japanese bank but no deal emerged. RBS expects to fully divest Citizens by the end of 2016.
In a recent regulatory filing, Citizens said it is the 13th largest retail bank in the US, with $130bn of assets.
Citizens became a wholly owned subsidiary of RBS in 1988 and grew substantially through more than 25 acquisitions, including the purchase of Bank of New York Mellon’s retail branch network in 2001, and the 2004 acquisition of Charter One.
These deals expanded Citizens’ footprint throughout New England and into the Mid-Atlantic and the Midwest, transforming a local retail bank into one of the biggest US banks with almost $170bn in assets, before the global financial crisis brought its parent company to its knees.