RBS US subsidiary Citizens prices below expected range in IPO

Citizens prices 140 million shares at $21.50 per share, raising about $3 billion

The initial public offering (IPO) of Citizens Financial Group, the US subsidiary of Royal Bank of Scotland, priced below its expected range late on Tuesday at $21.50 a share, valuing the whole of Citizens at around $12 billion.

Citizens said it priced 140 million shares, about 25 per cent of its stock, at $21.50 per share, raising about $3 billion. The shares are expected to begin trading on the New York Stock Exchange on Wednesday under the ticker symbol “CFG.”

Citizens had initially expected to price its IPO at between $23 and $25 per share to raise up to $3.5bn but had to reduce the price due to investors’ concerns about what some perceived as ambitious financial targets.

RBS could sell a further 21 million shares if an over-allotment option granted to underwriters is taken up.

The divestment of Citizens is seen as a crucial part of rebuilding RBS, which is still 81 per cent owned by the British government after it was bailed out in 2008.

RBS is under heavy pressure to divest non-core assets and focus on domestic businesses.

Speculation that RBS could sell Citizens to a Canadian or Japanese bank has not led to a deal, so for now at least the IPO is the focus.

Despite the drop in the IPO price, the deal is a relief for RBS and for the British taxpayer.

The decision to spin off the business was complicated earlier this year when Citizens was one of the US banks that did not pass a “stress test” set by the Federal Reserve.

RBS’s chief executive, Ross McEwan, said recently: “The planned divestment will significantly improve RBS’s capital foundation and is a further important step in making RBS a strong and secure bank that continues to fully support the needs of its customers.”

In its earlier IPO regulatory filing, Citizens said it is the 13th-largest retail bank in the US with $130bn of assets, loans of $88.8bn and deposits of $91.7bn as of June 30.

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 mid-west regions of the US, transforming a local retail bank into one of the biggest US lenders with almost $170bn in assets, before the global financial crisis brought its parent company in Edinburgh to its knees.