According to a September 18th investment report from equity research firm Sterne Agee, RBS Citizens Financial Group’s upcoming IPO is on track and looks to price between $23 and $25 per share. Sterne Agee analysts Terry McEvoy, Eric Zwick and Austin Nicholas do not rate the stock in the report, but do highlight that Citizens Financial has underperformed relative to peers for several consecutive quarters.
The SA report notes that assuming an IPO price of between $23.00 and $25.00 a share, shares are selling for 1.0 to 1.1 times pro forma 2Q 2014 tangible book value. As a group, U.S. Super Regional Banks are trading at around a 1.4 times tangible book value. After the IPO the firm will trade on the New York Stock Exchange under the symbol “CFG.”
More on Citizens Financial
Citizens Financial was established in 1828 in Providence, RI , and was acquired by Royal Bank of Scotland Group plc (ADR) (NYSE:RBS) (LON:RBS) in 1988. Citizens expanded dramatically over the next 20 years with a couple of dozen acquisitions, including the The Bank of New York Mellon Corporation (NYSE:BK) and Charter One. The firm has scaled back some since the financial crisis, including recently selling its Chicago franchise.
Citizens Financia remains headquartered in Providence, and operates around 1,230 branches in 11 states in the Northeast and Midwest. The SA analysts estimate the firm has $130B in assets, making it the 13th largest bank in the U.S. The current operational mix is 44%/56% commercial/consumer, but management has stated they are working toward 50%/50% going forward.
Targeting improved financial performance
Citizens Financial Management has presented specific plans to boost the ROTCE (Return on Average Tangible Common Shareholders’ Equity) from the current 6% to a run-rate of greater than 10% by year-end 2016. Details of CFG management’s plan include focused investments in a number of underpenetrating areas (such as mortgage, wealth management, treasury solutions and capital markets), continuing efforts to control costs, improving capital levels, making more loans and positioning the firm to benefit from higher interest rates.
Of note, Citizens Financia will still be lagging peers even with a 10% ROTCE, as McEvoy et al project the U.S. Super Regional Bank sector will generate a ROTCE of 12% in fiscal year 2016.
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