RBS pitches for $14bn Citizens Financial flotation

The RBS subsidiary paid $95m for naming rights on Citizens Bank Park, home of the Philadelphia Phillies baseball team. Picture: Getty

RBS, which revealed last year that it planned to start the initial public offering (IPO) of Citizens by the end of 2014, said that it is planning to sell 140 million shares in the lender, setting a price range of $23 and $25 a share.

At the top end of this range the flotation would raise $3.5bn (£2.2bn), making it the biggest offering by a US bank this year. RBS, which is majority owned by UK taxpayers, also said it had granted a 30-day over-allotment option of up to an additional 21 million shares.

RBS chief executive Ross McEwan said: “We announced our intention [of] an IPO of Citizens in February 2013 and today’s launch is an important milestone for both RBS and Citizens.”

He added: “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.”

McEwan’s predecessor, Stephen Hester, made the Citizens flotation announcement when RBS was seen as being under pressure from regulators to bolster its balance sheet and sell non-core assets.

There was widely believed to be additional pressure from Chancellor George Osborne for RBS to focus more on its core business of lending to British households and small businesses, as it also steadily pruned back its separate American investment banking arm.

Citizens, which provides retail and commercial banking services to about five million customers, is based mainly along the eastern seaboard and is aiming to list its shares on the New York Stock Exchange.

As at the end of June, the bank had $130.3 billion of assets and more than 1,200 branches in 11 states across the New England, mid-Atlantic and Midwest regions. The business was bought by RBS in the late 1980s, and built up through a mixture of organic growth and bolt-on acquisitions.

Former Citizens boss Larry Fish was renowned for his conservative approach to business, once commenting: “If you can’t drive to it, don’t lend to it.”

Ian Gordon, banking analyst with Investec, said today: “I think starting the IPO process will be cautiously welcomed. The pricing is in line with expectations for the initial tranche, at about 1.05 times book value.

“RBS aim to be fully out of Citizens by end-2016, and I think the company would hope and expect to be able to price the remaining tranches higher.

“Citizens is a low income business with a high cost/income ratio of more than 70 per cent. They are trying to improve operating efficiencies, and together with expected top-line [revenue] growth over the next two years financial returns should improve.”

Another analyst said: “Citizens has disappointed with the scale and pace of its progress over the past three or four years, with part of the reason or excuse, depending on your view, being the previously anaemic growth of the US economy.

“But RBS’s hand was forced on the divestment by a mixture of regulatory and political pressure. The IPO is a reasonable compromise.”

The lead underwriters to the flotation are Morgan Stanley, Goldman Sachs and JP Morgan.