Tepid start for RBS’s Citizens Financial on market debut

Shares of Citizens Financial Group, the US unit of Royal Bank of Scotland, rose as much as 3.5 per cent in their market debut, valuing the lender at about $12.5bn (£7.62bn) in the biggest US bank IPO since the financial crisis.

The offering, which raised $3.01bn for RBS, is also the second biggest in the United States this year after Alibaba Group Holdings’ $25bn IPO last week. Citizens’ shares were up 2.6 per cent at $22.04 after about 30 minutes of trading, underscoring tepid appetite for offerings by financial firms in an otherwise hot US IPO market.

Alibaba’s stock popped 38 per cent in its first day.

RBS, which is 80 per cent owned by the UK government, had originally planned to sell the shares at between $23 and $25, but ended up selling them for $21.50 each.

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The bank was forced to cut the price of its initial public offering due to investor uncertainty over its ability to meet profitability targets, analysts said.

RBS, whose stake in the 186-year-old Rhode Island-based bank will drop to 75 per cent after the IPO, has said it intends to sell all of its stake in Citizens by 2016. “The planned divestment will significantly improve RBS’s capital foundation and is a further important step in making RBS a strong and secure bank...,” chief executive Ross McEwan said.

Analysts have said the RBS’s core capital adequacy ratio should be boosted by 2-3 percentage points once it sells at least half of Citizens, probably in the first half of 2015. The sale price valued Citizens at 0.9 times its net tangible book value of $13.1bn at the end of June.

Citizens, which was bought by RBS in 1988, provides retail and commercial banking services to about five million customers and ranks as the 13th biggest retail bank in the United States, with about $130bn in assets.

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