The post-crisis era is likely to witness the largest initial public offering (IPO) as The Royal Bank of Scotland Group plc ( RBS ) announced the floatation of its U.S. retail banking subsidiary - Citizens Financial Group Inc. Royal Bank of Scotland aims to raise around $4 billion through this IPO.
Based in Providence, RI, Citizens, with its strong presence in the market for 186 years, has evolved through meaningful acquisitions and organic growth. In 1988, Royal Bank of Scotland acquired Citizens, which later expanded via 25 acquisitions. Citizens currently being of the biggest regional banks in the U.S., has assets worth $122.2 billion, 18,600 employees and 1,370 branches across New England, mid-Atlantic and Midwest regions.
The latest move puts an end to the speculation that Royal Bank of Scotland could make an outright sale of this U.S. unit to Japanese, Canadian or U.S. banks that are believed to have shown interest in the past.
Royal Bank of Scotland proposes to sell a 25% stake by offloading $140 million shares of Citizens common stock at a price range of $23-25 per share. It has also an option of 30-day over-allotment, which will allow the company to sell an additional 21 million shares. Application has been made to list shares of Citizens on the New York Stock Exchange (NYSE) under the symbol 'CFG.'
What the Citizens IPO Means for RBS
The latest revelation should not come as a surprise as the Royal Bank of Scotland, which was bailed out with £45 billion by the British government in 2008, revealed in Feb 2013 that it intends to initiate the IPO of RBS Citizens Financial Group in mid-2014. It will gradually exit this subsidiary by 2016 - the deadline set by the European Union as per bailout terms.
Royal Bank of Scotland CEO Ross McEwan termed the launch of the IPO as "an important milestone for both RBS and Citizens." He said, "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."
The government backed banking giant is striving for growth with several restructuring initiatives that include cost reduction measures, increased focus on markets where it has a strong presence and long-term growth prospects, and improvement in its capital ratios.
At a time when Royal Bank of Scotland is burdened with numerous litigations and operational inefficiencies, we remain optimistic about the IPO, as it will not only enhance the company's capital levels but shift its focus to more profitable markets and pave the way for sustainability and growth in the long run.
Royal Bank of Scotland currently carries a Zacks Rank #3 (Hold).
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