Citizens Financial Group’s (CFG) recent IPO didn’t muster up much excitement with investors on its debut on Wednesday as the stock was up only 7.4% off of its IPO price. Thursday’s price action was less decisive as the stock price was essentially unchanged (-0.13%) and volume was only 15% of what it was on Wednesday. The IPO price of $21.50 was already lowered from the initial range of $23 to $25 a share. This should be a very disconcerting sign to investors as this IPO was the largest bank IPO in a decade; and investors’ reluctance to buy the stock could be a sign of a shift in investors risk appetite.
Citizens Financial Group was acquired back in 1988 for $440 million by RBS, and was recently forced by UK regulators to sell the U.S. unit in order to raise capital. Citizens offered roughly 25% of the company, or 140 million shares, in it’s debut. Thursday’s closing price of $23.08 implies a $12 billion valuation for the company, about 27 times the price that RBS paid for it back in 1988. RBS has said that they intend to exit Citizens Financial completely by the end of 2015, so the performance of the stock over the next year will be crucial for RBS.
With roughly $130 billion in assets, Citizens Financial Group is the 13th largest retail bank in the United States. Another reason that investors may have been reluctance to purchase Citizens Financial is due to the fact that its profits are heavily tied to interest rates. Investors may be avoiding Citizens Financial for the time being because they don’t see interest rates increasing in the near future. If you are bullish on interest rates, however, Citizens Financial would give you interest rate exposure and allow you to express a view on interest rates. It will be interesting to see Citizens Financial’s performance going forward and how closely its performance is tied to interest rates.