IPO Report: Citizens Financial Group (CFG)

Citizens Financial Group (CFG) is the 13th largest retail bank holding company in the United States according to SNL Financial with $130.3 billion of total assets as of June 30, 2014. It is headquartered in Providence, RI.

Eight other companies are scheduled to IPO for the week of Sept. 22, 2014.  The full IPO calendar is available at IPOpremium. 

Manager, Co-Managers: Morgan Stanley, Goldman Sachs, J.P. Morgan, Barclays, Citi, Deutsche Bank, RBS, Wells Fargo

Joint Managers: Credit Suisse, UBS Investment Bank, Jefferies, Keefe, Bruyette & Woods, Oppenheimer, RBC Capital Markets, Sandler O’Neill + Partners, Evercore, ING, Sanford C. Bernstein, Guggenheim, Lebenthal Capital Markets, The Williams Capital Group

CFG scheduled a $3.4 billion IPO with a market capitalization of $13.4 billion at a price range midpoint of $24 for Wednesday, Sept. 24, 2014 on the NYSE.  SEC filings

Price range reduced to $21-22, may have to come lower.

CFG IPO Overview

CFG is the 13th largest retail bank holding company in the United States according to SNL Financial with $130.3 billion of total assets as of June 30, 2014.

Headquartered in Providence, Rhode Island, CFG delivers a broad range of retail and commercial banking products and services to more than five million individuals, institutions and companies.

Valuation

Glossary

Conclusion

Neutral minus, same price-to-book at Ally Financial
Higher P/E than…

Santander Consumer USA Holdings Inc (SC)

First Republic Bank (FRC)

Ally Financial Inc ($ALLY)

Synchrony Financial ($SYF)

All IPO proceeds to selling shareholders.

Business

CFG is the 13th largest retail bank holding company in the United States according to SNL Financial with $130.3 billion of total assets as of June 30, 2014.

Headquartered in Providence, Rhode Island, CFG delivers a broad range of retail and commercial banking products and services to more than five million individuals, institutions and companies.

CFG’s approximately 18,050 employees strive to meet the financial needs of customers and prospects through approximately 1,230 branches and approximately 3,215 ATMs operated in an 11-state footprint across the New England, Mid-Atlantic and Midwest regions and through CFG’s online, telephone and mobile banking platforms.

CFG has 90 retail and commercial non-branch offices located both in its geographic footprint and in nine states and the District of Columbia outside its branch footprint.

CFG’s 11-state branch banking footprint contains approximately 29.9 million households and 3.1 million businesses according to SNL Financial.

As of June 30, 2014, CFG had loans of $88.8 billion, deposits of $91.7 billion and stockholders’ equity of $19.6 billion, and CFG generated revenues of $5.0 billion for the twelve months ended June 30, 2014.

CFG operates its business through two operating segments: Consumer Banking and Commercial Banking. As of June 30, 2014, the contributions of Consumer Banking and Commercial Banking to the loans in CFG’s operating segments were approximately 56% and 44%, respectively.

Consumer Banking serves retail customers and small businesses with annual revenues of up to $25 million. Consumer Banking products and services include deposit products, mortgage and home equity lending, student loans, auto financing, credit cards, business loans and wealth management and investment services. Product strengths and significant growth developments in Consumer Banking include:

  •   Home equity lines of credit (HELOCs): With $16.2 billion in HELOC loans outstanding as of June 30, 2014, CFG ranked sixth nationally according to SNL Financial; 

  •   Auto financing: Through a network of over 6,500 automotive dealerships in 43 states, auto finance represented $11.0 billion of loans as of June 30, 2014, ranking 12th nationally among regulated depository institutions according to SNL Financial; 

  •   Mortgage lending: CFG has improved its mortgage origination capabilities from an unranked position as of December 31, 2009, to 27th among retail originators nationally as of June 30, 2014 according to Inside Mortgage Finance; and 

  •   Private student lending: CFG launched its education finance business in 2009 and have expanded to partner with over 1,200 higher education schools in all 50 states, which resulted in loan origination volume more than doubling to $253 million in 2013 from $112 million in 2010. Loan origination volume was $147 million during the first six months of 2014. 

Dividend Policy

CFG intends to pay quarterly cash dividends on its common stock at an initial amount of approximately $0.10 per share.

Any declaration of dividends will be at the discretion of CFG’s Board and will depend on its financial condition, earnings, cash needs, regulatory constraints, capital requirements (including requirements of its subsidiaries) and any other factors that its Board deems relevant in making such a determination. Therefore, there can be no assurance that CFG will pay any dividends to holders of its common stock, or as to the amount of any such dividends.

Intellectual Property

CFG owns and licenses a variety of trademarks, service marks, trade names, logos and pending registrations and are spending significant resources to develop its stand-alone brands.

In connection with this offering, CFG expects to enter into a trademark license agreement, pursuant to which CFG will be granted a limited license to use certain trademarks (including the daisywheel logo) from RBS for an initial term of 5 years and, at its option, up to 10 years, following the completion of the offering.

Competition

CFG’s branch footprint is in the New England, Mid-Atlantic and Midwest regions, though certain lines of business serve broader, national markets.

Within those markets CFG faces competition from community banks, super-regional and national financial institutions, credit unions, savings and loan associations, mortgage banking firms, consumer finance companies, securities brokerage firms, insurance companies and money market funds.

Competition among providers of financial products and services continues to increase, with consumers having the opportunity to select from a growing variety of traditional and nontraditional alternatives. The ability of non-banking financial institutions to provide services previously limited to commercial banks has intensified competition.

5% stockholders

RBSG International Holdings Limited      99.2%                              

Use of proceeds

The selling stockholders are selling all of the shares of common stock in this offering and CFG will not receive any proceeds from the sale of the common stock in the offering.