The Royal Bank of Scotland Group plc RBS has declared an underwritten public offering for the shares of Citizens Financial Group, Inc. CFG, as a step to divest further stake in the U.S bank. The latest announcement follows Citizens’ much-hyped initial public offering in Sep 2014.
Reportedly, Royal Bank of Scotland looks forward to selling nearly 115 million shares (valued at $3.3 billion) of Citizens, which will reduce its stake from 70.3% to 49.3%. Moreover, the over-allotment option granted to the underwriters for purchase of an additional 17.25 million shares will further bring down the company’s stake to 46.1%.
Notably, Royal Bank of Scotland has appointed The Goldman Sachs Group, Inc. GS, Morgan Stanley MS, JPMorgan Chase & Co. JPM and Citigroup Inc. C as the joint book-runners of the offering.
Reportedly, Royal Bank of Scotland is expected to come out with yet another offering later this year.
Benefits of the Offering
Royal Bank of Scotland intends to strengthen its capital position with the current offering. Moreover, the company is slated to benefit from the 15% appreciation in Citizens’ share price since its IPO last September.
Citizens’ shares closed at $24.76 on Monday, versus its IPO sale price of $21.50 per share. This should help the company shift its focus to more profitable markets in the U.K.
Background
Acquired in 1988, Providence, RI-based Citizens is part of the company’s American banking franchise, and has grown over the years through 25 meaningful acquisitions. However, following a bailout by the U.K. government in 2008, Royal Bank of Scotland has been consistently facing regulatory pressure to raise capital and divest certain operations.
As a result, Royal Bank of Scotland initiated a partial IPO in 2014 which reduced its stake in Citizens by 25%. Subsequently, it unveiled plans to gradually exit this subsidiary in 2016 – the deadline set by the European Union as per bailout terms. The above-mentioned offering is a step in the same direction.
In its latest SEC filing, Royal Bank of Scotland has effectively reclassified Citizens into the disposal group, as a result of which the company reported a loss of £3.5 billion ($5.8 billion) in 2014, led by a £4 billion ($6.6 billion) write down in Citizens’ fair value.
Conclusion
The government-backed banking giant is striving toward growth with several restructuring initiatives that include cost-reduction measures, increased focus on markets where it has strong presence as well as long-term prospects, and improvement in its capital ratios.
As of Dec 31, 2014, Royal Bank of Scotland reported Common Equity Tier 1(“CET”) ratio of 11.1%, compared with 8.6% as of Dec 31, 2013, and is targeting a fully loaded Basel III CET1 ratio of 13% by 2015-end.
Also, the company’s risk-weighted assets came in at £356 billion ($553 billion), down from £429 billion ($707 billion) as of Dec 31, 2013, which it plans to bring down below $400 billion.
Currently, Royal Bank of Scotland carries a Zacks Rank #3 (Hold).
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