Net Net: Promoting innovation and managing change
Net Net: Promoting innovation and managing change

More bank IPOs on the way? Don't hold your breath

Citizens CEO: IPO big milestone

The largest-ever initial public offering for a bank is unlikely to prompt a stampede for the sector.

It's not just that the Citizens Financial IPO received a mostly tepid market reception, but rather that other conditions are lining up against bank offerings as well, even in a year that quite likely will break records by the time it's all over.

Banking analyst Dick Bove said in a note that he has been receiving multiple inquiries implying "that this offering may represent what could be a sizable number of equity issuances by existing banks and the likelihood of more new issues from banks seeking to go public."

But "nothing could further from the truth," he added.

A Citizens Financial Group bank branch in Boston.
Kelvin Ma | Bloomberg | Getty Images

For one thing, U.S. banks already have plenty of equity. Bove points out that equity as a percentage of total assets for the industry is at a 75-year high.

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Also, the likelihood of new banks being created in the current regulatory environment seems slim.

"The point here is that U.S. banks do not need more equity. They need more assets," Bove said. "New banks are no longer created in the United States. ... They are not economically feasible."

Citizens Financial—the 23rd largest U.S. bank in deposits with $131 billion—also has paved a fairly rocky road for any future bank IPO.

Initially, Wall Street expectations were that Citizens would raise about $3.5 billion, not counting an overallotment of shares it can sell if it meets certain conditions. The final figure, though, was close to $3 billion. The share price was expected to be in the $23-$25 range, but it first traded at $21.50.

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It is worth noting that the market ultimately considered the opening price a bargain, giving Citizens a better than 6 percent gain in Wednesday afternoon trading, though that level still fell short of the low end of the expected range.

As it steps from the shadow of parent company RBS, Citizens expects to step up its presence in the auto lending space, which it grew 9.9 percent in the second quarter, according to SNL Financial.

"We have a very credible plan," Citizens CEO Bruce Van Saun told CNBC. "We have a great foundation. It's a really attractive franchise in a nice part of the country, with scale in our major markets."

Financials have lagged a bit in performance this year, with the sector on the returning 7.1 percent against the broader index's gain of nearly 8 percent. More specifically, the KBW Bank Index is up just 4.5 percent.

The IPO comes just days after the hotly anticipated e-marketplace Alibaba, which was the biggest IPO ever for any sector. Though those who got in at the initial offer price did well, the stock has cooled since the opening minutes of trading Friday.

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