U.S. Financial Companies Raise Most Money in IPOs Since Crisis

Financial firms raised the most money this year in U.S. initial public offerings since 2008, as investors shook off doubts from the credit crisis and bet that a new breed of lenders is poised to wrest business from big banks.

Citizens Financial Group Inc. and LendingClub Corp. are among banks and consumer-finance companies that have raised a combined $16.8 billion, fueling the best year for all IPOs since 2000. Four of the five largest U.S. debuts involved financial-services firms, with the industry accounting for about 19 percent of capital amassed in all sales.

Financial IPOs are making a comeback as a strengthening U.S. economy has boosted equity markets and prospects for consumer lending. While deals involving large banks are slowing, smaller firms that use technology to make borrowing cheaper and easier are poised to stoke a new round of offerings next year, according to bankers, investors and analysts.

“For some of the biggest deals, the IPO was about putting the financial crisis in the rearview mirror,” said Jeff Davis, managing director for the financial-institutions group at Mercer Capital in Nashville, Tennessee. “If the stock market stays robust and consumer credit remains in good shape, next year will be another great year for financial-service IPOs.”

Results Lagging

Forty-two financial firms, including banks, asset managers and specialty consumer-insurance companies, had initial offerings through Dec. 19, the most since 2005, according to data compiled by Bloomberg. While 2014’s biggest IPO was Chinese e-commerce giant Alibaba Group Holding Ltd.’s record $25 billion sale, rounding out the top five were Citizens Financial, Synchrony Financial, Ally Financial Inc. and Santander Consumer USA Holdings Inc.

Even as banks helped drive a record year for initial offerings, they’ve underperformed all IPOs. Financial-services firms that went public this year gained 8.4 percent on average through Dec. 19, compared with a 16 percent increase for all U.S. debuts, according to data compiled by Bloomberg.

Among the worst performers is Santander Consumer, the U.S. auto-lending unit of Banco Santander SA, Spain’s largest bank. The shares have declined declined 17 percent since its January IPO as regulators increase scrutiny of subprime car loans. Investment bank Moelis & Co. has turned in one of the best performances, gaining 37 percent since its April debut amid a surge in U.S. mergers and acquisitions.

Regulatory Demands

Some of the biggest initial offerings were fueled by larger banks looking to divest businesses and meet regulatory demands. Royal Bank of Scotland Group Plc spun off Citizens, its U.S. subsidiary, amid pressure from the British government to boost profitability and return some of the 45.5 billion pounds ($71 billion) it received in a bailout five years ago. RBS raised $3.46 billion, including an overallotment, in the biggest bank IPO since Goldman Sachs Group Inc. in 1999. Providence, Rhode Island-based Citizens has gained 16 percent since its September debut.

Ally Financial, the bank bailed out by taxpayers in 2008, raised $2.56 billion for the U.S. Treasury in an IPO that was more than three years in the making. The Detroit-based auto lender, which has declined 10 percent since its April offering, had put plans to go public on hold as it worked to clean up its mortgage unit.

Many banks “had been looking to do something for a long time, and more happened to come together in the same year,” said Andy Sanford, head of equity capital markets for Wells Fargo & Co.

Surging Markets

Companies looking to go public took advantage of surging U.S. equity markets and signs the country’s economic recovery is gaining steam. The Standard & Poor’s 500 Index and Dow Jones Industrial Average both climbed to record levels this month.

Investor demand for financial-services offerings should continue next year as the Fed gets closer to raising interest rates, said Andrew Hamlin, who helps manage more than $6.3 billion at Calgary-based Aston Hill Financial Inc.

“This is a good time to take credit risk,” said Hamlin, who bought shares in Synchrony Financial when the consumer lender was spun off from General Electric Co. in July. “You really can’t have growth in the economy without banks working. Financial services companies give you great exposure to a growing economy.”

LendingClub IPO

LendingClub, a peer-to-peer firm that matches borrowers needing loans with investors wanting to fund them, raised a larger-than-expected $1 billion from its IPO this month. The San Francisco-based company’s market value is $9.33 billion.

Online small-business lender On Deck Capital Inc. raised $200 million in a Dec. 16 initial offering. CAN Capital Inc. has been interviewing banks for its debut, while Prosper Marketplace Inc., a LendingClub competitor that’s struggled to stay in business amid investor lawsuits and regulatory burdens, was valued at $650 million in a May financing round, people familiar with the matter have said.

“There’s an emerging crop of companies in financial tech,” said Douglas Adams, co-head of equity capital markets for the Americas at Citigroup Inc. “Accessing the capital markets allows them to grow.”

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