Citizens Declines as Profitability Drops, RBS Sale Planned

Citizens Financial Group Inc. fell the most since last year’s initial public offering after the lender lowered profitability forecasts and Royal Bank of Scotland Group Plc announced it was reducing its stake in the company.

Citizens slid 4.4 percent to $26.72 at 4 p.m. in New York, the worst performance in the 24-company KBW Bank Index. The shares have gained 7.5 percent this year and 24 percent since the Providence, Rhode Island-based firm’s Sept. 23 IPO.

The bank said it no longer expects to achieve a 10 percent return on equity by the end of 2016, while RBS, which spun off Citizens in one of the biggest U.S. IPOs last year, announced in a regulatory filing it was working with bankers to sell an additional stake in the company this year. Both factors contributed to the stock’s decline, according to analysts including Sandler O’Neill & Partners’ R. Scott Siefers.

“How many shares, what the size of the offering will be, should they hold off on buying now because they can potentially buy at a discount when RBS sells that stock -- that’s a bit what investors are guessing,” Citizens Chief Executive Officer Bruce Van Saun said in a phone interview. RBS is “proceeding at a faster pace than expected.”

RBS Stake

RBS sold about 25 percent of its stake in Citizens in last year’s IPO, raising $3.46 billion, as the Edinburgh-based lender seeks to boost capital and pay back its bailout to the U.K. government. RBS currently owns about 41 percent of Citizens.

While the European Commission has given RBS until the end of 2016 to sell the rest of its stake in Citizens, it’s “entirely possible that they could exit this year,” Van Saun said, adding that Citizens has no control over the sale.

In reporting second-quarter results, Citizens said Tuesday that it plans to boost revenue and cut costs to help improve its return on equity, a key measure of profitability. ROE in the second quarter dropped to 5.9 percent from 9.6 percent a year earlier, the bank said. Adjusted for one-time items, the measure rose to 6.7 percent from 6.3 percent. The lender’s goal of reaching 10 percent by the end of next year will be “likely pushed out,” according to a presentation.

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