The Scotland-based bank is selling a 25% stake in its Citizens Financial Group, a mid-tier U.S. bank that operates mostly in the Northeast. The offering is set to price Tuesday night and begin trading on Wednesday. If it prices at $25 a share, the high end of the IPO range, Citizens would raise $3.5 billion, valuing the company at $14 billion. Royal Bank will own the remaining 75%.
Must Read: 10 Stocks George Soros Is Buying
Twenty-one underwriters, led by Goldman Sachs and Morgan Stanley, are involved in the offering.
The $14 billion valuation translates to 18 times earnings for a 12-month period compared to 16 times trailing 12-month earnings for 20 comparable U.S. banks, according to Bloomberg data. KeyCorp (KEY) and Fifth Third Bancorp (FITB) , which compete with Citizens in some Midwestern markets and are roughly the same size and trade at 13.6 and 11.9 times earnings, respectively. Citizens is the 13th-largest U.S. bank, according to SNL Financial.
Still, a report from Spin-Off Research, a Chicago-based firm, recommends the shares with a $30 target price. It notes Citizens' plan to wring $200 million in costs out of business over the next two to three years.
The company also plans to reduce its reserves, which Spin-Off's analysts contend is high compared with peers, in order to improve returns. Like most lenders, Citizens will benefit from a rising interest rate environment, allowing it to capture a larger spread between its cost of capital and the interest it charges for loans.