NEW YORK (TheStreet) -- Citizens Financial's (CFG) initial public offering last week hit at a lower-than-expected price range of $21.50 -- so don't look for many banks to rush to market to raise large cash amounts via IPO any time soon. The banking industry's regulation will need to be settled first and revenues will need to recover.
On the surface the offering seems modestly successful, with a closing stock price of $23.25 on Friday, or an 8.1% return over the first three days of trading. The IPO raised over $3 billion dollars for its parent company, the Royal Bank of Scotland (RBS) , which still owns 71.5% of Citizens, which is now valued at about $13 billion. But Citizens' share price has barely crossed over the lower end of the original pricing range of $23 to $25.
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Obviously the investment bank underwriters of this stock knew it was overpriced given the financial metrics of the bank. So the underwriters reduced the offering price by 6.5% from the lower end of the range. This was a far cry from the tech stock IPO of Alibaba (BABA) , which began trading Sept. 19 with an initial stock return of 38% on its first day of trading.
As the table above shows, had Citizens' stock been offered at its initial estimated stock price, returns would have been mostly negative -- with just a 1% return at the lower end offering price of $23. Additionally, the bank is an underperformer in profitability and net interest margin (spread between interest on loans and interest paid to depositors) compared to other banks.