The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.
More U.S. consumers have probably used or heard of Citizens Financial Group than Chinese e-commerce wunderkind Alibaba.
Does Alibaba have its name splashed across a baseball stadium in Philadelphia? No. But Citizens does.
Still, name recognition did not translate into as hot of an initial public offering for the Providence-based bank.
Citizens (CFG) priced below its expected range on Tuesday, which is not ideal. The stock is trading higher on Wednesday, but only by about 7%.
But the Citizens IPO is an important one for several reasons.
It's the biggest U.S. bank IPO since Goldman Sachs (GS) debuted in 1999. Citizens' owner Royal Bank of Scotland (RBS) raised more than $3 billion by selling 140 million shares. (RBS still owns the rest.) The Vampire Squid raised $3.7 billion from its IPO. (Goldman is also one of the lead underwriters on the Citizens offering.)
The Citizens IPO is a big step for RBS, which dodged a big financial bullet last week when Scotland voted to remain in the United Kingdom. Uncertainty about the Scottish independence vote led to concerns that the bank would have to move south.
What's more, RBS is still not fully recovered from the 2008 credit crisis. The bank needed a bailout and its share price remains below where it was six years ago.
Shares of RBS rose 2% Wednesday, probably due to the fact that Citizens was enjoying a decent, if not spectacular, debut.
It may be hard for Citizens to truly wow Wall Street though.
While Citizens is a very large bank -- it has $130 billion in assets and is the 18th largest in the U.S. according to SNL Financial -- it is still tiny compared to the titans of the banking industry. JPMorgan Chase (JPM), Bank of America (BAC), Citigroup (C) and Wells Fargo (WFC) have more than a trillion in assets.
So far this year, banks of around Citizens' size have struggled to impress investors.
Shares of Fifth Third Bank (FITB), Regions Financial (RF) and KeyCorp (KEY) -- three other banks that are similar in size to Citizens -- have lagged the broader market and a top financial sector exchange-traded fund (which has the big banks as its largest holdings) in 2014.
Citizens isn't as financially flush as some of its peers either. SNL data shows that the return on average equity and net interest margins (two key metrics for banks) for Citizens is lower than Fifth Third, Regions and Key -- as well as other mid-sized banks like M&T Bank (MTB), SunTrust (STI) and BB&T (BBT).
Still, it's worth noting that Citizens could now be a takeover target following its partial split from RBS. There have been rumors for years that Toronto-Dominion (TD) may be interested in buying Citizens.
And even though the Citizens IPO failed to generate as much hype as Alibaba did, IPOs in general are making a comeback now that Alibaba has debuted. Citizens was one of six companies to start trading on Wednesday. The first-day returns for most of the other new offerings were also pretty tame.
But one IPO actually topped Alibaba's pop. Israeli-based cybersecurity company CyberArk Software (CYBR) finished the day up nearly 90% from its offering price.
It just goes to show that investors have an insatiable appetite for security stocks in an age of constant hacking and leaks of naked celebrity photos.
|NRA convention 2017: Who will be the new enemy for Trump and the NRA?|
|US GDP in first quarter shows slowest growth in 3 years|
|Can you actually become a millionaire on an average salary?|
|Trump: South Korea should pay for $1B missile defense system|
|Southwest Airlines will no longer overbook its flights|