Citizens Financial Group Inc., the U.S. subsidiary of Royal Bank of Scotland Group Plc, raised $3 billion in its initial public offering, pricing the shares below the marketed range.

RBS sold 140 million shares for $21.50 apiece after offering them for $23 to $25 each, according to a statement yesterday. Citizens, which has 1,230 branches in 11 states, didn't receive any of the proceeds from the IPO. The stock, listed on the New York Stock Exchange under the symbol CFG, will start trading today.

The IPO allows RBS to shed assets and boost capital as it adjusts to stiffer rules after receiving the biggest bank bailout in history during the financial crisis. Citizens, run by Chief Executive Officer Bruce Van Saun, has lagged U.S. regional bank peers and is seeking to double its return on equity in the next two to three years.

"This bank is behind the curve in terms of improving profitability," Terry McEvoy, an analyst at Sterne Agee & Leach Inc., said before the IPO priced. "You would expect the stock to be priced and valued appropriately."

The Providence, Rhode Island-based company valued itself at a discount to other U.S. regional banks. At the IPO price, Citizens has a market value of $12 billion and is valued at 0.9 times net tangible book value. That compares with an average of 1.91 times book value for U.S. banks with a market value of more than $1 billion, data compiled by Bloomberg show.

RBS (RBS) will still own a 75 percent stake in Citizens after the offering, according to the prospectus. The IPO is the second-largest U.S. IPO this year after Alibaba Group Holding Ltd.

Shares of Edinburgh-based RBS slid 1.2 percent to 353.7 pence at 9 a.m. in London trading, a third consecutive decline. The stock is little changed this year.

"The reduced sale proceeds may take some of the froth out of the RBS 'bull' case," Ian Gordon, a London-based analyst at Investec Plc who has a hold rating on the shares, said in an e-mailed note. "Perhaps the bigger picture is that an anticipated capital uplift of 2 to 2.5 percent should still follow. Capital repair should no longer be seen as a material challenge."

Gordon estimated RBS is losing about $300 million on the Citizens disposal, which will be recognized when the British bank reduces its stake below 50 percent over the next two years.

RBS CEO Ross McEwan, who created a "bad bank" last year to house the riskiest assets, is focusing on the company's U.K. consumer and business unit, as well as seeking to boost capital levels to comply with new regulations. The British government still owns 80 percent of the lender.

Citizens' ROE was 5 percent last year, compared with 10.7 percent at PNC Financial Services Group Inc. and 13.4 percent at Fifth Third Bancorp, according to data compiled by Bloomberg.

Citizens plans to cut costs, boost revenue, reduce capital ratios to levels consistent with peers and benefit from a potential increase in interest rates, according to a Sept. 8 regulatory filing. As it expands its commercial banking business, Citizens plans to add jobs and new specialties in industries including health care and technology. The firm, which was acquired by RBS in 1988 and traces its history to 1828, has $130.3 billion in assets.

Net revenue at Citizens rose to $1.47 billion in the second quarter from $1.17 billion in the prior three months. The bank's efficiency ratio, a gauge of management's ability to control costs, improved to 64.4 percent from 69.5 percent during that time, according to data compiled by Bloomberg.

Citizens is becoming a public company as record-low interest rates pressure bank profits. While higher rates can help boost profits by allowing banks to make more money on loans, it can also hurt earnings if borrowing costs rise before the loan yields increase.

Morgan Stanley, Goldman Sachs Group Inc. and JPMorgan Chase & Co. managed the offering.


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