CFG - Citizens Financial Group

[Guest notorious546]

Citizen's Financial Group

Ticker: NYSE: CFG

Price: ~$23

 

From the company’s S1.

We are the 13th largest retail bank holding company in the United States according to SNL Financial, with $122.2 billion of total assets as of December 31, 2013. Headquartered in Providence, Rhode Island, we deliver a comprehensive range of retail and commercial banking products and services to approximately five million individuals, institutions and companies. Our approximately 18,600 employees strive to meet the financial needs of customers and prospects through approximately 1,370 branches operated in a 12-state footprint across the New England, Mid-Atlantic and Midwest regions and through our online, telephone and mobile banking platforms. We have over 80 retail and commercial non-branch offices located both in our geographic footprint and in five states and the District of Columbia outside our branch footprint. Our 12-state branch banking footprint contains approximately 34.6 million households and 3.6 million businesses according to SNL Financial.

http://www.sec.gov/Archives/edgar/data/759944/000119312514195201/d723158ds1.htm#rom723158_13

 

Greenlight Capital recently initiated a position in CFG in the fourth quarter.

Citizens Financial Group (CFG) went public at the end of the third quarter. The Royal Bank of Scotland (RBS) sold 25% of its stake in the IPO and has plans to divest its remaining stake by the end of 2016. While CFG is overcapitalized and currently generates a low ROE relative to peers, it plans to improve its ROE over the next two years  through a combination of loan and fee income growth, cost reductions, capital return and a partial normalization of interest rates. We purchased CFG at $22.01, a discount to tangible book value and a significant valuation discount to its banking peers. Over time, we believe the eventual exit of RBS and improvement in CFG’s ROE will drive improvement in the stock’s valuation. CFG management received stock incentives at the time of the IPO, aligning their interests with shareholders. CFG shares ended the quarter at $24.86.

http://www.valuewalk.com/2015/01/greenlight-capital-q4-2014-letter/ Additional holders can be viewed at http://www.dataroma.com/m/stock.php?sym=cfg

 

Value and Opportunity did a good post on comparing P/B, P/TBV and ROE.  Basically, the company’s shares trade at a discount on book value and tangible book value because ROE has not been very good. The company’s valuation could improve as it improves its cost structure/product mix and reduces its overcapitalization. http://valueandopportunity.com/2014/10/22/special-situation-citizens-financial-group-cfg-another-interesting-forced-ipo/#comments

 

After listening in on the company’s recent webcast below are some notes. Average return on common equity is 6.8% now up from same quarter last year of 5.2% and they are targeting 10% by year end 2016. The company is also targeting an efficiency ratio of 60% by year end 2016, which was roughly 70% in 2014 and anticipates mid 60%’s for 2015. The company plans to continue to reduce its tier one common equity from 12.4% today to ~11% in 2016.

 

Alternatively, there was a post on fool.com highlighting three reasons why the shares could not be a good investment.  1) RBS still own’s 75% of the bank which should continue as an overhang if they sell their shares. 2)Company’s return on assets has been weak compared to many other banks. 3) Company’s efficiency ratio is still above its peers. http://www.fool.com/investing/general/2014/10/01/3-reasons-citizens-financial-group-could-fall.aspx

 

What do you guys think? I’m still in early stages of learning about banks so I could be out to lunch here… Thanks in advance.

 

CFG-Transcript-2015-01-26T13_301.pdf

[oddballstocks]

I like CFG, they're a decent bank on the right path.  To me this is more of a spin-off situation, management knows the levers they need to pull to get to a 10% ROE, and they appear to be on the right path.

 

I own this and plan to keep holding until it trades in line with peers, maybe 1.3x BV or so.

 

They had been constrained in what they could do while RBS owned them.  I don't have the link, but the CEO gave an interview outlining the steps he plans to take to get to 10% ROE.

[clayroad]

Are there any plausible explanations for poor management under RBS ownership? Optimistic plans to improve are not exactly uncommon, and the first question which comes to mind is "why now instead of years ago?"

 

[Guest notorious546]

I'd think given the weak financial postion of the parent at the time there was poor capital allocation + limited resources spent on managing this entity + not sure on how incentived mgmt was during that period.

[oddballstocks]

I believe the management issues under RBS were due to the fact that RBS was owned by the UK government, and after the financial crisis the UK wasn't exactly in a risk taking mode.

 

It isn't management per se, but that the controlling entity wouldn't let management do what they wanted.

[no_thanks]

New Presentation.

 

http://www.sec.gov/Archives/edgar/data/759944/000119312515041144/d869349dex991.htm

[no_thanks]

10-K is out

 

http://www.sec.gov/Archives/edgar/data/759944/000075994415000016/citizens2014-10k.htm

[no_thanks]

Relevant Bullet Points

 

Our strategic initiatives are focused on the fundamentals of growing customers, relationships, loans, deposits, total revenue and overall profitability. While the above priorities are designed to enhance performance over the long-term, successful execution to date has resulted in improved financial performance in 2014, as highlighted below:

 

•

Net income for 2014 of $865 million increased from a loss of $3.4 billion in 2013, which included an after-tax goodwill impairment charge of $4.1 billion. Adjusted net income (excluding a net $180 million after-tax gain related to the Chicago Divestiture and $105 million after-tax restructuring charges and special noninterest expense items) of $790 million in 2014 increased 18% compared to $671 million in 2013 (excluding the goodwill impairment charge);

 

•

Net interest margin of 2.83% in 2014 remained relatively stable, down two basis points compared to 2013 despite the continued effect of the relatively stable low interest rate environment;

 

•

Credit quality continued to improve with net charge-offs declining to 0.36% of average loans in 2014 compared to 0.59% of average loans in 2013; and

 

•

ROTCE improved to 6.71%, from (25.91%) in 2013. Adjusted ROTCE (excluding the impact of the goodwill impairment, restructuring charges and special items previously mentioned) of 6.13% in 2014 improved 105 basis points from 5.08% in 2013.

[oddballstocks]

I attached a full excel export for Citizens from CompleteBankData, all data on them for the last decade.

 

Nice year, things appear to be on track.  Just waiting patiently on this one.

CompleteBankData-CFG-Citizens-Full-Download.xlsx

[vinod1]

Took a quick look only but not able to see the attraction.

 

1. Revenue (Net Interest Income about $3.3 billion and Non Interest income about $1.6 billion) of about $5 billion from the last few years and relatively stable.

 

2. Assuming management target of 60% efficiency ratio is reached as compared to last several years average of 68%, PTPP income is about $2 billion.

 

3. Credit losses of about $0.4 billion based on management guidance of roughly 0.35 to 0.45% loss rate.

 

4. Pre-tax income of about $1.6 billion or net income of about $1.1 billion or $2 EPS.

 

Put a 12 multiple and it is trading right around that number.

 

From the S-1 filing, management target of 10% ROTCE seems to be reliant on interest rate normalization which is expected to contribute about 1.3% to 1.6% to the ROTCE target. Absent this I do not think they would be able to meet the 10% target.

 

They are a bit over capitalized so I think the downside is pretty well protected. But I am not seeing a value significantly higher than the current price.

 

Am I missing something?

 

Vinod

 

 

 

[Guest notorious546]

vinod, i think you have some great points. i think the multiple on the shares could go higher as the overhang from RBS shares is fully removed. I believe growth could also be a bit better than we are anticipating. cost cutting measures look like they could be achieved earlier than anticipated.

 

the company reported q1/15 results this morning.

Citizens Financial Group, Inc. (NYSE:CFG or “Citizens") today reported first quarter net income of $209 million, or $0.38 per diluted common share, which were up 26% and 27%, respectively, from $166 million, or $0.30 per diluted common share in first quarter 2014. First quarter 2015 results were up 6% from fourth quarter 2014 net income of $197 million, or $0.36 per diluted common share. First quarter 2015 results were reduced by $0.01 per diluted common share related to net restructuring charges and special items, versus $0.03 in fourth quarter 2014 as detailed in the Discussion of Results portion of this release. First quarter 2015 Adjusted diluted EPS* of $0.39 compares with $0.30 in the first quarter 2014 and $0.39 in the fourth quarter 2014.

 

Bruce Van Saun, Chairman and Chief Executive Officer commented, “We are off to a solid start to 2015. We are executing well on our strategy, and our financial performance continues to meet expectations. During the quarter we were very pleased to announce two key leadership additions to the team - Eric Aboaf as Chief Financial Officer, and Don McCree as Vice Chairman and Head of Commercial Banking. We also had a successful CCAR result and supported the successful secondary offering of our common stock which, combined with our April share repurchase, reduced the Royal Bank of Scotland Group’s ownership level to 41%.” Van Saun added, “We continue to set ambitious goals for ourselves, and remain focused on execution and improving how the bank is operating.”

 

Return on Average Tangible Common Equity* (“ROTCE”) was 6.5% in first quarter 2015 compared to 6.1% in fourth quarter 2014 and 5.2% in first quarter 2014. Adjusted ROTCE* for first quarter 2015 was 6.7% compared to 6.8% for fourth quarter 2014 and 5.2% in first quarter 2014.

 

http://www.businesswire.com/news/home/20150422005417/en#.VTeuUSG6fmE

[Guest notorious546]

einhorn added to his position in Q1. up ~25%, about a 4% of his long portfolio.

 

http://www.dataroma.com/m/stock.php?sym=cfg

[Guest notorious546]

i've attached an write up on CFG by Brook1001 from valueinvestorsclub.

 

best,

2015-04-02_Value_Investors_Club___CITIZENS_FINANCIAL_GROUP_INC_CFG.pdf

[Guest notorious546]

company reported results from dodd-frank mid-cycle stress test. i haven't read through many of these but nothing really stood out to me.

 

looks like the company's capital levels are well ahead of what is required and the recapitalization efforts marginally bring down total capital but is still the biggest driver of an decrease in the negative scenarios.

 

anyone else? thoughts?

cfg-dfast-2015-mid-cycle-public-disclosure-20150706.pdf

[Guest notorious546]

CFG Q2/15 Update

 

CFG reported Q2/15 results this morning which included adjusted EPS of $0.40 compared to consensus of $0.37. The company also filed two S1’s this morning one is for the continued sell down of RBS’s stake in the company and one for the issuance of subordinated debt which will be used to repurchase these shares. The company’s restructuring charges came in at the lower end of the company’s expectations of 40-50 million.  The company repurchased ~10 million shares in the quarter. The company’s efficiency ratio has improved relatively to last year and Q1/15.  Earning assets grew by ~6% for the quarter. Company is still overcapitalized compared to its regional peers with at tier 1 ratio of 11.8% and total capital ratio of 15.3%.

 

The company is still in progress with a number of growth and efficiency initiatives, in aggregate management estimates an 90-115 million pre-tax improvement to net income. Net interest margins have shrank in the quarter and are expected to remain a headwind for the company’s earnings.

 

On 2016e consensus numbers the shares trade at an P/E of ~13.0x, Price to Tangible book of ~1.1x as of this quarter.

 

 

 

[Guest notorious546]

Citizens Financial Group, Inc. (NYSE: CFG) today announced that The Royal Bank of Scotland Group plc (“RBS”), through a subsidiary, has launched an underwritten public offering to sell Citizens Financial Group, Inc. common stock (the “Offering”). CFG will not be issuing or selling common stock, and will not receive any proceeds from the Offering.

 

RBS plans to sell 75 million CFG shares in the Offering. In addition, RBS will grant the underwriters an overallotment option to purchase up to an additional 11.25 million CFG shares.

 

Completion of the Offering, assuming no exercise of the overallotment option, is expected to reduce RBS’s ownership stake in CFG common stock from 219 million shares, or 40.8%, to 144 million shares, or 26.8% of CFG’s issued and outstanding common stock. If the overallotment option is exercised in full, RBS’s remaining stake would be 132.7 million shares, or 24.7% of CFG’s issued and outstanding common stock.

 

Additionally, CFG announced that it has agreed to purchase approximately $250 million of its common stock at the Offering price from RBS in early August.

 

View source version on businesswire.com: http://www.businesswire.com/news/home/20150728005891/en/