Buy Citizens Financial shares. Its shares could gain 29%.


Bigger is better in banking, and

Citizens Financial Group

has taken steps that should allow him to play with the bigger boys. His stock looks like a winner.

These days, it’s almost impossible for a bank to succeed without the scale to provide more than loans and accounts to its customers. They must offer digital banking services so that customers can manage their finances from home and offer services that go beyond basic services to include wealth management and investment banking. For banks, these changes also have benefits, including the ability to reduce costly physical branches in favor of an app, while building strong earning businesses to offset weaknesses when interest income is reduced. However, this is only possible when a bank is big – the bigger the better, because

JPMorgan Chase

(symbol: JPM),

Bank of America

(BAC), and others have demonstrated it.

This has not gone unnoticed by Citizens Financial (CFG). The Providence, RI-based bank dates back to 1871 but only re-entered the public markets eight years ago after the Royal Bank of Scotland, which acquired it in 1988, was forced to divest its holdings foreigners after the financial crisis. Since then, Citizens has grown beyond its beginnings as a niche regional bank to become an institution that can sometimes rival the big banks on transactions.

To achieve its goals, Citizens recently embarked on a wave of acquisitions. It completed its acquisition of

HSBC Holdings

’ (HSBC) East Coast retail operations in February and its $3.5 billion takeover of New Jersey-based Investors Bancorp in April. Citizens also acquired JMP Group, an investment banking and asset management firm, in 2021, proving that its series of purchases was not just about expanding the lender’s geographic footprint, but also diversifying its offerings. Services.

The change has been huge. As recently as last year, the bank had no presence in the New York and New Jersey metro areas, making it difficult to serve the East Coast. Now, its green signs are commonplace in the Big Apple. Following the acquisition of HSBC, Citizens has a geographic footprint spanning 14 states in the Northeast, Midwest, Mid-Atlantic and Florida, as well as its borderless digital offerings. “Completing the contiguous Northeast footprint was really important to us,” says Bruce Van Saun, CEO of Citizens.

The occupations of citizens have also diversified. Prior to the IPO, the commercial side of the bank focused on debt syndication and interest rate products, forcing existing customers to go elsewhere for other funding needs. But over the past eight years, through organic growth and acquisitions, Citizens has added equity and fixed income underwriting, M&A advisory services and other capabilities to its toolbox. , enabling it to do more for its customers. JMP’s acquisition by Citizens only furthers its growth in capital markets and advisory services, particularly in the healthcare, technology, finance and real estate sectors.

Still, getting bigger can be a tricky proposition, one that even CEO Van Saun acknowledges will take a lot of attention for citizens’ bets to bear fruit. Worries are apparent in Citizens shares, which have fallen 18% this year including reinvested dividends, worse than the


16% drop in exchange-traded index funds (KBE). But Citizens’ first quarter results, released on April 19, helped alleviate some of those worries.

The bank reported earnings of $1.07, beating estimates of 91 cents a share, on revenue of $1.645 billion, just ahead of a forecast of $1.64 billion. While Van Saun says Citizens could make more acquisitions, particularly in wealth management, he plans to spend the rest of this year integrating his most recent purchases. Citizens also said he would aim for a return on tangible equity – a measure of profitability – in the range of 14% to 16% this year, down slightly from 16% in 2021.

“CFG is now embarking on the next leg of its journey,” RBC Capital Markets analyst Gerard Cassidy, who has an outperforming rating on the stock, wrote after the earnings release. “As it realizes the integration of its transactions, the valuation of the shares of a group of peers would be justified.”

Cassidy is right. Citizens is trading at 1.3 tangible book value, in line with its five-year average but below peers like

Fifth Third Bancorp

(FITB), and

Huntington Bancactions

(HBAN), which are trading at 1.6x. With a tangible book value of $32.91 expected in 2022, this would imply a target of $49 based on a tangible book value of 1.5 times, up about 29% from a recent price of $38.

Other valuation metrics also suggest more upside for Citizens stocks. It is currently trading at 8.3 times the 12-month forward estimate of $4.47, below its own five-year average of 11 times while still lagging behind Fifth Third, which is trading at 9.3. times, and Huntington, which is trading at 8.9 times. If Citizens were trading at a multiple between its two competitors, it would be worth $41, up 8% from recent levels. At its own five-year average, it would trade at $49, up 29%.

Citizens are not entirely in control of their own future, of course. Obstacle to further gains: the Federal Reserve’s monetary policy, which has raised concerns about a possible recession. Nonetheless, with yields rising, Citizens expects net interest income to be $300 million higher than last year based on yield curve position – the difference between short-term and long-term interest rates – at that time. The bank is also confident about its credit profile, noting that in recent years it has focused on lending to larger, better capitalized companies.

If the market begins to cooperate, Citizens’ stock price, and not just its business, should also rise.

Write to Carleton English at


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