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Citizens Financial is latest lender to tap the bond market a day after earnings

By Ciara Linnane

Regional bank's most active bond is currently yielding 6.64%

Citizens Financial Group is tapping the investment-grade bond market on Thursday with an offering of fixed- and floating-rate senior notes, a day after it reported its first-quarter earnings.

The Providence, Rhode Island-based bank is joining Morgan Stanley (MS), JPMorgan Chase & Co. (JPM) and Wells Fargo & Co. (WFC) in issuing debt a day after earnings.

The regional bank's (CFG) profit was down 38% at $304 million, or 65 cents a share, below the 71-cent FactSet consensus. But revenue of $1.956 billion more or less matched the consensus. Net interest income fell 12% amid higher interest rates and the stock moved higher on the day.

Citizen's most active bonds, the 2.638% notes that mature in September of 2032, are currently yielding a hefty 6.64%, as the following chart from data solutions provider BondCliQ Media Services shows. The 2.5% notes that mature in February of 2030 are yielding 6.14%.

Initial price talk on Thursday's deal is for 225 basis points above comparable Treasurys, which would produce a roughly 6.85% coupon, according to a market source. But that would likely be compressed with demand.

Spreads on the bank's bonds-or the extra compensation investors earn on bonds above a risk-free benchmark-have tightened in the year to date, although they saw some widening in April.

Citizens has more than $7 billion in bonds outstanding, according to FactSet. The bulk is scheduled to come due in 2025, so Thursday's deal may be part of that refinancing.

The bank is currently in the midst of a program that aims to bolster its balance sheet and boost earnings power. Plans include exiting $11.1 billion in non-core loans, reducing the bank's reliance on high-cost funding and reinvesting the proceeds into higher return businesses, including the recent launch of a private bank, as D.A. Davidson analysts noted.

The bank is off to a good start, analyst Peter J. Winter wrote in a note the clients. D.A. Davidson has a buy rating on the stock and a $41 price target that's 24% above the current price.

The stock was flat Thursday, but has gained 8% in the last 12 months, while the S&P 500 SPX has gained 21%.

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-Ciara Linnane

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04-18-24 1059ET

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