The biggest U.S. bank listing since the financial crisis got a lukewarm reception from investors, forcing Royal Bank of Scotland RBS.L to cut the price of shares sold in Citizens Financial Group CFG.N.

Shares were sold at $21.50 apiece in the initial public offering in New York, lower than expected and valuing Citizens at $12 billion.

The offer raised about $3 billion for British state-backed RBS, making it the second biggest in the United States this year, after Alibaba BABA.N raised $21.8 billion last week.

RBS had originally planned to sell shares in its U.S. bank at between $23 and $25. It cut the price due to investor uncertainty whether the bank can meet its profitability targets and a more lacklustre appetite for financial stocks than other sectors, analysts said.

RBS shares fell 1.1 percent to 354 pence by 0940 GMT, underperforming a 0.4 percent dip by the European banking index .SX7P.

"The reduced sale proceeds may take some of the froth out of the RBS 'bull' case, but perhaps the bigger picture is that an anticipated capital uplift of 2-2.5 percent should still follow upon deconsolidation," said Ian Gordon, analyst at Investec.

RBS, which had 100 percent-owned Citizens, sold 140 million shares and could sell 21 million more in an over-allotment option, which would lift its proceeds to $3.5 billion and see it sell 29 percent of the U.S. business.

The bank, which is 80 percent-owned by the British government, is hiving off the 186-year-old Rhode Island-based business as it is under pressure from regulators and lawmakers to bolster its capital and focus on lending to UK households and businesses.

RBS intends to fully sell Citizens by the end of 2016. It was ordered to sell the business by European regulators as a cost of taking 45 billion pounds ($73.7 billion) of taxpayer rescue cash in 2008.

"Selling Citizens will significantly improve our capital position and help us to create a strong and secure bank," RBS Chief Executive Ross McEwan said.

PREMIUM

Analysts have said that once RBS sells at least half of Citizens, probably in the first half of 2015, its core capital adequacy ratio should be boosted by 2-3 percentage points, although the initial IPO is unlikely to have much impact.

The sale price values Citizens at 0.9 times its net tangible book value of $13.1 billion at the end of June. That represents a premium to RBS shares, which are trading at about 0.7 times book value, but below U.S. banks of a similar size, such as Fifth Third FITB.O and BB&T Corp. BBT.N, that on average trade at near 1.2 times book value, according to Reuters data.

Financial IPOs have fared poorly in the United States this year, with Santander Consumer USA SC.N down around 25 percent since it went public in January.

In Britain, new bank listings have fared better with shares in Onesavings OSBO.L and TSB TSB.L, two challenger banks seeking to take on the established lenders, up 17.5 and 7 percent respectively since they went public in June, outperforming the European benchmark of bank shares which is down around 2 percent in the same period.

More British banks are seeking listings, with Aldermore planning to float next month in a debut that could value it at up to 900 million pounds, while Virgin Money is also expected to float this year.

Citizens provides retail and commercial banking services to about 5 million customers in the United States and ranks as the country's 13th biggest retail bank holding with about $130 billion in assets.

The company was bought by RBS in 1988 and expanded with 25 acquisitions, including the 2004 purchase of Charter One.

It had 18,000 staff and 1,200 branches in 11 states across the New England, Mid-Atlantic and Midwest regions at the end of June. It had a net profit of $479 million in the six months to the end of June on revenue of $2.6 billion.

Citizens shares will start trading on Wednesday on the New York Stock Exchange. Morgan Stanley, Goldman Sachs & Co and J.P. Morgan were lead advisors on the IPO.