Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: You're listening to Bloomberg BusinessWeek with Karrol Messer and Tim
Speaker 2: Steneveek on Bloomberg Radio. Don't know if you caught this
Speaker 2: story earlier today, Katie Claire Ballentine or Bloomberg News colleague
Speaker 2: reporting that women are controlling ever greater sums of money
Speaker 2: around the world, setting the stage for major ships in
Speaker 2: wealth management and philanthropy.
Speaker 3: You know, I didn't catch that article specifically, but I
Speaker 3: have heard that. I mean, that's a conversation we've had
Speaker 3: with Sally Crawlcheck for example. All of that's right, and yeah, exactly,
Speaker 3: and it's a really interesting stat by itself, but also
Speaker 3: the implications are important as well.
Speaker 2: Yeah, in the US alone, McKenzie expects women to control
Speaker 2: thirty four trillion dollars, or roughly thirty eight percent of
Speaker 2: investable assets by twenty thirty. It's close to double last
Speaker 2: year's total for one private wealth back with us as
Speaker 2: Brendan Kaughlin, vice chairman and head of Consumer Banking at
Speaker 2: Citizens Financial Groups. Citizens hired many of the private bankers
Speaker 2: from the old First Republic platform, though they didn't buy
Speaker 2: First Republic outright. JP Morgan ended up doing that during
Speaker 2: the regional banking crisis of twenty twenty three. Brandon, good
Speaker 2: to see you. How are you see Katie? Good to
Speaker 2: see you, so give us an update. It's been a
Speaker 2: few months since we spoke to you. How are things
Speaker 2: going as you sort of absorb at least some of
Speaker 2: the personnel from the old First Republic.
Speaker 1: It's going fantastically well so far. The market is still
Speaker 1: incredibly disrupted in looking for a platform to provide world
Speaker 1: class white glove service for high net worth and ultra
Speaker 1: high net worth individuals, which is really the play that
Speaker 1: we've made is to lean in there and fill the
Speaker 1: white space that was left behind. And many banks will
Speaker 1: suggest that their customer focus, but in this particular space,
Speaker 1: it's very very important that you are. And what we
Speaker 1: find is that the biggest banks in the country have
Speaker 1: all the sophisticated capabilities to serve those clients, but they're
Speaker 1: also very big and very siloed and very bureaucratic to
Speaker 1: bring the full bank together for these clients. Whereas a
Speaker 1: bank are size like citizens. We're big enough to have
Speaker 1: the sophisticated capabilities, but we're also small enough to actually
Speaker 1: value the client overall. In the sum of their parts,
Speaker 1: whether it's wealth, personal banking, commercial lending. And so we've
Speaker 1: really made a tremendous pushing here and the growth has
Speaker 1: been substantial.
Speaker 3: And so you're head of consumer banking, and I'm curious.
Speaker 3: I mean, you have obviously a unique view into the consumer.
Speaker 3: We talk about the health of the consumer all the time,
Speaker 3: but what are you seeing from your perch?
Speaker 1: Broadly, I would say the consumer has normalized post COVID,
Speaker 1: and the things I look at spending, deposits and the
Speaker 1: health of credit. Spending has been flatish year of the year,
Speaker 1: but that's after a couple of years of booming spending
Speaker 1: coming off the heels of COVID. We did see Black
Speaker 1: Friday and Cyber Monday sales up three to four percent
Speaker 1: year of vieer, So that's a healthy sign. That's spending,
Speaker 1: which is an indication of consumer confidence. So that's good.
Speaker 1: On the deposit front, customers still have a decent amount
Speaker 1: of access liquidity. But the economy is not felt the
Speaker 1: same across all walks of life. So if you look
Speaker 1: at mass market or your paycheck, if paycheck folks, they
Speaker 1: basically are back to pre COVID levels of deposits, whereas
Speaker 1: mass affluent and affluent are still carrying twenty to twenty
Speaker 1: five percent more in cash than they were before COVID,
Speaker 1: So a lot of excess liquidity.
Speaker 2: Why do you think that is? Have they just not
Speaker 2: reinvested it?
Speaker 1: You know, a variety of reasons. We hear. First of all,
Speaker 1: deposit rates are pretty good right now, and so particularly
Speaker 1: we're in the bigger banks where they've got confidence that
Speaker 1: the bank failures of twenty twenty three were really idiosyncratic
Speaker 1: and it wasn't really going to hit the vast majority
Speaker 1: of US banks. Deposit rates are pretty good, and so
Speaker 1: they're finding balance of having some liquid and deposits, some
Speaker 1: tied up in treasuries and in equities, but there's very
Speaker 1: much the fair share in the banking system. And then
Speaker 1: when you look at the credit side of things, certainly
Speaker 1: when you look at linked year and linked quarter stats,
Speaker 1: it looks like credit delinquencies and charge ups are going up.
Speaker 1: I would broadly say they are, but it's only getting
Speaker 1: back to normal pre COVID, coming off of really artificially
Speaker 1: suppressed levels getting through COVID, where people taking payment holidays
Speaker 1: and not making student loan payments and so on and
Speaker 1: so forth. So there's nothing at the macro level I
Speaker 1: would call out and concern. In fact, even credit cards,
Speaker 1: which has been a topic of a lot of conversation
Speaker 1: of consumers relevering. They are up year every year, but
Speaker 1: there's still ten percent below where they were pre COVID
Speaker 1: in terms of debt leverage ratios. So overall, the health
Speaker 1: of the US consumer is still pretty strong, and I
Speaker 1: don't see any real signs of a breakout of anything deteriorating,
Speaker 1: at least as of right now.
Speaker 3: I want to talk about the consumer in the context
Speaker 3: of falling interest rates. So we were just having this
Speaker 3: conversation with lending Tree's chief credit analysts, and he made
Speaker 3: the point that a twenty five bases raycut isn't going
Speaker 3: to make a huge difference when you think about consumer behavior.
Speaker 3: Give us some context, though, I mean, how much what
Speaker 3: magnitude of ray cutting do you need to see from
Speaker 3: the FED before it affects the behavior that you see
Speaker 3: in you touch.
Speaker 1: Well, there's some direct and indirect elements that's on the
Speaker 1: direct side for the consumer. Twenty five basis points, fifty
Speaker 1: basis points, one hundred basis points, especially on the short
Speaker 1: end which is what really people usually talk about with
Speaker 1: Fed funds rates coming down, You'll feel that in two ways.
Speaker 1: One is lower deposits that you're getting paid, and two
Speaker 1: is lower debt load on your credit card, a bit
Speaker 1: more affordability on your credit card. That's not typically tied
Speaker 1: into mortgage rates, which are more the ten year treasury
Speaker 1: and longer term rates. Is now you're seeing short term
Speaker 1: rates come down, but mortgage rates are still hovering pretty
Speaker 1: close to seven percent, and those are not projected to
Speaker 1: come down significantly over the next even twelve months. And
Speaker 1: when you look at seventy four percent of US consumers
Speaker 1: that have a home loan have rates under five percent.
Speaker 1: So what would you need to believe for rates to
Speaker 1: come down to really kick up a refive boom to
Speaker 1: get a lot of payment savings on your home. You've
Speaker 1: got to believe that rates come down significantly more than
Speaker 1: they're projected. So right now we're in this range of
Speaker 1: rates come down. It's going to be a little painful
Speaker 1: on deposits, a little beneficial on credit card, probably not transformational.
Speaker 1: On the indirect side, though, what you'll tend to see
Speaker 1: is businesses reacting a little faster if they have confidence
Speaker 1: we're going to hit a soft landing in the economy,
Speaker 1: they'll borrow a little bit more invest in their business.
Speaker 1: That will drive up employment, drive up confidence, which will
Speaker 1: trickle into the consumer.
Speaker 2: How much I know your vice chair and head of
Speaker 2: consumer banking, but I want to talk about the business
Speaker 2: side of things, corporate side. What are you seeing from
Speaker 2: companies from your corporate clients right now?
Speaker 1: They were in a period of time where they were delevering,
Speaker 1: draw downs on their credit was really at all time lows,
Speaker 1: trying to in an uncertain Valladle economy, which we were in,
Speaker 1: where there's a lot of question and variability around know
Speaker 1: we're going to hit a soft landing or we're going
Speaker 1: to hit a recession. What's going to happen with inflation.
Speaker 1: That's generally conditions that make businesses a little bit more cautious,
Speaker 1: and we saw that through into twenty two into most
Speaker 1: of twenty three, particularly with the bank failures and vallatle rates,
Speaker 1: we're seeing that stabilize a little bit more so. The
Speaker 1: likelihood of missing a recession of a soft landing is increasing.
Speaker 1: Rates easing is a good sign. Inflation, while it's completely
Speaker 1: done now seems to be generally under control. So we're
Speaker 1: seeing the early signs of businesses starting to have confidence
Speaker 1: to maybe take out some debt, make some capital investments,
Speaker 1: stimulate some economic demand. Those are all good signs and
Speaker 1: hopefully that continues, and if it does, we should be
Speaker 1: in a decent spot for soft landing, as we have hoped.
Speaker 3: And I want to talk about your business specifically, because
Speaker 3: one of the expectations heading into twenty twenty five is
Speaker 3: that you're going to see a much more friendly regulatory environment,
Speaker 3: that you're going to see a lot of M and
Speaker 3: A come back. It feels like we're already seeing a
Speaker 3: ton of M and A. But that being said, I
Speaker 3: know that Citizens has made quite a few purchases over
Speaker 3: the past couple of years. You think about the five
Speaker 3: M and A and equity firms, the mortgage company you bought.
Speaker 3: You also bought a high end wealth management firm. When
Speaker 3: you take a look at the portfolio of Citizens right now,
Speaker 3: are there any spots where it could make sense to
Speaker 3: look to those inorganic channels to grow well.
Speaker 1: I'd also add that we've bought HSBC's US franchise for
Speaker 1: retail banking, and we also bought investors Bank in Northern
Speaker 1: New Jersey and Metro New York. To round out our
Speaker 1: footprint strategy. We're marking a big play in Metro New York,
Speaker 1: in Northern New Jersey. And while the liftouts of private
Speaker 1: banking and private wealth is not an M and A
Speaker 1: transaction per se, we're treating it as such. And so
Speaker 1: we're coming on the heels of our ten year anniversary
Speaker 1: of our IPO right now, where the number two stock
Speaker 1: and the regional bank stocks this year, which is good,
Speaker 1: and I think that's based on the foundation that we've
Speaker 1: built over the last ten years that it's a solid
Speaker 1: bank outperformance on deposits. When you have that confidence, you
Speaker 1: can selectively play offense. And so we're looking at making
Speaker 1: a big play in wealth management, in private banking, building
Speaker 1: our geography in Metro New York, New Jersey, maturing the
Speaker 1: acquisitions we did on the corporate banking side, and M
Speaker 1: and A. You know, never say never on M and A.
Speaker 1: You're right to say the conditions are improving, rates are
Speaker 1: coming back down. That was one impediment of making the
Speaker 1: deal math work on M and A. And then regulatory
Speaker 1: and political pressures to the ease too. So we're on
Speaker 1: the lookout, But we have a very full agenda and
Speaker 1: we don't feel like we have to do a deal
Speaker 1: of any kind. We think the organic growth that we're
Speaker 1: on the path to deliver will be distinctive for this
Speaker 1: franchise versus other banks, and we're excited about it.
Speaker 2: What about geographic footprint, just twenty seconds, geographic footprint extending it.
Speaker 2: We're open minded to it.
Speaker 1: It's been challenging for banks to grow their geography organically
Speaker 1: through retail banking. Now the addition of the private bank
Speaker 1: makes it more affordable. Instead of needing one hundred and
Speaker 1: fifty branches to compete, we can have two or three
Speaker 1: private banking offices. In fact, we just planted a flag
Speaker 1: in the Bay Area. We opened three private banking offices
Speaker 1: and the deposit growth has been tremendous. So we are
Speaker 1: thinking about geographic expansion X M and A. But through that.
Speaker 2: Lens Brandon Kaflan, Vice chair and head of Consumer Banking
Speaker 2: at Citizens Financial Group. Here at Bloomberg Headquarters, well here
Speaker 2: at Bloomberg Business Week, we spend quite a bit of
Speaker 2: time talking about the best business schools in the world.
Speaker 2: On that list, Ie University, it's one of those schools.
Speaker 2: On this year's Bloomberg Business Week Best Business School rankings,
Speaker 2: it comes in at number eleventh in Europe and they're growing.
Speaker 2: Menuel Muni is excuse me. Manuel Muneath is provost at
Speaker 2: I University and also chair of Ie New York College.
Speaker 4: How are you wonderful? It's wonderful to be here.
Speaker 2: Thank you, very welcome. Welcome, I say welcome. But part
Speaker 2: of the big news is that you're growing here in
Speaker 2: New York. So talk a little bit about you know,
Speaker 2: we spend a lot of time talking about international business
Speaker 2: schools and the way that there are campuses in multiple
Speaker 2: parts of the world. What we don't often see is
Speaker 2: European schools expanding here in the US. Yeah, talk a
Speaker 2: little bit about the thinking behind that.
Speaker 4: Well, so for us, this is a major move because
Speaker 4: it's not just a campus. So we we've become the
Speaker 4: sole members, which is basically where the custodi. We've taken
Speaker 4: over a college, a pre existing college here in Lower
Speaker 4: Manhattan and soho. So we're a fully licensed higher education
Speaker 4: institution in the US. We will issue US degrees. We're
Speaker 4: accredited by the Middle States Commission, one of the big
Speaker 4: act creditors in the US. So this is a long term,
Speaker 4: serious commitment of ours to have a Transatlantic footprint and
Speaker 4: to run programs, fundamentally graduate programs in the business space
Speaker 4: on both sides of the Atlantic.
Speaker 2: But is it for European students who want exposure to
Speaker 2: New York? Is it for American students who you want
Speaker 2: to funnel then into a European program?
Speaker 3: Also?
Speaker 2: Who is it a geared towards?
Speaker 4: So this is a this is a key question. Our
Speaker 4: student body. Our current student body in Spain is super international,
Speaker 4: so about ninety nine zero percent of our students are
Speaker 4: non Spanish. Many of them come from the US, but
Speaker 4: many other European countries. So our project here is not
Speaker 4: so much to come into New York to recruit exclusively
Speaker 4: American students and maybe compete in a more head on
Speaker 4: way with some excellent business schools that you have in
Speaker 4: New York and in the US. It's about opening New
Speaker 4: York too our already very international student body, so our
Speaker 4: students will be able to begin in Spain in Europe
Speaker 4: and finish here and vice versa. So it's about making
Speaker 4: the higher education landscape in New York maybe a little
Speaker 4: bit more diverse than it already is and bringing a
Speaker 4: different kind of student to New York.
Speaker 3: Well in addition to the student body, talk to us
Speaker 3: a little bit about some of the offerings here when
Speaker 3: it comes to the programs that we'll be taught.
Speaker 4: So, the big two areas of focus of the college
Speaker 4: are business and sustainability, so we're very focused in these
Speaker 4: two spaces. We have a mess's in Business for Social
Speaker 4: Impact on sustainability, We're going to be launching new programs
Speaker 4: in finance and in management. We also have a program
Speaker 4: in sustainable Fashion, which was already offered by the college
Speaker 4: before we arrived. So those are the two areas of footprint,
Speaker 4: and we think that New York is very strong in
Speaker 4: these two areas. The business community significant, the type of
Speaker 4: experience that we can build for the student in these
Speaker 4: areas is very significant. So we see real synergies between
Speaker 4: what we do in Europe and what we're going to
Speaker 4: be able to do here with that offering.
Speaker 2: And wanted to talk a little bit about your other experience,
Speaker 2: your State secretary at the Spanish Foreign Ministry. You are
Speaker 2: an expert when it comes to geopolitics and international affairs.
Speaker 2: Kind of a perfect day to be speaking with you,
Speaker 2: given what we saw happen over the weekend in Syria,
Speaker 2: Ekstra Horner, what we saw last week with South Korea. Yes,
Speaker 2: given what we're seeing in Eastern Europe with Ukraine, all
Speaker 2: against the backdrop of a changing administration here in the US,
Speaker 2: and this idea globally that we're seeing a decline in
Speaker 2: the belief of institutions, the decline of quote unquote liberalism. Yes,
Speaker 2: around the world. How are you thinking about this?
Speaker 4: So that's another very significant question, because if you think
Speaker 4: about it, the world seems to be moving in a
Speaker 4: direction of fracture. This is true politically, diplomatically, there's a
Speaker 4: more weaken multilateral architecture internationally, but also in the economic
Speaker 4: side of things, a real fracturing of international trade. An investment,
Speaker 4: So then the question is what is a European university
Speaker 4: making such a significant investment in the US and abroad.
Speaker 4: And the answer to this is that we're really doubling
Speaker 4: down on our vision of what international university should be about.
Speaker 4: We should be about building global environments, very diverse environments
Speaker 4: in our classrooms, our students, the parents of our students,
Speaker 4: particularly in the undergrad they want their children and they
Speaker 4: want themselves to have these very international experiences. They want
Speaker 4: to work in different geographies. So we're moving a little
Speaker 4: bit in the opposite direction of where our geopolitics are headed.
Speaker 4: Our geopolitics are headed towards fracture, and we're betting on interdependence.
Speaker 4: And I think this is the mission of academia. I
Speaker 4: mean it is in our name. I mean, universities are
Speaker 4: supposed to be universal. They're supposed to be about bringing
Speaker 4: diverse points of view, building the diverse kinds of learning
Speaker 4: environments and experiences for the students. So that's how our
Speaker 4: New York and US investment fits into a broader vision
Speaker 4: of what university should be doing. But this is not
Speaker 4: risk free because we're rowing a little bit against the
Speaker 4: current of where our geopolitics are headed.
Speaker 3: Well, it's interesting. I mean it feels like higher education
Speaker 3: has become politicized. I mean, you think about what happened
Speaker 3: on campuses across New York City, including throughout the spring,
Speaker 3: I mean, how are you thinking about that?
Speaker 4: Well, so, I mean it's not just what happened here.
Speaker 4: If you actually look at there's a general trend of
Speaker 4: restriction to internationalization of university. So there've been caps on
Speaker 4: international students in Australia, restrictions to teaching in English in
Speaker 4: the Netherlands, restrictions to visa visas for students in the UK. So,
Speaker 4: if you take it as a whole, this symphony sort
Speaker 4: of this concert or fracture of growing to some extent
Speaker 4: nationalism and nationalistic policies is really trickling. I don't know
Speaker 4: if it's trickling up or down, but it's beginning to
Speaker 4: affect the higher education landscape. So we see this with
Speaker 4: concern and we are willing to go against this trend
Speaker 4: because I tell you, I mean the value add of
Speaker 4: an education is significantly higher if you can build these
Speaker 4: different avenues, these different experiences. I'll give you a very
Speaker 4: specific example, because we have the college in New York
Speaker 4: and it's going to be issuing American degree. One of
Speaker 4: the huge benefits to our students is that they're going
Speaker 4: to be able to come study here, be embedded in
Speaker 4: New York, and ones they graduate, they have a much
Speaker 4: easier access to the US labor market if US employers
Speaker 4: are willing to employ them through opt schemes and others.
Speaker 4: This is the sort of thing that people in German,
Speaker 4: students in Germany, young people in Italy. Young people in
Speaker 4: Canada really want they want to be able to access
Speaker 4: universities and have these very different paths that open environments
Speaker 4: for them professional entrepreneurial environments. So you know, we're going
Speaker 4: to fight this, you know through through how we behave
Speaker 4: as a university.
Speaker 2: Do you think you say you're going to fight it?
Speaker 2: You say that fractionalization, that's what's happening right now, but
Speaker 2: not necessarily the way that you see things going, at
Speaker 2: least at an academic level. Is this move toward populism
Speaker 2: around the world, especially in Europe and the United States.
Speaker 2: Is this something that you see as a blip and
Speaker 2: short lived or is this something that is sort of
Speaker 2: the next era of our lives?
Speaker 4: Well, so this requires a deep brands or no, because
Speaker 4: the question, I think the core question is why are
Speaker 4: we seeing in a lot of the Western world, in
Speaker 4: advanced economies and liberal democracies, why are we seeing the
Speaker 4: rise of the extremes in the right and in the
Speaker 4: left and the rise of populism.
Speaker 2: Or the right and the left coming together to ask
Speaker 2: to Prime Minister in France like last week.
Speaker 4: I mean, this is part of this noise, of this
Speaker 4: symphony of disorder that we're living in our politics and
Speaker 4: that it's affecting highered. If I had to summarize in
Speaker 4: one phrase why I think this is occurring is if
Speaker 4: you look at the economic performance of advanced economies around
Speaker 4: the world over the last thirty years, you will see
Speaker 4: that there is one trend that repeats itself in many
Speaker 4: of these countries, and that is the hollowing of the
Speaker 4: middle of our income distribution through stagnation or income decline.
Speaker 4: In real terms, that disappearance or that weakening of the
Speaker 4: middle is highly correlated with the disappearance of the middle
Speaker 4: of the political spectrum. So these trends are highly correlated.
Speaker 4: We simply do not know how to sustain an effective liberal,
Speaker 4: deliberative democracy if the middle is under immense pressure and
Speaker 4: the middle classes in most advanced economies are growingly precarious.
Speaker 4: They have difficulty accessing fundamental things. In fact, education is
Speaker 4: one of them because it's been getting more and more expensive,
Speaker 4: but housing, healthcare, and many others. They view the future
Speaker 4: with greater concern, and one of the trend one of
Speaker 4: the factors that is most highly correlated with support for
Speaker 4: populist forces is concerns about the future. So we live
Speaker 4: in a pessimistic environment about the future. One's on future,
Speaker 4: the future of the next generation, and that is driving
Speaker 4: our politics. So unless we address the underlying drivers of
Speaker 4: this fracture our politics, that the river sort of the
Speaker 4: ripples of this in our politics and in our international politics,
Speaker 4: because this is shaping foreign policy, will become more and
Speaker 4: more severe. So I think it's a social contract, social
Speaker 4: justice equity question that really lies beneath the issue that
Speaker 4: you raised.
Speaker 3: So I mean you talk about this hollowing of the
Speaker 3: middle class and the correlation there that you've seen. I mean,
Speaker 3: do we have any good examples I mean in your
Speaker 3: academic work of where that callowing has happened but successfully
Speaker 3: has been made robust again, I mean, are there any
Speaker 3: good examples that we can look to.
Speaker 4: Well, it's very tough because I would say for the
Speaker 4: first time and when I was in when I served
Speaker 4: in this Spanish government, was right around the time where
Speaker 4: we made this diagnosis, where this diagnosis was properly configured,
Speaker 4: because twenty sixteen seventeen we had a number of shocks,
Speaker 4: we had the Brexit, we had the first Trump president.
Speaker 4: It was very unexpected in many ways, but nobody, I
Speaker 4: mean there was really no consensus around the world as
Speaker 4: the way this was occurring. So the consensus is recent
Speaker 4: this diagnosis that I just laid out, But I think
Speaker 4: if you went to the World Bank or the IMF
Speaker 4: for the Commission now, they'll tell you we have an
Speaker 4: equity and sustainability sort of social sustainability issue in our society.
Speaker 4: So everybody's trying doing implement policies that tackle this, like,
Speaker 4: for example, measures that change taxation, measures that implement better
Speaker 4: competition mechanisms, the strengthening of the welfare state in many places,
Speaker 4: So they're all trying. I don't think any government has
Speaker 4: the full recipe to address this, but we're all clearly,
Speaker 4: almost irrespective of the political color of the government, trying
Speaker 4: to bring growth to the middle.
Speaker 2: Manuel Muneath, provosts at I University, also Chair of I E.
Speaker 2: New York College. Thank you so much for joining us.
Speaker 2: To appreciate you taking the time this afternoon.