WEBVTT - Preparing Businesses for Inflationary Environment

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<v Speaker 1>You're listening to Bloomberg Business Week with Carol Messer and

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<v Speaker 1>Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. Well, we're

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<v Speaker 1>very pleased to have back with us this afternoon. Frank Sorrentino.

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<v Speaker 1>He's the CEO of Connect One Bank. He joins us

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<v Speaker 1>via zoom from here in New York City. Connect One

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<v Speaker 1>Bank is a regional bank. They've got branches throughout New

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<v Speaker 1>York and New Jersey as well as a location in

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<v Speaker 1>West Palm Beach, Florida. So we always like to check

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<v Speaker 1>in with Frank, not just to get an idea of

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<v Speaker 1>what's going on with the Fed, what's going on with rates,

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<v Speaker 1>but what's going on with real estate, construction, business, loans,

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<v Speaker 1>deposit accounts, small business, and of course the health of

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<v Speaker 1>the consumer. Frank, could to have you back with us.

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<v Speaker 1>How are you great to see it's him great to

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<v Speaker 1>be back. Yeah, we love, we love having you on

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<v Speaker 1>the program. Um, so answer that question for for us

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<v Speaker 1>right now. Let's just get it out of the way.

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<v Speaker 1>How is the consumer doing from your view, you know,

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<v Speaker 1>to him. From our perspective, our consumers are doing quite well.

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<v Speaker 1>They they at this point, they're all employed, their jobs

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<v Speaker 1>probably are paying wages that are above where they were

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<v Speaker 1>even year or two ago. They have probably have more

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<v Speaker 1>UM cash in the bank today than they may have

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<v Speaker 1>ever had before. Yeah. Still so. So, despite the fact

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<v Speaker 1>that we're at generational highs when it comes to inflation

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<v Speaker 1>is coming down a little bit, despite the fact that

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<v Speaker 1>this has been happening for the better part of a

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<v Speaker 1>year now, we're still seeing cash balances at their highest. Yeah.

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<v Speaker 1>I think that is true. I think we're seeing that

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<v Speaker 1>just not only in the consumer, but we're also seeing

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<v Speaker 1>it in a small business owner. And so these things

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<v Speaker 1>are coming down, there's no question about it, but they're

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<v Speaker 1>still at elevated levels, and I think that's what's driving

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<v Speaker 1>the economy today. Um. While things are slowing down a bit,

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<v Speaker 1>we're still seeing some pretty good demand across the board

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<v Speaker 1>for lots of different products and services. Now all the

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<v Speaker 1>froth is starting to come off the market, and I

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<v Speaker 1>think we're seeing that in the numbers. UM. But you know,

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<v Speaker 1>New York City is back, Restaurants are full, stores are full. UM,

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<v Speaker 1>people are out and they're spending money. Travel is you know,

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<v Speaker 1>you can't get a hotel room. Airlines are reporting big numbers.

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<v Speaker 1>So in general, things are pretty good. There's an air

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<v Speaker 1>of caution, Okay, an air of caution. So where where

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<v Speaker 1>are you starting to see any cracks? And and look,

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<v Speaker 1>I gotta ask. We're getting this economic data that's coming

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<v Speaker 1>in softer than expected retail sales, for example today, disappointing,

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<v Speaker 1>and and that adding to sort of the narrative that

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<v Speaker 1>investors that that consumers rather are pulling back a little

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<v Speaker 1>bit him. Look, while retail sales may have been down

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<v Speaker 1>slightly today for the month, if you look at retail

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<v Speaker 1>sales going back eithern this quarter or a year to

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<v Speaker 1>date or from last year, they're up pretty strongly. And

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<v Speaker 1>so you know, it's all a function of of of

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<v Speaker 1>what time frame we're looking at. Um I think as

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<v Speaker 1>we sit here today, yes there is some caution. Yes,

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<v Speaker 1>there's no more lines around you the house when it's

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<v Speaker 1>being put up for sale, or um, you know, any

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<v Speaker 1>more bidding wars for various assets. Uh. Cars Today you

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<v Speaker 1>can get a car. There's things that are coming back,

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<v Speaker 1>uh to a more normal state from where they were before.

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<v Speaker 1>Our clients at Connect One Bank or telling us it's

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<v Speaker 1>a fairly stable economy. Things are going pretty well. Interest

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<v Speaker 1>rates are starting to change, the dynamic for a lot

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<v Speaker 1>of business decisions, and I think that will slow things

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<v Speaker 1>down a bit. I do believe we are still there's

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<v Speaker 1>still the capability here for some sort of soft landing

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<v Speaker 1>relative to our recession. UH. And I think the FED

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<v Speaker 1>is doing the job that needs to be done to

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<v Speaker 1>get this inflation under control. It's the way, you know,

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<v Speaker 1>I want to talk to you about business spending, and

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<v Speaker 1>you know, I know you can't speak specifically to this,

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<v Speaker 1>and you can feel free if you want to. But

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<v Speaker 1>I was pretty struck by the news yesterday that that

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<v Speaker 1>Charter Communications UH stock fell to UH, you know, the

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<v Speaker 1>most on record because it unveiled this three year network

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<v Speaker 1>spending budget with ten point seven billion dollars next year.

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<v Speaker 1>That's a billion dollars more than analysts estimated. And I

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<v Speaker 1>thought to myself, I thought interest rates were going up.

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<v Speaker 1>I thought this interest rates moving higher was supposed to

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<v Speaker 1>dissuade businesses from making cabin from doing cabin spending on

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<v Speaker 1>this scale. Look, it depends on the type of business

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<v Speaker 1>you're in. All businesses, I think today we've counseled our

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<v Speaker 1>businesses to sort of drown out the noise, think about

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<v Speaker 1>what is going on in your business make good solid

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<v Speaker 1>investments where you need to make them. All businesses today

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<v Speaker 1>have to think about technology. All businesses today have to

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<v Speaker 1>think about their infrastructure spend. And additionally, I say all

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<v Speaker 1>businesses today have to think about the opportunities that are

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<v Speaker 1>going to be presented to them, because there will be

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<v Speaker 1>some you know, some challenges and some turmoil in the

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<v Speaker 1>markets um of relative to competitors or you know, any other, uh,

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<v Speaker 1>you know, any other aspect of their business. So yes,

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<v Speaker 1>I think you we'll see businesses spending money, doubling down

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<v Speaker 1>investing in particular parts of their businesses, and you will

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<v Speaker 1>see very highly capital intensive businesses maybe having to take

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<v Speaker 1>a pause in certain places. We're speaking right now to

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<v Speaker 1>Frank Sorrentino, the CEO of Connect One Bank. It's a

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<v Speaker 1>regional bank. They've got branches in New York, New Jersey,

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<v Speaker 1>and a location in West Palm Beach, Florida as well.

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<v Speaker 1>Frank Moore on the business what you're seeing from small

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<v Speaker 1>businesses right now? Are you still seeing are are you

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<v Speaker 1>seeing any concern about businesses that are not able to

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<v Speaker 1>pay back their loans right now? So I think we

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<v Speaker 1>across the industry, we're seeing that credit trends still remain

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<v Speaker 1>quite quite mild, uh, pretty much a big zero relative

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<v Speaker 1>to credit that's today. I would I would suspect that

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<v Speaker 1>there will be some sort of crack somewhere in the future.

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<v Speaker 1>I don't think they're going to be, you know, terrible.

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<v Speaker 1>I do think that we will have a pretty strong

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<v Speaker 1>economy going forward. The biggest, you know, sort of the

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<v Speaker 1>biggest car relation for me relative to those credit trends

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<v Speaker 1>are what's happening with employment. And you know, here we

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<v Speaker 1>are at the lowest, pretty much the lowest unemployment we've

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<v Speaker 1>ever had, and there's really no sign that that's going

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<v Speaker 1>to change dramatically. So if that doesn't change dramatically, then

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<v Speaker 1>the FED. What does it mean for the Fed's mission

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<v Speaker 1>to get inflation under control? Look, I think, you know,

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<v Speaker 1>I certainly would only speak towards what we see in

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<v Speaker 1>our local economy. I think having a well employed economy

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<v Speaker 1>is a good thing. I don't know that we're going

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<v Speaker 1>to be able to get to a two percent inflation

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<v Speaker 1>rate by the end of next year. I don't even

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<v Speaker 1>know if that's what the FED wants to do they

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<v Speaker 1>want to do it, I mean, that's what that's what

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<v Speaker 1>J Pelli said yesterday, they're not changing that goal, okay,

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<v Speaker 1>but they're also mandated to keep full employment. So I

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<v Speaker 1>do think if we see that commodity prices come down,

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<v Speaker 1>if there's um, if wage inflation appears to be whipped,

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<v Speaker 1>but we have full employment, I think the FED consider

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<v Speaker 1>its job done even if inflation settles in the three

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<v Speaker 1>percent range. UM. I don't think we need to go

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<v Speaker 1>all the way back, at least not in the immediate

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<v Speaker 1>terms or the you know, the tomorrow. I think that

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<v Speaker 1>can be done over a period of time. So I

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<v Speaker 1>do think we're gonna have to see how this will

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<v Speaker 1>plays out. But I think we're seeing some big components

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<v Speaker 1>of the economy are actually coming back into line. Right.

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<v Speaker 1>We don't we see don't see housing prices going crazy anymore.

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<v Speaker 1>We don't see uh, energy, which is a big portion

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<v Speaker 1>of our economy, uh, you know, out of control from

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<v Speaker 1>a pricing perspective, UM, goods and services, other commodities, things

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<v Speaker 1>that are driving inflation are pretty stable. And I do

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<v Speaker 1>think that there is some level of employment fears. I

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<v Speaker 1>think people are happy in the jobs that they have

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<v Speaker 1>and maybe may not be searching as often as they

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<v Speaker 1>did before. There's some concern about the economy slowing down,

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<v Speaker 1>so maybe wage inflation will will tamp down. What about

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<v Speaker 1>when it comes to the housing market. Speaking of people

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<v Speaker 1>being happy where they are, people with mortgages under three

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<v Speaker 1>for a thirty year, I'm wondering if they ever move,

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<v Speaker 1>and you know what that does to the housing market. Look,

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<v Speaker 1>people move for a variety of reasons. Right, Yes, it's

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<v Speaker 1>very nice to have a three thirty year mortgage, But

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<v Speaker 1>if you want to move to a different part of

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<v Speaker 1>the country, or your house is too big, or you

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<v Speaker 1>have more kids and need more room, you're gonna have

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<v Speaker 1>to do something. Um. That being said, we we definitely

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<v Speaker 1>do not have enough houses in the United States. People

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<v Speaker 1>need to buy homes, and they will continue to buy homes.

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<v Speaker 1>We actually just saw a little bit of an uptick

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<v Speaker 1>in a residential real estate portfolio of people purchasing homes.

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<v Speaker 1>The refinance market is, as you would well expect, is

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<v Speaker 1>not really there anymore. But certainly, um, people that need

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<v Speaker 1>a place to live and decide that home ownership is

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<v Speaker 1>right for them are going to do it. Rates today

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<v Speaker 1>are not that terrible. They're in the five to six

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<v Speaker 1>percent range, depending on the type of product that you pick,

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<v Speaker 1>and so to me. Look, you're talking to someone who

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<v Speaker 1>had thirteen and three quarter percent mortgage when I first

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<v Speaker 1>bought my four So you know, a five or six

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<v Speaker 1>or seven percent mortgage sounds like a bargain for me.

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<v Speaker 1>It does. But the thing, the thing that's different about

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<v Speaker 1>then versus now is the housing prices have gone up

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<v Speaker 1>so much with respect to wages. So in the last

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<v Speaker 1>thirty seconds that we have with you, when do you

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<v Speaker 1>think we'll start to see housing prices come down in

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<v Speaker 1>a way that's commensurate with the rising rates. Well, again,

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<v Speaker 1>I think we saw some of the froth in the

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<v Speaker 1>Connect One Bank marketplace. We're definitely seeing some of the

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<v Speaker 1>froth come off, and we're seeing more realistic pricing um

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<v Speaker 1>and we are seeing some prices coming down to help

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<v Speaker 1>with that level of additional interest expense, and we're seeing

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<v Speaker 1>additional deposits being made, more equity going to the homes. Frank,

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<v Speaker 1>we love it when you join us. Thanks so much

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<v Speaker 1>for taking the time. Really do appreciate it. Frank Sorrentino

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<v Speaker 1>is CEO at Connect one Bank. He's joined us this

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<v Speaker 1>afternoon via zoom from New York City. The Connect One Bank,

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<v Speaker 1>it's a regional bank They've got branches in New York,

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<v Speaker 1>New Jersey. They've also got a location in West Palm

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<v Speaker 1>Beach of Florida,