Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Let's talk a little bit more about the CRE market
Speaker 2: and of course regional banks in general, because we're joined
Speaker 2: now by Citizens Financial CEO Bruce von Son. Citizens of course,
Speaker 2: one of the largest retail banks in the US.
Speaker 1: Bruce, great to have you on set with me.
Speaker 3: My pleasure.
Speaker 2: So we'll start with CRI. We're not going to spend
Speaker 2: the whole time there. But you said last week that
Speaker 2: actually there's still a lot of uncertainty in the CRE market.
Speaker 1: Where is that uncertainty right now?
Speaker 3: Yeah, I'd say we're still waiting to see more transactional activity,
Speaker 3: so the indications of value are not clear at this point.
Speaker 3: And you know, i'd say rates moving down would actually
Speaker 3: help create potentially more financings and more transactions. But office
Speaker 3: is really the space that everybody's focused on. The rest
Speaker 3: of commercial real estate, you shouldn't just generalize that all
Speaker 3: commerci real estate is an issue, because multifamilies in recently
Speaker 3: good shape, and industrial and warehouses in good shape, retails
Speaker 3: in pretty good shape. It's really just that office segment
Speaker 3: that folks are most focused on.
Speaker 2: And I hear that from investors all the time too,
Speaker 2: that there's plenty of opportunity when it comes to CRI,
Speaker 2: but office still a little shaky there.
Speaker 1: But you went where I wanted to go, and that.
Speaker 2: Is the FED, because this is a FED that would
Speaker 2: certainly like to cut rates.
Speaker 1: But the data just doesn't back it up there.
Speaker 2: So if we are truly in a higher for longer
Speaker 2: interest rate environment, what does that mean for CRE and
Speaker 2: what does that mean for regional banks as a whole.
Speaker 3: Yeah, I think in general it would be beneficial for
Speaker 3: cro borrowers if rates came down, But I think banks
Speaker 3: have an ability to work with the borrowers to try
Speaker 3: to extend loans if they're still good credits, and sometimes
Speaker 3: you'll have to. The bank will take a charge off
Speaker 3: on part of the loan and the borrow will put
Speaker 3: in some equity so you can kind of re underwrite
Speaker 3: the loan. So it's just a long workout process that
Speaker 3: we're going through in twenty four. I think it'll extend
Speaker 3: through all of twenty five. We're geared up for that.
Speaker 3: But anyway, the good news is most banks, most of
Speaker 3: the super regionals, have a small percentage of their loan
Speaker 3: book in commercial real estate. We have plenty of capital
Speaker 3: plenty of reserves to handle it, and we'll really try
Speaker 3: to focus mainly on our offensive agenda from here, and we're.
Speaker 1: Going to get to that.
Speaker 2: I do want to meditate on higher for longer a
Speaker 2: little bit more because you think about the effect that
Speaker 2: that has had.
Speaker 1: On money market funds.
Speaker 2: For example, money markets offering five percent and above, that's
Speaker 2: really attractive for a lot of people, and I'm wondering,
Speaker 2: when it comes to competing with cash, how has that
Speaker 2: looked on the deposit side.
Speaker 3: Yeah, so I'd say most of the money that was
Speaker 3: going to migrate into those more favorable investment alternatives has
Speaker 3: already happened. So if you look back over the last
Speaker 3: four or five quarters, you're seeing that migration really slow
Speaker 3: to a crawl. So that's good. If the FED doesn't
Speaker 3: raise rates again, we've probably seen the worst of it.
Speaker 3: So I think banks have generally positioned themselves now for
Speaker 3: this higher for longer environment, so we're relatively neutral. If
Speaker 3: the FED goes higher, the FED goes lower, it won't
Speaker 3: have a big impact on net interest income. I think
Speaker 3: the bigger impacts from rates moving down will obviously first
Speaker 3: off help some borrowers, but it'll spur more capital markets activity.
Speaker 3: You've got a lot of money in private equity land.
Speaker 3: It's been sitting on the sidelines, ready to go to work,
Speaker 3: and so that'll be a good day when the FED
Speaker 3: decides that they've basically conquered the inflation beast and they
Speaker 3: can start to bring rates back down.
Speaker 2: And certainly the FED would like to reach that point
Speaker 2: as well. But it does sound like what you're saying
Speaker 2: is that another hike would certainly be disruptive.
Speaker 3: Yes, I don't really see that. I think that's a
Speaker 3: very low probability case at this point. So I think
Speaker 3: what the FED is saying is, let's just keep here.
Speaker 3: The patient is taking the medicine. Okay, we don't need
Speaker 3: to increase the dosage. But eventually we'll be in a
Speaker 3: position where we can come down.
Speaker 2: So that's the FED picture, the macroeconomic picture. Let's talk
Speaker 2: about where you are playing offense. I want to talk
Speaker 2: about your efforts in private banking, in particular.
Speaker 1: How is that push been going.
Speaker 3: It's been great, really, So we stepped into a void
Speaker 3: when First Republic went down. JP Morgan bought the bank,
Speaker 3: but a lot of the talent didn't want to fit
Speaker 3: into that model. At JP Morgan. So they a bunch
Speaker 3: came over to us and we have teams now in Boston,
Speaker 3: New York, Florida, and three teams in California, and they're
Speaker 3: off to a great start. They're getting a lot of
Speaker 3: receptivity from previous clients who value the service and offerings
Speaker 3: that the advice that they get from those bankers. And
Speaker 3: we also have our own ability to attract new customers.
Speaker 3: So we hit two and a half billion of deposits
Speaker 3: at the end of the first quarter. We're growing about
Speaker 3: slightly over a billion a quarter in deposits. We're opening
Speaker 3: a lot of new accounts. We're also acquiring some wealth advisors,
Speaker 3: so we did a lift out of a wealth team
Speaker 3: in San Francisco. We just announced Friday another team coming
Speaker 3: in from Boston. So we want to have more choice
Speaker 3: to the customers in terms of wealth options.
Speaker 1: Well, there's a lot to dig into there. I do
Speaker 1: want to start with it.
Speaker 2: Sounds like you're hiring from your rivals to really fuel
Speaker 2: this expansion.
Speaker 3: Yeah, so this is a fairly sizable bet for us.
Speaker 3: We kind of led one hundred and fifty people. World
Speaker 3: class talent came in on a day in June and
Speaker 3: we've got probably another seventy people. We've hired since then,
Speaker 3: two hundred and twenty people. And in a choppy environment
Speaker 3: where with the expenses we're going to show up day one,
Speaker 3: and the revenues and the customers we're going to come
Speaker 3: in gradually over time. So we made that investment last
Speaker 3: year that was a loss for us, but then this
Speaker 3: year we expect to break even in the second half
Speaker 3: of the year, and then next year we should be
Speaker 3: significantly accretive, so it should boost our bottom line by
Speaker 3: about five percent.
Speaker 2: And how important is the New York market? How much
Speaker 2: opportunity do you see specifically in New York City?
Speaker 3: Yeah, so the New York strategy is more broad than
Speaker 3: just the private bank. But we went out a couple
Speaker 3: of years back. We bought HSBC's East Coast branches. We
Speaker 3: bought a bank in New Jersey called Investors Bank. We
Speaker 3: now have two hundred branches in the Greater New York area,
Speaker 3: about a number ten deposit market share, a million new customers.
Speaker 3: So you can start to see here in New York
Speaker 3: all of our green signage, and we're i think making
Speaker 3: a great mark on the city and raising our brand
Speaker 3: visibility and we're obviously advertising on TV. You can see
Speaker 3: some of our spots. We're partner with the New York Roadrunners.
Speaker 3: You're going to be to see the Queen's Citizens Queen's
Speaker 3: ten K in a couple of weeks here. So great
Speaker 3: opportunities for us to bring our style of banking to
Speaker 3: New York City.
Speaker 2: You're also doing TV interviews, which I certainly appreciate. But
Speaker 2: you mentioned I mean, you just rattled off a whole
Speaker 2: list of acquisitions that you've done, and it's interesting if
Speaker 2: you take a look at the landscape right now. I've
Speaker 2: had P and C, for example, talking about the need
Speaker 2: to do bigger M and A, to get bigger through
Speaker 2: M and A, And I mean, is that your strategy
Speaker 2: as well? Would you say that that you're pursuing a
Speaker 2: growth by acquisition strategy?
Speaker 3: No, not necessarily. So I think what's interesting is all
Speaker 3: banks have different forks in the road that they can pursue.
Speaker 3: I think right now we basically we're describing ourselves as
Speaker 3: kind of a three legged stool where we have a
Speaker 3: transformed consumer bank, we have the best positioned commercial bank,
Speaker 3: and now we have the opportunity to build the premier
Speaker 3: bank owned wealth platform and private bank, and so you know,
Speaker 3: I think we have enough there to build a great
Speaker 3: sustainable franchise. We're focused on that if opportunities arise down
Speaker 3: the road to potentially do acquisitions, will be prepared well.
Speaker 2: Verus really enjoyed this conversation. Hope to stay in touch,
Speaker 2: of course, as you progress further on those efforts. Our
Speaker 2: thanks of course to PREsponse on of Citizens' Financial Group