WEBVTT - Citizens Financial CEO Bruce Van Saun Talks CRE, Interest Rates, And M&A

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>Let's talk a little bit more about the CRE market

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<v Speaker 2>and of course regional banks in general, because we're joined

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<v Speaker 2>now by Citizens Financial CEO Bruce von Son. Citizens of course,

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<v Speaker 2>one of the largest retail banks in the US.

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<v Speaker 1>Bruce, great to have you on set with me.

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<v Speaker 3>My pleasure.

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<v Speaker 2>So we'll start with CRI. We're not going to spend

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<v Speaker 2>the whole time there. But you said last week that

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<v Speaker 2>actually there's still a lot of uncertainty in the CRE market.

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<v Speaker 1>Where is that uncertainty right now?

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<v Speaker 3>Yeah, I'd say we're still waiting to see more transactional activity,

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<v Speaker 3>so the indications of value are not clear at this point.

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<v Speaker 3>And you know, i'd say rates moving down would actually

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<v Speaker 3>help create potentially more financings and more transactions. But office

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<v Speaker 3>is really the space that everybody's focused on. The rest

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<v Speaker 3>of commercial real estate, you shouldn't just generalize that all

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<v Speaker 3>commerci real estate is an issue, because multifamilies in recently

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<v Speaker 3>good shape, and industrial and warehouses in good shape, retails

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<v Speaker 3>in pretty good shape. It's really just that office segment

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<v Speaker 3>that folks are most focused on.

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<v Speaker 2>And I hear that from investors all the time too,

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<v Speaker 2>that there's plenty of opportunity when it comes to CRI,

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<v Speaker 2>but office still a little shaky there.

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<v Speaker 1>But you went where I wanted to go, and that.

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<v Speaker 2>Is the FED, because this is a FED that would

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<v Speaker 2>certainly like to cut rates.

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<v Speaker 1>But the data just doesn't back it up there.

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<v Speaker 2>So if we are truly in a higher for longer

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<v Speaker 2>interest rate environment, what does that mean for CRE and

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<v Speaker 2>what does that mean for regional banks as a whole.

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<v Speaker 3>Yeah, I think in general it would be beneficial for

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<v Speaker 3>cro borrowers if rates came down, But I think banks

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<v Speaker 3>have an ability to work with the borrowers to try

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<v Speaker 3>to extend loans if they're still good credits, and sometimes

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<v Speaker 3>you'll have to. The bank will take a charge off

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<v Speaker 3>on part of the loan and the borrow will put

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<v Speaker 3>in some equity so you can kind of re underwrite

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<v Speaker 3>the loan. So it's just a long workout process that

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<v Speaker 3>we're going through in twenty four. I think it'll extend

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<v Speaker 3>through all of twenty five. We're geared up for that.

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<v Speaker 3>But anyway, the good news is most banks, most of

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<v Speaker 3>the super regionals, have a small percentage of their loan

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<v Speaker 3>book in commercial real estate. We have plenty of capital

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<v Speaker 3>plenty of reserves to handle it, and we'll really try

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<v Speaker 3>to focus mainly on our offensive agenda from here, and we're.

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<v Speaker 1>Going to get to that.

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<v Speaker 2>I do want to meditate on higher for longer a

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<v Speaker 2>little bit more because you think about the effect that

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<v Speaker 2>that has had.

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<v Speaker 1>On money market funds.

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<v Speaker 2>For example, money markets offering five percent and above, that's

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<v Speaker 2>really attractive for a lot of people, and I'm wondering,

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<v Speaker 2>when it comes to competing with cash, how has that

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<v Speaker 2>looked on the deposit side.

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<v Speaker 3>Yeah, so I'd say most of the money that was

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<v Speaker 3>going to migrate into those more favorable investment alternatives has

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<v Speaker 3>already happened. So if you look back over the last

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<v Speaker 3>four or five quarters, you're seeing that migration really slow

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<v Speaker 3>to a crawl. So that's good. If the FED doesn't

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<v Speaker 3>raise rates again, we've probably seen the worst of it.

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<v Speaker 3>So I think banks have generally positioned themselves now for

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<v Speaker 3>this higher for longer environment, so we're relatively neutral. If

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<v Speaker 3>the FED goes higher, the FED goes lower, it won't

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<v Speaker 3>have a big impact on net interest income. I think

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<v Speaker 3>the bigger impacts from rates moving down will obviously first

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<v Speaker 3>off help some borrowers, but it'll spur more capital markets activity.

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<v Speaker 3>You've got a lot of money in private equity land.

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<v Speaker 3>It's been sitting on the sidelines, ready to go to work,

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<v Speaker 3>and so that'll be a good day when the FED

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<v Speaker 3>decides that they've basically conquered the inflation beast and they

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<v Speaker 3>can start to bring rates back down.

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<v Speaker 2>And certainly the FED would like to reach that point

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<v Speaker 2>as well. But it does sound like what you're saying

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<v Speaker 2>is that another hike would certainly be disruptive.

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<v Speaker 3>Yes, I don't really see that. I think that's a

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<v Speaker 3>very low probability case at this point. So I think

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<v Speaker 3>what the FED is saying is, let's just keep here.

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<v Speaker 3>The patient is taking the medicine. Okay, we don't need

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<v Speaker 3>to increase the dosage. But eventually we'll be in a

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<v Speaker 3>position where we can come down.

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<v Speaker 2>So that's the FED picture, the macroeconomic picture. Let's talk

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<v Speaker 2>about where you are playing offense. I want to talk

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<v Speaker 2>about your efforts in private banking, in particular.

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<v Speaker 1>How is that push been going.

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<v Speaker 3>It's been great, really, So we stepped into a void

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<v Speaker 3>when First Republic went down. JP Morgan bought the bank,

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<v Speaker 3>but a lot of the talent didn't want to fit

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<v Speaker 3>into that model. At JP Morgan. So they a bunch

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<v Speaker 3>came over to us and we have teams now in Boston,

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<v Speaker 3>New York, Florida, and three teams in California, and they're

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<v Speaker 3>off to a great start. They're getting a lot of

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<v Speaker 3>receptivity from previous clients who value the service and offerings

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<v Speaker 3>that the advice that they get from those bankers. And

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<v Speaker 3>we also have our own ability to attract new customers.

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<v Speaker 3>So we hit two and a half billion of deposits

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<v Speaker 3>at the end of the first quarter. We're growing about

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<v Speaker 3>slightly over a billion a quarter in deposits. We're opening

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<v Speaker 3>a lot of new accounts. We're also acquiring some wealth advisors,

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<v Speaker 3>so we did a lift out of a wealth team

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<v Speaker 3>in San Francisco. We just announced Friday another team coming

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<v Speaker 3>in from Boston. So we want to have more choice

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<v Speaker 3>to the customers in terms of wealth options.

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<v Speaker 1>Well, there's a lot to dig into there. I do

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<v Speaker 1>want to start with it.

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<v Speaker 2>Sounds like you're hiring from your rivals to really fuel

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<v Speaker 2>this expansion.

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<v Speaker 3>Yeah, so this is a fairly sizable bet for us.

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<v Speaker 3>We kind of led one hundred and fifty people. World

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<v Speaker 3>class talent came in on a day in June and

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<v Speaker 3>we've got probably another seventy people. We've hired since then,

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<v Speaker 3>two hundred and twenty people. And in a choppy environment

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<v Speaker 3>where with the expenses we're going to show up day one,

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<v Speaker 3>and the revenues and the customers we're going to come

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<v Speaker 3>in gradually over time. So we made that investment last

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<v Speaker 3>year that was a loss for us, but then this

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<v Speaker 3>year we expect to break even in the second half

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<v Speaker 3>of the year, and then next year we should be

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<v Speaker 3>significantly accretive, so it should boost our bottom line by

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<v Speaker 3>about five percent.

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<v Speaker 2>And how important is the New York market? How much

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<v Speaker 2>opportunity do you see specifically in New York City?

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<v Speaker 3>Yeah, so the New York strategy is more broad than

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<v Speaker 3>just the private bank. But we went out a couple

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<v Speaker 3>of years back. We bought HSBC's East Coast branches. We

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<v Speaker 3>bought a bank in New Jersey called Investors Bank. We

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<v Speaker 3>now have two hundred branches in the Greater New York area,

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<v Speaker 3>about a number ten deposit market share, a million new customers.

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<v Speaker 3>So you can start to see here in New York

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<v Speaker 3>all of our green signage, and we're i think making

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<v Speaker 3>a great mark on the city and raising our brand

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<v Speaker 3>visibility and we're obviously advertising on TV. You can see

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<v Speaker 3>some of our spots. We're partner with the New York Roadrunners.

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<v Speaker 3>You're going to be to see the Queen's Citizens Queen's

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<v Speaker 3>ten K in a couple of weeks here. So great

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<v Speaker 3>opportunities for us to bring our style of banking to

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<v Speaker 3>New York City.

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<v Speaker 2>You're also doing TV interviews, which I certainly appreciate. But

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<v Speaker 2>you mentioned I mean, you just rattled off a whole

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<v Speaker 2>list of acquisitions that you've done, and it's interesting if

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<v Speaker 2>you take a look at the landscape right now. I've

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<v Speaker 2>had P and C, for example, talking about the need

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<v Speaker 2>to do bigger M and A, to get bigger through

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<v Speaker 2>M and A, And I mean, is that your strategy

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<v Speaker 2>as well? Would you say that that you're pursuing a

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<v Speaker 2>growth by acquisition strategy?

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<v Speaker 3>No, not necessarily. So I think what's interesting is all

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<v Speaker 3>banks have different forks in the road that they can pursue.

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<v Speaker 3>I think right now we basically we're describing ourselves as

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<v Speaker 3>kind of a three legged stool where we have a

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<v Speaker 3>transformed consumer bank, we have the best positioned commercial bank,

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<v Speaker 3>and now we have the opportunity to build the premier

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<v Speaker 3>bank owned wealth platform and private bank, and so you know,

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<v Speaker 3>I think we have enough there to build a great

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<v Speaker 3>sustainable franchise. We're focused on that if opportunities arise down

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<v Speaker 3>the road to potentially do acquisitions, will be prepared well.

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<v Speaker 2>Verus really enjoyed this conversation. Hope to stay in touch,

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<v Speaker 2>of course, as you progress further on those efforts. Our

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<v Speaker 2>thanks of course to PREsponse on of Citizens' Financial Group