Citizens Bank CEO Says Fed Should 'Step it Up'

Bloomberg Business Weekend iTunes, SoundCloud, or Bloomberg dot Com. You can also listen to our radio show at two pm Eastern Time on Bloomberg Radio, or watch us on YouTube search Bloomberg clovel News. We've been watching bank stocks in a big way this week due to the move up in rates, or the volatility and rates, if you will, all the Fed talk about monetary policy as a whole. Bank stocks st roughly about two percent year to day, compared with a nearly six percent drop in the S

and P five hundred. Citizens Financial Group they're temp up around three percent so far this year. Joining us now is the chairman and CEO of Citizens Financial Group of Bruce van Son. He's with us in the Bloomberg Interactive Broker studio. Bruce how are you good, good, good? Um, Bruce, I just wanted are you really with every thing going on? Tell me how great? How crazy? Is it? Right? Well, it's a really interesting time to be in banking. Uh So there's a lot of things happening in the macro

economic environment. But then just the level of competition, the technology changes of everything moving digital. It's just lots of challenges, which makes things fun to me. Okay, So when we you know, we have been trying to figure out what happens next. And you know, just when we thought the end of last year, we thought we had a good

handle on things. Of course, then you have the Ukraine war, um, and we know the costs and we talked about the humanitarian costs, which you know there is no excuse for, but we're trying to figure out kind of where it all goes. Do you feel like you have good visibility because you play into individuals, small businesses, institutional What are you seeing from them when you I'd say that the economy is still on a very solid footing. Uh. You know,

the major worry at the moment is inflation. That inflation is very harmful. Uh. It affects businesses, it affects individuals, particularly those at the lower end of the economic means. UH, and so getting inflation back under control is a very urgent task, and I think the FED now is on it. UH. They've made the first hike, and I think they've talked about being aggressive to this is. Job one is to bring this down. So UM, I think they'll hopefully engineer

a soft landing. That's that's you know what what would be the desired outcome. But I think the economy has enough power that if they go about it the right way and they're measured and UH, they start to bring inflation down, this could be a very good year for the US economy for stocks ultimately could kind of bounce back. If you get some kind of stalemate or resolution in the Ukraine, UH, and the Fed does its job, it

can still be quite a positive year. What what does it mean to you in terms of of, you know, how the Fed actually can pull this off. Does that mean a fifty basis point? Yeah, I think they probably should should step it up a little bit for the next meeting or two, and then kind of they can sit back and digest. If they start to see the numbers coming back down, then they could kind of go drop back to twenty five and just again take the data in and uh and even uh pause after a

certain time. But you know, right now the market is projecting that the short rates go up to maybe two and a half by the end of the year. Historically speaking, that's still relatively low from an absolute standpoint, So I don't think it chokes off economic activity. It doesn't choke off all the private equity money going to work trying to get deals done. The pipelines for deals are still very strong, and people see that. The FEDS telegraphed what's happening.

But what's the biggest part of your business deposits loans? Individual loans business, Well, the kind of overall mix of our loan book is about fifty four percent consumer and forty six percent commercials, so we're pretty well balanced between serving individuals. I'd put small businesses in with individuals, and

then the commercial side. We we cover companies, middle market companies from twenty five million up to mid corporate companies with three billion in revenues, So that's that's been our focus. What's demand among those two sides of the business in terms of just business overall loan demand or and I'm also curious about deposits, especially among individuals. Are they higher than normal or yeah, deposits are still elevated given all the liquidity that the FED pumped into the system and

that the government pushed out into into the economy. So um, I think. You know, most banks are sitting with relatively low loan to deposit ratios and we're been waiting for loan demand to pick up. We are seeing that our rates to be able to charge to make more money with the higher rates. So it looked going into the year that all that was lined up very well because the loan growth and fourth quarter was quite high, both

on the consumer side and on the commercial side. Companies starting to draw down on their lines again so they could make investments in inventories and plant and equipment to meet the higher demand that they saw coming. So those were all good signs. We haven't really seen an interruption in that yet, so the first quarter it's still held

in pretty good. But again back to the macro, the fear is if the Fed uh moves more aggressively or if people start to pull back and say, well, I don't know what's going to happen, that could cool that off. A little bit, but at this point I'm going to stay optimistic and say that won't happen. Bruce. I want to go back to something that you said a little earlier at the start of our discussion, talking about inflation and hurting the consumer at the lower end of the

income spectrum. What do you hear from small businesses, from medium sized businesses, middle market businesses about inflation and the effect that it's having on their costs. It depends on the nature of the business. Um. I think many companies have been able to pass through the inflation, so they're maintaining their margins. Uh. And you know, I'd say the bigger the company, maybe the bigger capacity to do that. Maybe not always as easy for smaller businesses, but even

small businesses like restaurants. What what's the Have you been out and had a stake lately? Yeah, exactly. I mean there's the higher costs for for labor and for the supplies, the meat and other ingredients has gone up, so so many people are able to pass that through at this point, What about for you and in your firm are you are you seeing higher costs? So we've had to take

people more. One of the nice things as an offset is those higher rates mean we're going to start repricing our loans faster than we repriced deposits, and so that additional income allows us to cover some of that higher cost of our people. At this point. The other thing that we constantly are seeking to do is to look for ways to run the bank more efficiently, and so

we're trying to substitute capital. Can you use artificial intelligence or can you use bots to automate some tasks that used to require people that we're probably less uh enriching from a from a kind of growth standpoint, the jobs that menial things that that get in the way of people enjoying their careers. Can we can we kind of take those off the table and allow people to do some of the more higher value add stuff. We're talking with Bruce beans On, chairman and CEO of Citizens Financial Group.

What what is the importance of still having branches like k I'm amazed. I'll even walk in like the city branch in the corner and it's like it's probab We just we just uh you know, made a big play to get into New York metro by buying HSBC's East Coast branches and then buying Investors Bank, which is we just got approval on this week from the FED, so that'll close shortly, but that'll give us a combined two branches in the New York metro area, top ten deposit

market share, a million new customers. People say, I'm saying you're all in on branches. All right, We're still in on branches. So you say, well, Bruce, you know you also launched a digital bank, so you have citizens access, is doing business in fifty states. Why do you need branches? Uh? Interestingly,

are most satisfied customers value all our distribution channels. So if you have a branch network where you can offer advice, you have a digital channel where you can people use their phone and bank on their phone and make check deposits and check balances. So it's convenience. You're offering convenience. And then on the weekend that branches aren't open and you have a question, you can call the contact center.

If you have all those channels working at a high level, seamlessly together, that's when you have a really satisfied customer. So it's help me channel like retail. Yes exactly, that's what's happening. Yeah. I just interviewed earlier today Jason Wilk, the CEO of Dave, it's three billion dollar market cap fintech startup. But the idea is to displace banks the same way that Chime is looking to do that. How do you make sure that these you know, digital first

fin techs don't take customers from you? Well, I think, um, there's lots of examples you mentioned those. There's uh the payments companies are trying to take revenue streams away from banks. I think what banks have is a full products set and an ability to be an individual's trusted advisor on their life's journey. So that's where we're trying to position ourselves that you should open your bank account at Citizens and uh, look at all the great things we can

do for you. We can give you wealth advice, we can figure out how to refinance your student loans. We can help you buy your first house. We can give you a home equity line of credit when that's an advantageous way to borrow. So uh so banks that can give you that advice to make you more successful on your financial journey. I think that's hard for some of

these uh startups to compete against. And and they can go in and uh, they can offer since they're they're kind of a lot of times the profit motive is relaxed, so they can uh offer services at below cost to try to gain customers. But ultimately can they really deepen that customer relation and turn those into profitable relationships is still an open question. So the market is valuing them on their growth rates, and so they're all pushing really

hard to just acquire customers. Many of these companies aren't profitable, and the question is what what's the ultimate outcome for them? But ultimate outcomes you want to make sure you're bringing in younger customers right that you hold on grab them young and do and and we are. So one of the things we're focused on mass affluent young professionals. One of our lead hook products there is student loan financing for those people listening. If you're carrying some high costs

student debt many are. Unfortunately, there's opportunities to consolidate that into a single loan at a lower interest rate and we put money back in your pocket. Uh and so so that's allowed us to gain a lot of market share and get younger in our customer base. Quick question Home buying is it happening slowing down just quickly? Home

buying is still uh in good shape. There's people who are kind of figuring out the next phase of their life and they're moving around a bit, and so I think the purchase market's going to stay strong this year. Thank you so much, great interview, and thanks so much for giving us a bunch of time. Bruce Fanson, He's

chairman and chief executive officer of Citizens Financial Group. Here in our Interactive Broker Studio, you're listening to Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. So a story online of Bloomberg Business Week on the Bloomberg terminals, but Hong Kong and how it went from COVID zero to one of the world's deadliest outbreaks. To him, how did this happen? Well? Joel Webber is editor at Bloomberg Business Week. Keep with us

in the Bloomberg Interactor Broker Studio. Ian Marlow is Asia Government senior reporter for Bloomberg News. He joins us on the phone from Canada. The story by Ian Marlow and surely Jao you can read in story on the Bloomberg terminal and at Bloomberg dot com slash business Week, Joel, when we think about Hong Kong and during the course of the pandemic, oftentimes we think about how good of a job it has done in controlling the spread of

the outbreak. It was all well and good until omicron COVID zero worked really really well for a long time in Hong Kong, and then all of a sudden it didn't. And what's really surprising about Ian's reporting in this story is it shows you know, just how contagious something like omicron can be. They had some mechanisms in place, and they basically were overwhelmed by them because the virus um

spread so quickly and became incredibly lethal. Because there was also some lackadaisical qualities that I think we're bred and while a lot of people never got vaccinated, there's distrust between citizens and state. Um that or you probably unique to Hong Kong. Um. And you know Ian from the outside looking and um, you know you you live in Hong Kong, You're you're stuck in Toronto, can't get back yet, um. And yet this, you know, it has been a devastating

impact on especially the elderly community in Hong Kong. What have you? What did you learned outside looking in during the course of reporting the story. Yeah, I think the one thing that that really struck me was just how little the government had done to prepare for what, to the rest of us seemed like the inevitable, the fact that the virus was going to come in. It looked like they were basically overconfident that there was a case

of hubris. And we had seen this kind of play out across a couple of different so COVID zero or elimination uh places like in Taiwan, and in New Zealand, uh and and in the mainland right now, which is

also facing a big outbreak. Uh. But I think everyone sort of assumed that at least the government might have been doing something ramping up isolation facilities for example, or uh you know, having some kind of contingency plan in place, uh, you know, for once cases started rising beyond the capacity of these really owners travel restrictions and contact tracing regimes that had kept the virus out for so long, because of course they had these contingency plans in place in

general for pandemics, because of their experience with stars about twenty years ago. So it was pretty shocking I think for for the city to go from a place that was totally calm, had spent two years basically dodging the worst of the pandemic uh to then end up in a style outbreak UHO when there's vaccines that are you know, fully available for everyone. So I think that was that was shocking, I think for people in Hong Kong, and can you explain what's like there for people who haven't

been to Hong Kong, For people haven't spent time. They're very densely populated. A lot of people live in really really small homes. And I mean when I say small, I mean the way you write about them, as you describe them as coffins. Yeah, exactly. I mean in Hong Kong the government refers to them UH as subdivided housing units, but really we're talking about a bed with some stuff strung up around it. There's a lot of uh inequality in Hong Kong. It's obviously the one of the most

expensive housing markets in the world. A lot of people in a lot of the poorest neighborhoods are crammed into places that just will not work with a mainland China style lockdown, and so that was one of the reasons why the government from the beginning was kind of reluctant to really impose the kind of harsh measures that everyone is familiar with from Wuhan and and other Chinese cities. But but once on the cron got in, Uh, this isn't a place really where you can even really isolate

at home. I mean, uh, you know, the high rises of New York and other American cities are one thing, but I mean Hong Kong, everyone is sort of packed into ten percent of the land maps one of the densest cities on Earth, and so there was a lot of what they called, you know, in epidemologicals, are in vertical transmission. People were infecting their neighbors up and down. Uh. There were you know, a bathroom and kitchen exhaust fans that were kicking the virus all around these really densely

populated high rises. And once on the cron got in, Uh, it really raced like wildfire through the city and there was a race kind of whackable locking down all these high rise towers. At one point early on in the in the pandemic, my building was locked down entirely because there was a single COVID case UH in one of the two towers UH and the cops pulled up outside lost everyone in until everyone had been tested and everyone tested negative. So this is a city that really took

everything very seriously. But once the cases started, you know, going from a handful to you know, tens of thousands a day. At one point it was well over fifty thousand a day in a city that had spent most of the last year at zero hate to day. There are measures just could not keep up with what was happening, and healthcare system just utterly and totally collapsed. And how much of a problem too, is I mean, obviously sounds

like a policy failure. We talked about you right about the government enforcement of the new National Security Law and how that has effectively banned political opposition. And I think about you know, lack of access to maybe you know, more global media to really understand this global pandemic. How much of that is also to blame. Yeah, I think there's a large element of this preventable outbreak that was political.

Hong Kong has adopted a mainland style COVID zero approach to total elimination of the virus, So there was no tolerance for any cases whatsoever, even when vaccines were uh you know, being administered throughout the city. So this was a problem from the very beginning that had uh you know,

political routs. The last two years of the pandemic had basically been two years of Beijing taking unprecedented political control over over Hong Kong in the in the wake of those democracy protests that everyone saw in twenty nineteen, which only really dissipated once social distancing measures came down because

of the pandemic. So even at the city was uh you know, preparing for this, uh you know, preparing for the pandemic and putting in all these measures, Beijing was taking more control, and what was generally considered a very efficient technocratic, uh you know, free market government just became more and more under this way of China. All Right, we gotta run. Hey, listen, great stuff, Ian, Thank you so much. Ian Marlowe of course at Bloomberg News until Webber,

editor of Bloomberg Business Week. This is Bloomberg Business Week with Carol Measure and Bloomberg Quick Takes. Tim Stinovic on Bloomberg Radio. We did have a bunch of headlines coming out of Europe. I feel like, Tim, I I can barely keep up, you know, I can't even there. And it doesn't just have to do with the war, but it also has to do with the rising COVID cases in some parts of the world. Uh. And of course much of the West focused on there as President Biden

continues to make his way across the across the continent. Right. And you know, I've talked about just like one of the headlines out of Europe that have really caught us is about the possible use by Russia of weapons of mass destruction and nuclear weapons. So we kind of have I feel like a perfect guest to tackle it all.

And so let's bring in Crystal Watson, Senior scholar at the Johns Hopkins Center for Health Security at the Bloomberg School of Public Health, the Johns Hopkins Bloomberg School of Public Health that is supported by Michael or Bloomberg, the founder of Bloomberg LP and Bloomberg Philanthropies. Dr Watson, really good to have you with us. I do want to get to COVID in just a few minutes, but uh, a little earlier in our program. Um, Carol and I were talking about Yen Stoltenberg of NATO and what he

said with regard to chemical and biological weapons. And this is part of your specialty at the Johns Hopkins Center for Health Security at the Bloomberg School of Public Health. UM, explain what's at risk here if Russia were to use chemical weapons. Yeah, thanks for having me on. I think, um, we have seen the devastation that chemical weapons can cause, and and most of the world has committed to not

using chemical weapons to via international treaty. UM. So I think that it will put a lot of things up in the air if Russia did choose to use chemical weapons UM against the Ukrainian people, because they're they're definitely their norms against this, their heart prohibitions against the use of chemical weapons. UM. But we also have the complicated history of with what history, with what's happened in Syria and the lack of our in terms of a red

line for Syria. I think that the response will be complicated. Well, can you can you define biological and chemical weapons for our audience and help us just understand what they are and what they do. Yeah, So, biological and chemical weapons are two separate categories. Of unconventional weapons UM that are both banned by international treaty and have signatories from most

countries around the world. UM Biological Both of these weapons would be UM the use of a biological agents or chemical agents in a way that is intended to harm individuals or use on a larger scale potentially as well. And so UM any any chemical or biological agent that is used in that way can be considered UM banned under the Biological Weapons Convention or the Chemical Weapons Convention.

So what do like, where are we in terms of like I understand, you know, weapons to counteract missile attacks and so and so forth. You know what realistically, like do you guys talk about it? John's Hopkins when it comes to what we might not need to do if there is some kind of attack, or what can we do ahead of time to kind of protect ourselves. What are what are the smart conversations we need to be

having the realistic ones. I think, UM, we need to talk about what would actually be the goals of of Russia using these weapons against the Ukrainian people. UM. I think with there's a higher likelihood of use of chemical weapons because of the history of use, the recent history of use by Russia and our support of youth in Syria against the Syrian people. So looking at what what that would actually um do for prutent efforts, I think is will help us give an understanding of the likelihood

of their use. I do think it's less likely that biological weapons can be will be used because they're they provide less of a strategic advantage UM than chemical weapons might. I hope that neither of them are really on the table, But we have seen a history of violations by by Russia of both of these treaties, and so I think we need to plan for um the case that they might be used. So we've only got about a minute

and a half left here. I mean, all of this is so heavy, Uh, just when we think, you know, two years were coming out of the pandemic and and and you know, we're not in Ukraine and or we're not a refugee, or we haven't lost family members, so we know how difficult UM this this has been when it comes to the pandemic. What's front and center for you? What are you thinking about in terms of these sub variants macron some sub variant. Are you anticipating another spike?

We just did a story from Business Week about what's going on in Hong Kong. Right now, we're watching what's going on overseas. UM. Are you anticipating we're going to see some kind of spike here and just got about seconds? Sure? Yeah, we are seeing in Europe and it may be contributing to some of the spikes in in such as an

in Hong Kong and in South Korea. UM. This is the B A to sub variant of omicron, and so we are starting to see some upticking cases in New York for example, UM and Texas in the US and maybe a few other places and some indication in wastewater surveillance that we may be seeing UM more virus circulating and wastewater. So I think we have to prepare that we may see an additional omicron surge with the B

I two subpariant. What is that just in the last thirty seconds we have with you, Dr Watson, What does that surge look like? Should we be prepared for something that we saw in December in January? I think it will in terms of severity, will probably look similar to the prior omicron surge. UM. Hopefully it won't be as high, but we still have a large proportion of the populations who haven't been infected by omicron so I we have seen in Europe, for example, that it has been a

large She's blowed well. We are so grateful that we got some time with you. Dr Crystal Watson. She is Senior Scholar at the Johns Hopkins Center for Health Security at the Johns Hopkins Bloomberg School of Public Health. On the phone from Baltimore, of course, supported by Michael R. Bloomberg, founder of Bloomberg Philanthropies and Bloomberg LP Carol Master, Tim Stanovic. We are Bloomberg Radio. I'm road Michael, Yeah, but you let me drive? No, no, no, all right, please Gravels.

I don't want to drive. It's a good question. Drive this ride to the close on Bloomberg Radio. All right, everybody, just about ten minutes left in the trading session on this Thursday, on this Friday's even we're seeing an uptick. We've been seeing some buying into the clothes, as Charlie mentioned, pretty much at our best levels of the session. And Tim, once again, we're seeing some tech aut performance here. Help us make sense of it. Hillary Kramer, President and Chief

Investment Officer at a n G Capital Research. Hillary Kramer is also the author of Game Changer Investing, How to Profit from Tomorrow's billion dollar trend. She joins us once again on the phone from New York City, So help us make sense of it, Hillary, It's it's we're just I mean, if you if you go back to where we were a little over a week ago, it's a completely different mood in the market. Yes, we're really riding. We're really riding ourselves up into that end of the quarter.

It's it's window dressing for the most part. And all them easy money's pretty much Jim been made here already. What do you mean, it's just window dressing end of the quarter. All of the fund managers, you know, they were miserable early on, and this is an opportunity just the group think with just all buy. And of course you have to combine it with some reality, which is

for example, like Intel and then video today. Yeah, performance, right, Well, it's funny that you say that, right, so that when we open up or check out our quarter list, aiments were like, oh yeah, they were good, they were smart, they were in some of the top performers. Right, that's some of the window dressing. That's going on well longer term now, you know, Hillary, we are at this point, this this UM point where we're trying to figure out are we topping out on yields? Are we bottoming out

on equity selling? Is it too early to make that call? In your view, it is too early because we have the federal reserve next month, and we have earnings, and those two are the big factors. And Carol, I'm always

saying Mark is going to go up. You know, we're debarish, bullish, But in this particular case, we really have to see what happens with earnings up to combined earnings for hundred looks to be about two thirty dollars, and we'll see if we're really going to make it and uh and what those CEOs have to say about the supply side. But we but we still have revenue growth right like it's I mean, the economy is still growing um and we still have revenue growth. We just had on UM

the CEO of Citizens Financial Group. You know, they are publicly held bank, twenty billion market camp. They just made some acquisitions and branches here in New York City, and he had optimism about the outlook even the housing market um and thinking that in the face of what he

expects and things should be a more aggressive fed. Well, we have revenue growth because we have such high inflation and there's so much money slashing around, and people have made a lot of money, and a group of people that didn't make money previously, the renovators, the contractors, the plumbers, the electricians, so they've made so much money they're spending. That's a lot of why revenue growth is in the picture. And the banks are very happy because they've really taken

better care of their balance sheet. Uh, going into anything that could be scary looking if you're looking over a cliff. So why do we need to keep an eye on in terms of earnings as the next catalyst? You said that, you know, that's really what we need to be focused on. But what are the red flags or or what are you really going to try to watch to help you understand how these companies are are taking this inflationary environment. It's the industrials and it's and it's the banks and

what they are going to tell us. Yes, those those are the two that I'm going to really have my eye on. And as we know, the banks come first. Yeah, JP Morgan right April thirteen, six in the morning. It's just around the corner. Having said that, in terms of the banks, you like Goldman Sacks. I love Goldman Sachs

and I have for a while Carol Goldman Sachs. It is a bargain at two point four percent of it in yield right, it's certainly way off of it's fifty two week high and can really benefit in a market that has volatility because in many ways they're able to use their balance sheet and they're able to use it in a smart way that a commercial bank of JP

Morgan just can't do. Golden Stacks is very stealth. It's about a hundred dollars almost or just about ten bucks shy hundred dollars ninety dollars off of its fifty two week HI, so it has come way down. Another particularly that you have is Newell Brands UH. It's the parent company of Rubber Made, as well as Coleman camping Um supply chain concerns. That's why the stock got hit so badly and why Newell n w L is trading at

twelve times this year's earnings YO dollar stock. But they actually had a strong fourth quarter and the CEO has said he's not worried about the supply chain issues, and so much of their money comes from Schwebs Canada, Dry Sun Kiss. They made Clomado. There's a tomato. Yeah, I don't know. It's a clam juice and tomato juice. That sounds disgusting. It was, you know, my dad had actually worked on the advertising paid for that. That's how I know about it. Yeah, is it good? I don't really know.

What does dad say? I was like, you know, pretty young. Then another name that you like is PayPal. Talk to us about that one. Well, PayPal, certainly it may not be there this year. Yeah, PayPal just got slammed. So it was a bargain at eight four dollars in it, but at one fifteen we're still talking a bargain because PayPal has just become the standard. Plus they have Venmo, they have Zoom, they have something called Chargehound. They're really

and they're finding niches in the market. So what's the problem the fires low expectations there? The concern was that pap that well, much of the concern is that JP Morgan Chase getting into the business by having Zell for example, you know what the Apple going to do. But it still seems that the Venmo PayPal brands are strong. Interesting. I was just looking at the stock price, right, so I'm still thinking about Clamato. I am certainly not PayPal shares,

by the way, up about a buck today. If you had to put some new money to work just today, where would you do it or where are you putting it together? Is it these names you just talked about? It would be it would be new old for sure to get that to it in yield, and because it's a cheap stock, and then people are still like the rubber Maid and it's been around forever, and ingredient is incredibly undervalued. That's your starches and your sugars and uh.

And for me, that's one that at seven dollars. Uh, it's training at twelve times this year's earnings and a three percent of it in yield. That's what I'm looking for. I'm looking for safety. And then I'm taking some flyers out there, not not going into Tesla. I know electric vehicles, electric is where to be, so I'm looking at some of these small guys like them. The easy lightning emotors are the electric Wait, all right, we gotta run, Hey, listen.

Great to talk names with you, as always are thanks to Hillary Cram where she's president chief investment Officer at A and G Capital Research. Thanks for listening to Bloomberg Business Week. Download the podcast on iTunes, SoundCloud, or Bloomberg dot com, and you can also listen to our radio show at two pm Eastern on Bloomberg Radio or watch us on YouTube search Bloomberg Global News