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