M&A Pipeline Is More Robust In 2020: Citizens' McCree

at Bloomberg dot com. Well the SMP Banks Index this year it's up about Citizens Financial, I seventeen billion dollar bank based in Providence, Rhode Island or Boston, is up about percent this year. To give us an overview of what is going on in the corporate and commercial banking business, returned to Don McCree, dons vice chairman and head of commercial banking for Citizens Financial Group. He joined us live

in our Bloomberg Interactive Broker Studio. So, Don, we've had just a tremendous melt up in financial markets this year. How are your corporate customers feeling right now? Do they feel like they need to be aggressive on the M and A front um It depends on the nature of the customer. I think our customers, i'd say, are are optimistic in general. Their businesses are performing quite well. Uh, they're getting good, good lift, as you said, on their

stock prices. So all all else being equal, that's not a recipe for a lot of M and A. What we're seeing in our businesses is with our smaller clients, particularly the private clients, M and A is very robust as as clients try to get some scale or maybe get repositioned to compete in the broader world economy. One thing that I thought was really interesting about Citizens is that on your commercial sides, you grew commercial loans by about twenty one percent over the past few years. Meanwhile

piers grew only by ten percent. Why how so if you go back in our history, we did our public offering just about five years ago, and we'll celebrate our public offering uh this fall. Um. We had were owned by the Royal Bank of Scotland for eight years post the financial crisis, and it was quite a withdrawaling type of of event for Citizens Banks, so we spent eight

years basically static. When we did the I p O, we decided to accelerate certain of our businesses which hadn't grown in the prior eight years, and we also expanded regionally into the southeast and into the Midwest and into the New York area. So most of our growth has been not necessarily within our traditional client base. It's been with new clients, which we're adding at a rate of about three hundred a year right now, so particularly in

the higher growth parts of the country. So in the M n A front, I know you guys bought Bowstring Advisors. I guess it's a second boutique M and A advisory firm. So how do you view M and A opportunities in kind of the middle market where I think you guys tend to do. You know, it's it's terrific and Bowstring has been our latest, our latest acquisition, and it's really hit the ground running. As I said, a lot of private companies are going through ownership changes and and uh

basically generational transitions. So we think it's a ripe area for M and A in general. What we've tried to do is we've added capability, is add firms that have specialties in certain industries and specialties in the middle market.

And you probably see us continue to do that. And if I look at my client base, I've got about three thousand private companies at the core of my client base, and what we've been trying to do the last several years is bring a set of high quality solutions and advisory capabilities to those clients as they as they kind of change their the nature of their businesses. Where where are we in the M and A cycle? Was last year the peak? I don't think so, based on what

we're seeing in our pipelines. UM it's our pipelines are much stronger this year than they were last year. UM and we think that again, it might be different when you're talking about large company m and A and mid sized company m and A. We think we've got several years to run on the mid company size. Are there any sectors in particular that you guys are focusing on anything? There might be areas of activity. We're seeing a lot of activity and business services, which is what boasting is

at its core. We're seeing a lot of activity actually right now in gaming where we have a very strong presence, and we're seeing increasing amount of activity in anything tech. UM. So, so those are the three that we're really focused on. I want to go back to the idea of growing your loans and your customer base, and I'm wondering You're doing so at a time of a lot of competition, both from other regional banks as well as the big banks.

They're looking to expand their loan books. So how do you win customers without loosening your standards to a degree that makes you con So the way the way we talk about it is Number one, we need to be better every day than any one of our competitors is, so we have to be intense around our coverage efforts and really be bringing those solutions to our clients. Number Two, I think we occupy an interesting part of the business.

You know, our core customer, whether it evaluation or transaction size is three hundred million to seven hundred and fifty million. That frankly doesn't get the attention of the big guys because the transaction sizes are too small, and we think we have better experts against that that portion of the

market that some of our other competitions. So we just think we we've been on a real talent hiring war for the last four years, brought a lot of very experienced people in and we're just covering the market in

a really intense way. I remember seeing just maybe the last weekek or two and Actually, I've seen over the less several months articles about JP Morgan Goldman's acts, you know, hiring bankers and opening you know, offices, banking offices and secondary third tertertiary markets or they wouldn't you know, do business before. Are you seeing that at yr level? We are, But you know, we've can peted against all those companies forever.

They're in all of our marketplaces and whether they're they're physically or whether they're flying bankers in who are industry experts, we go. We go against everybody. The regional is, the big investment banks, the small community banks every single day. So we haven't seen a real change in the individual

competitors in the marketplaces. There's competition everywhere, as you said, and it's just it's just a brutal market, all right, Don mcgree, And he's speaking as a third year veteran and somebody who used to run corporate banking at JP Morgan's, so he knows what he's talking about when you're talking about some of your competitors. Don McCree, thank you so much for being with us here. Are really great to

get your perspective. Don mccree's vice chairman and head of Commercial Banking, its Citizens Financial Group, which is based in I don't know. I'm gonna shrug. I mean it says Providence, Rhode Island, but I hear perhaps it's more Boston. I gotta say, Paul Crude is a confusing story right now. I'm looking at CREWD traded on the Nimax, down about

three quarters of one percentage point. I'm just trying to figure out, though, what's the bigger influence here, the idea of trade wars being back on the table, the U S and China failing to come to some sort of agreement, or are we concerned about the Iranian sanctions and the contaminated oil from Russia here to way in, Dr ellen Wald, president of Transversal Consulting, also a nonresident Senior Fellow at the Atlantic Councils of Global Energy Center, and a Bloomberg

Opinion calumnist. Dr Wall, thank you so much for joining us. So what is the dominant factor here over the next few weeks that will drive oil prices? I think the dominant factor in futures trading last night was definitely the terroriffts issue with China and fears that this could cause a recession and that that will take demand oil demand.

But now I think we're seeing traders and and also computer algorithms to their senses and realize that there's a whole lot more going on in the soil market than just fears of a recession. And like you mentioned, we've got these sanctions on Iran which everyone knows are going to take some amount of oil off the market, but we're just not quite sure yet exactly how much part of that has to do with Iran's importers. Because this

isn't an oil embargo. The United States is not sending ships, despite the fact they did just send several aircraft carriers to the Middle East. They're not sending ships h to basically embargo that oil. It all depends on whether Iran's importers decided to stop importing that oil. And right now it looks like the big ones in question are going to be India and China. Those are the biggest importers of Iranian oil, and India seems to have halted its

imports for the month of May. But a lot I think those depend on what happens with the Indian election. If Moody loses the election of COMS party is more powerful. You know, they could have an impact on whether or they want to adhere to these U S nations. Right now, they've been very compliant and they've halted imports for me, but that's not necessarily a given going forward. Then with

China will definitely see a decrease in some respects. But China's got a whole lot of Iranian oil actually stored in a port right near China, and they can basically tap into that oil. It's not it hasn't passed through customs yet, so it hasn't actually been imported to give me to China, and they could basically just tap into that at which they have been doing. But there's a lot of oil there, so we could see UH imports from China continue for some time. Um. Then we've got Venezuela.

What in the world is going on there of the US leaning on India to try to get them to stop importing Venezuelan oil, but look, you can't ask them to stop importing Iranian and Venezuelan oil at the same time. Plus we've seen this, um, you know, we've seen a lot of uh, you know, action going on in Venezuela that hasn't reached the oil importing the oil producing areas yet, but it could, particularly if Guido isn't successful in in Caracas.

There's definitely a possibility, and I think that the pdvs A people know this, that the tensions could move out of Caracas and into other areas, particularly the oil producing regions. So dr world, How much leverage does the United States have on some of these companies like China, like India about you know where they import their oil from. Yeah, it really depends, and um I think it really does depend.

So some of the big importers in in India, We've got Naraya, which is actually owned by Rossnas mostly and so that's going to be very difficult to convince them to stop importing venezuela and oil because and in fact, what we've seen happen is that China and Russia are actually importing venezuela and oil and then reselling it. So, you know, we may not necessarily be able to even track whether India is bo buying venezuelan oil. That's just you know, it looks like they're buying from China or

it looks like it's buying from Russia. But it's really Venezuelan and and this is a big issue, and so the US means a lot on its diplomatic influence. But um, you know, we know that the Commerce Secretary is actually in India right now for a um for finance confidence and part to state in a trade form. And you know he's saying, look, the US government cannot you know, make sure that you get oil at a discount. Just

don't do that. That's not how it works. And India is really looking for some kind of They're saying, we'll look give us something. We want to comply with your sanctions, but you know we need something for from you. We're speaking with Dr eleen walda president of Transversal Consulting, and I just want to take a step back because there are all of these idiosyncratic stories, uh specific to nations

and geopolitical battles. I'm trying to understand, are we at a greater risk of an oil glut or are we one crisis away from an oil shortage? Even this seems like a very basic question, and yet there are many different answers that I've gotten to this. It almost depends on the day that you ask that question. Because last week, when we got the e I A numbers that showed a huge bill that seemed like we're on the verge

of a massive oil glut. And then if you look at um the demand side of the equation, then you're saying, well, look, we could be heading to a global recession and that's going to tak demand and then we're definitely going to be in an oil glut. So so so it really depends, I think what numbers you're looking at and on what

day of the week. But if you're looking at what's coming from Iran, what's happening with Russia, what's happening with Venezuela, then you could say, look, we're heading towards a possible oil shortage because Iran could be could be down a million barrels. Venezuela could you know it could hold production at any point. You know, they're they're one oil upgrader or malfunction away from from barely putting any oil in

the market. And then you've got Russia with this contaminated oil and they say that they have resumed clean oil sales, but but Belarus is saying, look, we're still getting contaminated oil, and we don't know what to do with it, So if you look at it from that respect, you're saying, well, we could be actually in a shortage. Plus, you've got Saudi Saudias, You've got a Ramco raising their pricing to Asia saying we are will sell you oil in June, but we're going to charge more for it because we

think there's less oil out there. You've got fewer options. Dr ellen Wald, thank you so much for joining us. Dr walda's president Transversal Consulting. She's also a nonresident Senior Fellow at the Atlantic Council's Global Energy Center and a contributor to Bloomberg Opinion. Dr wall thank you so much. Joining us. Here is of course our very own Mike mcloane, who covers this sector and has for years. He is

a commodity strategist for Bloomberg Intelligence. Mike, it seems like equity markets in the US are trying to shake off concerns of some sort of increase in trade tensions between the U S and China. Not the same in soft commodities. What's going on, at least not yet. The market is basically expecting this, hoping for and it was kind of the main hope for the support at the time, and in fact, hedge funds are records short. So right now we're giving hedge funds a gift. They're making money. Their

record short corn, soybeans. I've never seen him that short before in the markets, working so forth. But it needs to be sustained. You know, this is the growing season, This is really what matters. In fact, what's down really the most days lean hawks, because we're expecting to export those. Wait a minute, lean hogs were not on my g l c O screen. I thought I had everything here.

Well it's it's there in the Bloomberg Commodity Index. Not as widely traded, but that's been really one of the problems out of China is the African swine fever reducing their apply. They need to import more. We expected more to be from the US and okay, well that might be off the table. So you mentioned just where are we in the growing season, planting season? Where are we

here for these commodity prime planting season right now? And this is the time of year you're usually pricing a little bit of production risk premium, meaning what if we don't get the best weather. For the last five years, we had some of the best weather in history, but we're not doing that yet this year. We're actually pricing in the discount, which is very rare and more so now and with record shorts, so the market is set up for potential massive rally, but it just needs a spark,

and right now it's the wrong way. Well, I'm trying to understand. I want to go back to what you were talking about with respect to the hedge funds that are have record shorts. Is this because this is basically a hedge against a deal not getting done between the US and China, uh, you know, and that sort of

offsetting long bets in equities. Or is this because they do expect some sort of risk with respect to the planting season or some other issue that will lead to a decline in prices much more of the former, And I think that's what we're most people are missing, is this is a very much macro picture interest and hedge funds are all especially being former macro hedge fund strategists,

this makes a lot of sense. This is your short where you think it's going to matter the most and right here, but it's also when weather premiums gonna matter within a month, and that's really not gonna make a difference until really July. So, Mike, we talked about kind of exporting agricultural exports. Just give us a sense of how much of some of these soft commodities agricultural commodities are in fact exported to China. For example, first and

foremost of soybeans. So before I guess we were exporting about sixty before last year, typically we were up the fifty percent of our total exports is a total production, soybeans were being exported most of them too um to China. That dropped down the forty percent last year, and now we're hoping to get that back up, but typically takes a little while. And now we have these massive supply. There's just these big bags of soybeans everywhere. We gotta

get rid of that. Yeah, just waiting out to be sold. Really interesting. The idea that this soft commodities have become such sort of a macro bet. Is there any other period in history that's analogous to this where soft commodities have played such a central role in macro trading strategies? You have to go back. One of the first things I think of when you say that is the Great Grain Robbery, which was in the early I think it

was seventy three or so. We exported a whole bunch of grain to the Soviet Union at the time because they were had a massive drought and had very little, um little production. I just remember four grain traders in the pits were talked about, Yeah, that's when I lost my job and I stopped trading into becoming a pit clerk. Because there's a lot of people who lost a lot and made a lot there in that period. So I have to go back, just real quick into the lean hogs.

Are the prices going up or down? Well, they went up a lot and now they're mean reverting back down. So the market priced in this massive increase in demand with swine fever, and it's not getting it, at least it might not be getting it. With his latest tweet lean hoggs, I mean you heard it here first, that pork bellies. It's used to be used to bellies. Paul Sweeney is getting hungry. It is eleven oh eight a m. Wall Street time, and he is very interested in lean hoggs.

Only with Mike mcglow, can you talk about lean hoggs. But Mike covers all things commodities. Mike mcglogne commodity strategies for Bloomberg Intelligence. Thanks so much for joining us. I mean, I think we'll probably talking to him a lot more. Well. The trade talks between the US and China hit a little bit of a speed bump yesterday as President Trump tweeted that he will consider raising a tariffs by the end of the week. To get the latest on what

on this developing story, we turned to Mike McDonough. Mike is a chief economist for Financial Products of Bloomberg. He joins us live here in a Bloomberg eleven three oh studios. So, Mike, from your perspective and you're a reading of what's been going on over the last twenty four hour, do you think the trade negotion trade negotiations are in fact really at an impasse? Here? What you said, they hit a speed bump. I guess we're trying to figure out whether

it's a speed bump or a wall. Right. Uh, you know this is a serious concern, right what what what drove? But what was the driver of this tweet? Is it just trying to squeeze out a couple of extra concessions or is it something more meaningful or structural? That they're trying to change with the potential agreement. I just have to say that is so two nine. What's driving that tweet?

I mean, honestly, this is very, very very current. Mike McDonough, I am looking at a story just published on the Bloomberg that Robert lydhis or the top negotiator with China for the US, told President Trump that Beijing was backpedaling on the trade deal that they originally agreed with, saying that they would not change Chinese law as part of

the agreement, which was part of the initial arrangement. If that's the case, President Trump's tweets aren't, what's to blame is that there is a structural problem in the negotiations that maill make it very hard to get a deal done in your term. Now agreed, that would be a major structural issue, structural issue, and it would be quite challenging the seats here. Trump has now also put on

this deadline of Friday where he was increased tariffs. It's very hard for me to say, even if you have a low level delegation come from China to have these talks, I don't see how they get enough done by Friday to prevent these from being implemented, especially if that is the cause. You know, one one thing I've always talked about with you guys on the show is that you know, back in Q four, both economies were weakening, markets were selling off, and I think the bar for a trade

deal on both sides had gone down. Subsequently, Kona's China's economy stabilizing, the US is doing much better. Markets are doing better, So I almost wonder if the bar for both sides has gone up, So maybe they regret a couple of the concessions they had made in the past, which would jive. I mean, that's just a theory I have, but it would jive with what you were saying about China pulling back some of the intellectual property I mean again,

which brings us to the question that I always have. Um, you know, when we talk about this trade issue issue, who really needs it more? Would you guess? And even given you mentioned both economies tend to be doing a little bit better, what do you think who's which side needs a good deal more? You know, I mean, I think you know, it depends on if you're talking what what perspective you're talking from in short term or long term. But I think um, President Trump looking at you know,

elections aren't that far away. I think he that victory would go a long way for him politically, and it would also do a lot for markets, which are kind of one and the same. You know, one thing, you have to think about how much of the market market performance over the past several months has been because they've kind of written off this trade war. This isn't something

we really need to worry about. So if you bring that back front and center, it will have you know, cause yourself in a market may cause some uncertainty with within business leaders. Maybe then push off investment. You could actually cause the economy to slow down based on the sentiment of that, and then we go back to where we were. So I think both sides really needed um, you know, China's economy again, it was slowing. They've kind

of stabilized it. You suddenly put these tariffs on, They're gonna there's gonna be a lot more need for stimulus, physical monetary stimulus. There both sides needed, uh, and I think that's why ultimately we get it. But I have to say this was certainly an unexpected curveball for everybody. You know, the more than I hear you talk, and

you're very familiar with China with these negotiations. Uh, the more I'm surprised that the market response has been as muted as it is, because basically, President Trump, I don't see how he can back down from implementing tariffs that he's threatening unless there's some meaningful shift by either the Chinese negotiators coming over without losing face. And it seems like China's kind of, I don't know, putting their feet

in the ground. They're not necessarily they're not necessarily rolling over. I mean, I think the market reaction has been fairly significant, but I do agree people are just trying to figure out what what do we make of this? Is this something you know? Do we get these tariffs even if it's temporary, and then we get a trade deal. I think the baseline for most people is there will still be a trade deal, though the road they're certainly got

a bit bumpier. Um. But I think if you take this out even a step further, if you're Europe or if you're North Korea, if you're anyone right now who's negotiating with Trump and he's been saying things are going really well, or it's trending in the right direction, you're gonna take a step back and be concerned right now. I think. I mean, to me, the administration lost some credibility in terms with with some of their partners are trying to negotiate with because now they're going to have

to question trust. Um So, I think that's something that the markets also going to have to kind of digest. Now. Think about it, if these trade talks get back on track, or the markets or investors going to uh see a tweet from Trump and say, Okay, Trump saying things are going well, must be going well. I don't. I don't think they're going to trust that the same way they did so. I think they're going to need much more

tangible results, uh to feel good about what's happening on trade. So, Mike, let's see if you can give us a sense of how much these tariffs really hurt the Chinese. Have we seen any data to suggests that they really are something that are concerned to the Chinese and the government. It's definitely a concern. I mean, you know, the the tariffs that have been put in place right now, um so, China's economy was slowing originally because of the deleveraging process

some domestic reasons. But then you know, at the start of this year and towards end of last year, you got these tariffs which did start taking a few tents of a percent probably off China Chinese GDP growth. You implement the full swath of tariffs that are being discussed, you know, you're you're talking about a much more meaningful clip on China's GDP growth rate from I've seen estimates

from half a percent to a full percent UH. That would force the Chinese government, you know, right after they finally stabilize the economy, to have to consider far more meaningful UH stimulus, both on the physical monetary side, and that's not something as you're trying to, you know, stabilize your economy, de leverage something you want to have to be dealing with. Mike mcdonnoth, thank you so much for

being with us. This is such an interesting area because honestly, the fate of these trade discussions really will determine the trajectory of a lot of the rest of twenty nineteen. So definitely a really important area to focus on. Mike McDonald's chief economist for Financial Products at Bloomberg LP, joining us here in our Bloomberg Interactive Broker's studios. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever

podcast platform you prefer. Paul Sweeney, I'm on Twitter at pt Sweeney. I'm Lisa abram Woyd's I'm on Twitter at Lisa A. Bramwoit's one before the podcast. You can always catch us worldwide on Bloomberg Radio