00:00Earnings just around the corner. Investors are watching closely for signs of stress and shifts in client behavior. Joining us
00:06to help navigate these
00:07times is Bruce Fancon chairman and CEO of Citizens Financial Group. Bruce always great to get your read on the
00:13economy and the
00:15sector. Let me first start with with the credit issues. I mean how do you see consumer credit right now.
00:23Meredith Whitney was just
00:24telling us that we have a lot of open lines here. We have access to a ton of liquidity. How
00:29does it look. Yeah I'd say our credit
00:32books look very good at the moment. So we are in a bit of a tiered two tiered economy for
00:38the consumer. People well off are really not
00:41affected by what's happening in the macro environment. And I say people less well off obviously are have fallen behind
00:49with
00:49inflation and wages haven't kept quite up with that. But more of our orientation is towards super prime and high
00:56prime
00:56borrowers. So all our metrics are pretty solid on the consumer side. Same thing with C&I portfolios. Most companies
01:04are had a good year last year are planning to do well again this year. There's clearly an increase in
01:11uncertainty given the war going on and potential impacts on energy prices. But I think still poised and
01:18feeling good about things. And CRE as an issue has kind of moderated and is being worked out. So we
01:24feel generally good
01:25about the credit position on the point of corporate clients. I mean it's it's been a year or I guess
01:31you know a past 12
01:32months that that's been bookmarked by some of these kind of credit blow ups having to do with fraud. What
01:37have you JP Morgan
01:38talking about cockroaches. Have you changed your underwriting standards at all or have you changed how you do due diligence
01:44because there is
01:46this fear of maybe there are more risks out there when it comes to credit. Well I'd say we haven't
01:50been affected. We haven't had any
01:53cockroaches come out into our kitchen. But I think we always were quite disciplined. And some of the newer players
02:01some of the
02:02private credit players maybe didn't have the same level of rigor and discipline. And so they're getting called out on
02:08some of that. But we
02:10haven't we haven't changed a whole lot. We're monitoring private credit and our exposures there quite carefully. But we just
02:17did a
02:17full review of that and feel from from the bank standpoint we're in really good shape based on the structures
02:23and how much underlying
02:25collateral and diversification we have. And I'd say you know private credit is having a moment. And I think the
02:32growth will slow
02:34down as they work through some of that. But I think the kind of issues they have have been a
02:40bit over drama. Did you do that review
02:42just because of like the noise out there. Yeah. I mean when we just had a board meeting in March.
02:46And so you want to make sure. OK.
02:48What is what is citizens exposure to private credit to BDCs. It's fairly limited. But in any case structurally we're
02:57in a very good
02:57place. So we don't see a big risk for us. I think one of the risks is if these private
03:02credit firms need to keep going to
03:04market and selling bonds and getting liquidity. Does that dampen overall asset prices to some extent. And what's the second
03:12order
03:12consequence of that. So we're keeping our eye on that. But direct credit exposure feel good about that. And you
03:19know in private credit we talk
03:20about maturities wall but everybody has to refinance. Right. And rates are right now the 10 year at 434 433
03:28looking pretty punchy.
03:30How do you feel about refinancing. I'm not that worried about it. I mean ultimately we came into the year.
03:36Our call was by the end of the
03:37year. The 10 year should be between four and a quarter and 450. So that's still by historical standards reasonable
03:45long term rates. And you have to
03:46remember to banks if there's steepness to the yield curve. We make more money off of that. So feeling pretty
03:53positive about where
03:54things are right now. Some of the rate environment changes the volatility because of the geopolitics of the moment. We've
04:00had plenty of
04:01people M&A types come on the show and just say the volatility is causing a bit of a slowdown.
04:05What are you seeing on your end. How have
04:07deal. How has the deal making environment fared. It's been like coming into the year. We had huge backlogs across
04:14everything across
04:15syndicated loans debt financing equity financing M&A. And you know good news is that the war didn't start until
04:23we had two
04:24months in the bank. So like when you look at first quarter things are still solid as spreads have widened
04:30a little bit. I
04:31think issuers may hold back and think about the timing like wait for a little better moment maybe when the
04:37war resolves itself.
04:39Same thing with equities. You're not seeing as much IPO activity but there's still people ready to go poised to
04:45go. And I'd say M&A really hasn't
04:47slowed down. So we're still printing a lot of M&A transactions. Before the war we were pretty focused on
04:52what AI could do. It seems to be kind of
04:54eating the physical economy. And of course software was an issue. And you're rolling out. You have a strategy. Reimagine
05:02the bank. Right. Yeah. How do you see AI
05:06taking jobs or allowing you to reduce costs. Yeah. I think it's a force for good. So I think it's
05:14very exciting. And we certainly have to tap into
05:16that and get the benefits of that. I reimagine the bank program. We stepped back and we looked at everything
05:22a bank does. How do we onboard
05:24a customer. How do we deal with a complaint or a fraud on someone's card. And then let's picture it
05:30how it works today and then start with a
05:32white canvas using all these new AI tools and agentic bots. Like how could we redesign that to be so
05:39much better customer experience and then more
05:42efficient at the end of the day. And so we basically put that together into a program which has about
05:4850 initiatives we think will benefit to the
05:50tune of about 450 million dollars within three years. About two thirds of that is on expenses. A third of
05:56that is better customer retention given the better
05:59customer experience. And so I think we've had a track record of being able to convert the ideas and the
06:06promise into
06:07something that's tangible. And so I feel good about how this thing has launched and that we're going to go
06:12get it.
06:12But you can use AI more and then you have to pay fewer people. Is that the idea?
06:20Well, what's interesting is, yeah, if I go back to when I took over at Citizens 12 years ago, we
06:27had about 18,000 people. I fast forward
06:29today, we have about 18,000 people. We've done acquisitions and investments in different areas of the bank for
06:38probably four or 5,000 people. And we've thinned four or 5,000 people from operational intensive activities from having
06:47more
06:48branches than we needed. So if you look at it, we've self-funded these investments in kind of higher value
06:55added jobs
06:55and more customer facing jobs. And so what I think you look forward, you may see fewer people, but you
07:03also see growth in
07:05other areas that should generate more revenues and keep keep the bank growing. Do you subscribe to this idea that
07:12like what we're
07:13seeing down the road is going to lead to just this huge revolution that the way we think about entry
07:18level jobs are going to change? Yes, it might add jobs, but that's going to change. The friction in the
07:24banking
07:24system is going to change. Like, are we on the precipice of some really major Citrini like differences in this
07:30global economy? Or is it just additive and efficiency producing? Yeah, I don't know. I think there's probably over
07:39anxiety about how this is going to work out. If you look historically, every time there's been these great new
07:46innovations, you know, like when we first had a spreadsheet, like, oh, we don't need financial analysts
07:51anymore. Well, guess what? Financial analysts got to do more value added work. And so I think if you're a
07:59well-rounded
08:00person, you come out of college, you have good communication skills, you have good EQ to go with your IQ.
08:07You
08:07understand how the world works, how businesses make money. There'll be a role for you in the company.
08:13It'll be different maybe than some of the entry level jobs of yesteryear, but we'll still need to keep
08:20replenishing our colleague base.
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