How Citizens Financial Group survived

The good news? Citizens Financial Group is still standing—and apparently in good standing with regulators, something that was underscored by the fact that they were allowed to bid at all. 

And now that the dust is starting to settle from the failures of SVB and First Republic, the regionals that are still standing are starting to formulate strategies for how to come out of the crisis stronger—as well as a healthy dose of caution about what not to do. 

Bruce Van Saun has been chairman and CEO of Providence, R.I.-based Citizens Financial since 2013. Citizens is the 12th biggest bank in the U.S. with $222.3 billion in total assets as of March 31. Deposits stood at $172.2 billion, down about 5% from Q4 and an 8% increase from Q1 in 2022. 

Citizens has been acquisitive in the past few years. In 2022, Citizens closed its buy of 80 East Coast branches and the national online deposit business of HSBC Bank. It scooped up Investors Bancorp, giving Citizens 200 branches in the New York Metro region. In 2021, Citizens also acquired JMP Group, a San Francisco investment bank.

First Republic would’ve fit “snugly” into Citizens’ business, Van Saun said. He pointed to First Republic’s wealth management business, which reported $289.5 billion in total wealth management assets in the quarter ending March 31, up about 7% from the fourth quarter and a near 6% increase from the same time period in March 2022. Citizens has a retail-oriented deposit base with branch deposits comprising 47% of its business mix, while commercial is 26% and business banking was 14%, according to the bank’s Q1 earnings report. Only 1% of Citizens’ business mix is wealth.

Citizens was one of several banks, including PNC Financial Services and JPMorgan Chase, that was vying for First Republic Bank, according to people familiar with the situation. “JPM put in a very strong proposal on First Republic and came away with the franchise,” Van Saun said. 

The Citizens CEO wouldn’t address whether he or others were angry that rules limiting JPMorgan’s ability to do acquisitions were lifted and they were picked as the buyer over other bidders. “It’s just hard to go up against Goliath when they have the balance sheet size they have…They can offer terms that would be hard for banks our size to offer,” he said. However there was a bright spot: “It’s a sign for the market that we’re held in high regard by the folks in Washington, that we get to play in these things,” Van Saun noted. This means, Citizens is positioned to bid for other troubled banks, if they were invited. But another banking collapse is not something Van Saun wants to see happen. 

For his part, Van Saun said he doesn’t think there was a “banking implosion.” Instead, he thinks there were “several idiosyncratic bank failures” that the market turned into a banking implosion. SVB grew too fast and misinvested its long-duration assets in a way that left them susceptible to interest rates, he said. The bank had $61.8 billion in deposits at the end of 2019 which increased to $175.4 billion in 2022. “Oftentimes banks that grow that fast, the management capabilities are not as robust as banks that have grown more organically over time,” Van Saun said.

Van Saun said there “was a lot of churn on deposits” during those first days after the SVB and Signature collapses. “It seems like it [has] simmered down a little bit,” he said. 

But there is a clear overhang on the sector. Banks are feeling the impact of higher interest rates, which has caused them to be more cautious, Van Saun said. He noted the short sellers — traders that bet and profit from the drop in a stock’s price—have made a killing on regional bank stocks. “They’re kind of looking for the next suspects,” he said. 

The Citizens CEO also pointed to the looming debt ceiling deadline which would affect banks. Failure to reach an agreement could have a negative impact on the economy, he said. 

Regional banks are trading at discounted valuations that have rarely been seen, he said. “And for the brave stepping in and buying these regional bank stocks around book value, or in some cases slightly below book value, [that] has always been a prescription for making money over time,” he said. Citizens’ shares have dropped 39% from its February highs, trading Friday at $26.89.  

Van Saun expects a soft year for mergers in 2023. He expects more bolt-on transactions and smaller deals in wealth and payments but nothing big dollar-wise, he said. He also doesn’t expect a severe recession in 2023 but more of a soft landing. “I’ve said all along that I think it’s just either a very low growth, so there’s a big slowdown and there’s almost no growth [for] a couple of quarters, or we go to a technical recession that’s short and shallow,” he said.

Until next time,

Luisa Beltran
Email: luisa.beltran@fortune.com
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