Citizens Bank, heir to the old PSFS — the Philly neighborhoods’ bank, owned by depositors before its 1980s corporate conversion and collapse — still has more bank branches in Philadelphia and its Pennsylvania suburbs than any other lender, even after closing one every four months since the last recession, as more people bank online.
What’s left is changing with the times: Citizens has lately moved some of its 145 remaining branches in the region to busier corners — Broad and Spring Garden in Center City, Frankford Avenue and Knights Road in the Northeast, and 52nd and Market in West Philly.
Bruce Van Saun, its Rhode Island-based CEO, was named “banker of the year” by American Banker last week for turning around the formerly flailing company since he took the top job in late 2013. His arrival came as its old owner, Royal Bank of Scotland, which had been seized by the British government during the Great Recession, was preparing to sell Citizens in a stock market offering in 2014.
Here’s what he told The Inquirer about internet competition, cheap money, reluctant borrowers, and import taxes in an interview this fall:
“The consumer is roughly 70% of the U.S. economy. And it’s a good time to be a consumer in this country,” said Van Saun.
“You’ve got unemployment at historic lows, real wage growth up to 3% a year, inflation under 2%. And you’ve got the Fed lowering interest rates, so we have this boom in [home] refinancings. Which puts more money in your pocket. So we’re still seeing a positive attitude by consumers.”
Not borrowing too much? “We don’t see a lot of migration into delinquency.”
Are businesses less confident than consumers, what with the new import tariffs driving up costs and slowing trade? “The manufacturers, the ones who rely on exports, are hard at work trying to figure out how to rejigger their supply chains,” Van Saun said. “So we are seeing a little less loan demand. We’ll have to watch to see if the concerns affecting the business community spill over to consumers.”
Still, he points out, manufacturing is just 20% of the business economy. Services businesses, which account for the rest, are having “very good years. Cash flow is good. We’ve seen a little luffing [sailing into the wind] on the corporate side, from commercial real estate and leveraged-buyout firms,” which, like banks, prefer higher interest rates and spreads. But as rates stabilize — how much more can the Fed cut? — “we expect to see loan demand pick up again. And if we can see a path to resolution [by the Trump administration] for some of these trade issues, that would be a boost for investment confidence.”
He’s not worried about the long-predicted downturn that will one day end the long recovery and expansion. “I don’t see a risk of recession in 2020,” Van Saun said. “We feel pretty good about the overall [state] of the economy.”
What about all that noise from Washington — tariffs, impeachment, and fears that investors won’t buy new machinery or keep hiring workers if they don’t know where taxes and regulations are heading the next few years?
By now, “we’re almost inured to it,” said Van Saun. “It started the day Trump was elected. It’s been nonstop, this hyper-partisanship. People say they are down in Washington playing games. Which at least keeps them away from legislation” that would likely slow the economy.
I asked about the claim by 50-year lending veteran Gerard Banmiller, dean of South Jersey bankers before his announced retirement as CEO of First Colonial Community Bank, that canny loan officers create demand for businesses to grow — not the other way around.
“It’s an interesting hypothesis. It may be a little true. But I think the kind of taxes and political conditions in New Jersey aren’t as attractive" as in Pennsylvania, said Van Saun, a Bucknell accounting grad who was paid $9.4 million in cash and stock last year. “That may be why you are seeing growth in the Philly suburbs more than in New Jersey.”
I noted how small-town banks are disappearing, and asked whether banks still care about neighborhood lending. “You have a lot of downside if the [small-business borrower] doesn’t make it,” Van Saun said. “A lot of banks learned that lesson anew” during the Great Recession. To turn a profit on a loan, “you want to sell a lot of services. You want to get their deposits, you want to offer them advice, you want to manage their cash. But you want also to make sure you are not becoming an equity investor,” obliged to take over borrower assets in lieu of cash payment.
That’s why Citizens is making more small-business loans through the Small Business Administration federal loan guaranty programs, which spread the risk of default to taxpayers.
What about the private-equity-funded “fintech” lenders that use social media data and other novel information to make loans without banking rules and delays? “A lot of the fintech lenders are moving out just beyond where banks lend. If our credit appetite stretches from 10 a.m. to 2 p.m.,” covering one-third of the clock, “they can make loans from 9 a.m. to 3 p.m.,” say, half of applicants.
Other fintechs are bolder. “Companies like Plaid — they are very innovative — are looking at someone who never missed a utility payment, whom they figure always finds a way to pay their bills on time. They say that’s somebody we can take a fresh look at and, if it correlates with borrower outcomes, maybe could make a loan to them.”