Home and auto loans are down as inflation depletes savings, but relief is in sight, says Citizens Bank chief

Bank shares have fallen in recent days as a string of big lenders — reporting last year’s sales and profits, and projecting ahead — show more signs that the economy has slowed as the Federal Reserve boosts the cost of money to fight inflation.

Bruce Van Saun, chief executive of Citizens Financial Group, which runs the biggest bank-branch network in the Philadelphia area, agreed to address The Inquirer’s questions after he met with investors. The interview has been edited for space and clarity.

You told investors in your quarterly conference call on Tuesday that we may have seen the worst of the slowdown. What’s ahead ?

We see inflation getting down to 3% (from last year’s 8%) by the end of the year. Unemployment, maybe 4% to 4.25% (up from the current 3.5%). And we are moving to a more normal interest rate environment. Maybe two Fed rate increases early this year (0.25% each) and a cut late in the year.

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There is still an increased likelihood of an economic slowdown. But we expect the economy will actually grow, around 1% [in 2023], and more next year.

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Is Citizens seeing a decline in home and car loans?

We are [reducing] our auto loans. And mortgage loans were down more than expected.

How are small savers managing?

Some savers are migrating to higher-rate interest-bearing deposits. The bottom (20%) of our customers are back living paycheck to paycheck.

Does the slowdown mean housing prices will go down?

Most prognosticators are saying [home prices] will show mid to high single-digit declines as long as [interest] rates remain high. We are expecting mortgage recovery later this year.

When will construction bounce back?

The happy days for real estate developers when they could do cash-out financing and use the money right away for another project have stopped. When the Fed gets rates to its destination, that will loosen the financial markets, and all the private-equity cash will start to get the engine going again. Fed rate cuts will alleviate pressure on the mortgage market and on suburban real estate.

Are developers and landlords worried about losing office tenants?

We think suburban [offices] will do better than urban. In Philadelphia, people aren’t coming back to work the way they might. Suburban office buildings are much more populated than in central business districts. The suburbs don’t see the same return-to-office resistance you see downtown.

A lot of tenants in our markets are life-sciences companies, and we are less worried about those.

Will more developers turn unwanted offices into apartments?

It’s part of the solution. But a lot of those older buildings will be very hard to retrofit.

Will more carmakers cut prices to keep sales moving, as Tesla has done?

I haven’t seen it. But we expect used cars and trucks will still go down. In 2022, [a lender or creditor] could repossess a car and make a profit. That has changed.

Citizens (after buying two New York-area banks last year) reported profits of $653 million in the last three months of 2022, up 32% from a year earlier. Profit margins are up. If you aren’t lending a lot more, what will you do with the money you make?

Reserves are adequate [even if the economy shrinks instead of expanding slowly]. We expect to pay out most of our [profits] to shareholders this year.

What about your private-equity partners, who also finance so many projects?

Private equity is awash with cash.

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