In late 2013, when Bruce Van Saun returned stateside after a four-year stint in London, where he was chief financial officer at the Royal Bank of Scotland, he faced a tall task.
The New Jersey native was charged with spiffing up
To transform into a public company, Van Saun had to solidify a leadership team, build a board of directors and figure out how to convince Wall Street that
“We had to come up with a plan that would get to double-digit ROTCE in relatively short order, and that was believable and credible for investors,” Van Saun said in a recent virtual interview from
The company came close, but it ultimately missed its target in 2017. The next year, however, was different.
Tuesday marked 10 years since
“It’s going to be fantastic,” Van Saun said during an interview that took place about five weeks before the anniversary. “We’ll have a little party, and then we’ll get back to work on Wednesday.”
At
Today,
Its commercial bank offers a full range of treasury solutions, capital markets and advisory capabilities centered on middle-market and mid-corporate-size companies. And its
But there’s more work to do. The company’s retail presence in the New York metro area has room to grow. The private bank, while off to a solid start, is still young. Meanwhile,
During the second quarter, the company’s adjusted ROTCE, which excludes one-time charges, was 11.09%.That’s well short of its medium-term goal of achieving an underlying ROTCE of 16% to 18% over the next two to three years.
Nonetheless, Van Saun, who was
“I think people are coming around to the fact that we’ve made a lot of progress,” said Van Saun. “It’s been a long journey, but I think people are seeing the potential for improved returns and building out these really strong franchises. My hope is that in three years, that comes full circle and is reflected in a higher valuation and an ROTCE” in the target range.
‘First off, who is Citizens?’
By all accounts,
There were plenty of challenges in those days. The consumer business, which relied largely on higher-cost deposits, needed lower-cost funding and more market share. The commercial business, which was narrow in scope, needed more products, services and capabilities.
All the while, the company had to reinvent itself and start telling its own story.
“First off, who is
Brendan Coughlin, one of three
The bank was in trouble before the IPO, he recalled. The industry was recovering from the financial crisis, interest rates were at zero, and the economy wasn’t doing well, he said. What’s more,
“From my perspective, we had a big target on our back,” Coughlin said. The IPO was viewed as “a stay of execution” that offered time to “restructure the bank and take control of it,” he noted.
“But we didn’t have forever to do it,” he said.
Management got to work, reconstructing consumer and commercial banking. They
In 2015, Don McCree joined
“What I saw was an opportunity to really build a platform from the ground up, so it had an entrepreneurial aspect to it,” said McCree, who was named senior vice chair in June. “I thought there was a pretty high chance of success … and it’s actually been better than I ever expected.”
One of the biggest challenges was shedding
Woods’ initial focus was on reducing funding costs and increasing liquidity. Over time, the branch network has improved, product sets have been enhanced, and there’s better pricing, he said.
Today, the consumer bank, commercial bank and private bank are all “at an inflection point,” and there’s “a lot of really cool stuff” happening within each one, Woods said. But despite the investments, the bank “still lags peers,” he said.
“If it doesn’t show up in the numbers, then there will be a big ‘So what?’ about all of this,” he said.
Will the profitability gap shrink?
“True transformations” are different from those that revolve around technology modernization, said David Schiff, a consultant in the financial services practice at FTI Consulting.
He did not comment on
Beth Johnson is
She said the company has a lot of opportunities to grow. The addition of 200 retail branches through the Investors and
“I think the biggest challenge for
By and large, analysts agree that the company has done a lot of work to create a sustainable business model. Its annual expense reduction plan, referred to as “TOP,” which stands for “tapping our potential,” has axed about $200 million of costs since the IPO, or roughly $20 million per year.
While the yearly expense reductions have funded a lot of
Still, “I would expect over the next three to five years that the profitability gap compared to peers will shrink as [
In the near term, the company faces a few challenges, including making sure it is well-reserved against potential office loan losses. In the second quarter,
After all of its work,
In a research note, Heal wrote that “the stock merits a higher multiple based on the company’s strong, long-term growth prospects, including expansion in key mid-Atlantic metro areas and the development of a national presence in wealth management and its digital banking offering.”
‘Still a work in progress’
As for Van Saun’s tenure, one might wonder if a decade-plus at the helm could be enough, given all of the change he’s overseen at
In June, the board of directors not only promoted McCree to senior vice chair in recognition of his work on the commercial bank, but it also approved retention bonuses for Coughlin and Woods.
Both senior executives have been identified as “potential medium-term CEO succession candidates,” and they have received a combination of stock and cash awards to ensure they remain in place, the company disclosed in a filing.
Coughlin’s bonus included stock and cash awards worth a combined $12 million. Woods’ bonus of stock and cash awards was worth a combined $7 million.
The company is being prudent in lining up potential CEO successors, Van Saun said.
“It’s important for me, as chair of the board and CEO and for our board more broadly, to make sure that we have really quality CEO succession candidates in the house,” he said. “That led us … to make sure that we have some hooks into Brendan and some hooks into John, because I think both of them have the right stuff to eventually run this bank, or another bank.”
On a personal note, Van Saun, who is the grandson of a banker, said that he still has some things left to do on his checklist.
“We’re having a good run on the stock this year, but we’re still not at the valuation that we could be if we continue to drive this execution forward,” he said. “So I think I’d like to make sure that I’m confident that that’s going to happen” before thinking about stepping away from the job, he said.
“It looks like now we have a point of destination, and I hope in two or three years you can say the ship came in, and we actually got to a good way station,” he said.
“It will never be done. You’ll always be heading out to the next journey, but I think we’re getting closer to a level of performance that is reflective of the transformation that’s taking place here.”