Citizens Financial (US:CFG)2024-07-17 17:04Financial Data and Key Metrics Changes - The company expects net interest income (NII) to come in at the upper end of the down 6% to 9% range, reflecting lower loan balances, with net interest margin (NIM) trending modestly better [1] - The company anticipates a rebound in NII and NIM in the fourth quarter due to swap costs peaking in the third quarter [1] - The target Common Equity Tier 1 (CET1) ratio is expected to be approximately 10.5% by year-end [1] Business Line Data and Key Metrics Changes - The private bank has diversified its loan book, with consumer loans now representing 36% of the loan book, up from the low 20s earlier in the year [6] - Fees were up 7% linked quarter, driven by strong results in capital markets and record card and wealth results [14] - The capital markets business improved 14% linked quarter, with higher bond underwriting and loan syndication fees due to strong refinancing activity [14] Market Data and Key Metrics Changes - Customer activities in the commercial space are picking up, particularly in M&A advisory-related finance and retail sectors [4] - There has been a significant increase in new money activity over the last six to eight weeks as the interest rate cycle appears to be abating [5] - The company is seeing strong growth in deposits, particularly in the private bank, which has generated $4 billion of deposits and $3.6 billion of assets under management (AUM) [13] Company Strategy and Development Direction - The company aims to build a premier bank-owned private bank and wealth franchise, focusing on transforming its consumer bank and enhancing its commercial banking capabilities [19] - The strategy includes reducing commercial real estate (CRE) exposure by at least 25% over the medium term while maintaining a strong capital position [92] - The company is optimistic about the recovery of the private capital ecosystem and is positioned to serve this market effectively [21] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the overall level of pre-provision net revenue (PPNR) and expects a positive operating leverage return in the fourth quarter [1] - The management noted that the Fed's potential rate cuts could help improve the economic environment and reduce losses in the office portfolio [28] - There is a belief that the risk of recession is less than it was a couple of quarters ago, which may reduce the need to add to reserves [63] Other Important Information - The company has reduced its period-end Federal Home Loan Bank (FHLB) borrowings by about $1.5 billion linked quarter [12] - The allowance for credit losses (ACL) coverage ratio stands at 1.63%, reflecting stable reserves and lower loan balances [18] - The company is executing well against its multi-year strategic initiatives, including the buildout of its private bank [11] Q&A Session Summary Question: Plans to reassess businesses to drive a lower stress capital buffer - Management acknowledged disappointment in the stress capital buffer result but stated that it does not hinder their strategy and significant changes to the business model are not necessary [8] Question: Update on the office portfolio and assumptions - Management indicated that the office sector remains uncertain, and they are maintaining a conservative approach with a high reserve while working through the portfolio [56] Question: Fee-based outlook and investment banking pipeline - Management expects a seasonal decline in capital markets in Q3 but believes the floor for this decline is higher than in previous years due to investments made [48] Question: Growth in the private banking side and AUM increase - Management confirmed that the recent increase in AUM is driven by stable, predictable deposits from private equity and venture capital firms, which are expected to grow further [88]