Citizens Bank CEO On The Rise Of A Super-Regional Bank

Earlier in his career, Bruce Van Saun got passed over for an opportunity to be the CEO of a major bank after it merged with another company. It was a disappointing development, but fate would be on his side.

He went to Royal Bank of Scotland (RBS) as a CFO in the late 2000s as the company had taken a recent tumble and needed a new team to bring it back to health. As it turned out, RBS needed to offload some of its assets thanks to a European bailout rule and in 2013, the company decided to divest Citizens Bank, a super-regional bank it owned with a major presence in the northeast U.S.

Van Saun, who was living in the U.K. at the time, got a chance to move back to America and run a major bank.  The board told him, “We think you’ve got the credentials to go lead Citizens and take it public and tell the story to investors and turn around the fortunes of the bank.”

That was in 2013. In 2014, he led Citizens to a successful IPO in the U.S. In 2015, he oversaw the company’s transition from an RBS subsidiary to a fully independent enterprise. Since then, it’s been an uphill climb for the bank as it transitions from a super-regional bank to one that competes with the big boys (aka the Chase Manhattan and Bank of Americas of the world). The bank’s annual Organizational Health Index (OHI) score has risen dramatically from 58 (2014) to 68 (2017), nearing the top quartile.

Chief Executive spoke to Van Saun, Citizen’s chairman and CEO, about the company’s continued evolution, its investments into technology, whether he is predicting a recession to come and leveraging the bank’s competitive advantage over smaller and bigger rivals. Below are excerpts from this interview.

Talk to me about the evolution since spinning out from RBS and the IPO.

I’d say, Citizens had a good foundation, so there was good raw material to work with. But given the stresses on the parent company, this created pressures on Citizens as well. There was a lack of capital to invest and we were quite a bit behind in terms of technology, risk management, any kind of functional areas, the HR practices, and the business model around having fee-based capability. There was a lot of work to do around investing in the business.

And the other big thing is that because RBS needed capital, the balance sheet shrunk fairly dramatically. So, really, job one was trying to figure out where we could grow to get leverage back into the balance sheet and get back to the scale to be profitable. At the same time, we were looking at the zero-base of expenses and extracting inefficient use of expense dollars so we could self-fund the catch-up technology and all these functions and go out play offense and hire some really good talent, customer-facing talent.

So, we benchmarked ourselves very carefully against peers. We knew what the gaps were. The first order of business, really, was get the plan and have the board endorse the plan and then go get the people to actually execute the plan. And so over time, I’d say when I first got here, we had a 12-person executive committee, counting me, so I had 11 people reporting to me. Today, I’ve got nine new people out of those 11. I’ve got two holdovers. And I joke with those two that, “Don’t worry, you’re safe. You’ve been here long enough.”

But, you know, you have to go about that in a way where people who were here, maybe had hit their ceiling. You want them to leave of their choosing, with dignity and just give them a good send-off. So, I didn’t make any changes before the IPO. We had a script to get to the IPO within a year, and then we started to let people retire or peel off to do other things.

And I brought in a very experienced team, most of whom had worked in the mega banks, a number of whom at JPMorgan. So, really, some big bank experience that were enthusiastic about the opportunity to make an impact and shape a bank, where to a large extent, it was a white canvas. We were given the keys to the car from RBS. Usually, banks get sold, they don’t get IPOed. And so effectively, RBS was the best thing [because] the bank and the management team had control of the agenda.

I think that was pretty exciting and pretty attractive for folks to peel out of some of the bigger banks and come here and be a big player in shaping this and putting it on a journey to becoming a great bank, a top performing bank.

What have been some initiatives that Citizens Bank has undertaken to spur its growth?

I’d say on the business side, our commercial bank always was good. But it was not fully at scale, so it needed to be bigger. And we didn’t have all the product capabilities. So really, the first order of business was to go out and figure out where we could expand, where we could bring in coverage bankers.

We had a bias towards the middle market, which are slightly smaller companies, and we thought we had a good opportunity to move up market into the mid-corporate space, but still not going head-to-head every day with the mega banks. But there was a $500 million to $3 billion in revenues, that’s the mid-corporate space, and if we were going to attack that, we needed to bring in bankers with industry expertise. So, we had to build out some industry verticals.

So over time, we’ve added, you know, 50 or 60 senior coverage bankers who come from other banks with long careers, a lot of wisdom, good relationships, and they ultimately brought those clients with them, over time to the bank.

What was interesting on the commercial side…it’s the chicken and the egg situation. The coverage people would only come if you had strong product capabilities and the product people would only come if they knew you were hiring the coverage bankers to give them more swings at the bat. And so we had to move that up in lockstep.

Now we can go beyond just simple loan syndications. We do bond underwriting, we do M&A, we do sophisticated interest rate and foreign exchange risk management. We have a brand-new cash management platform we’re putting in place. Today, we can win business against the mega banks where we’re competing head-to-head with them, and we can lead a transaction, or we can win an interest rate, hedging transaction against JPMorgan, against B of A, which was a hard thing to do five years ago when I started.

What about the consumer side?

On the consumer side, there was a significant amount of change. In terms of customer expectations, the branch was becoming less important, although still important. We had too much space and our branch was dedicated to transactions. You had to start migrating the transactions to smart ATMs and to mobile channels so you can do remote deposit, capture and take a picture of a check. There was a lot of technology change.

And then making sure those channels, those new channels, were working seamlessly with the old channels. Can you follow a customer through their mobile interaction, through their call to the contact center, through their visit to the branch and make that a holistic, good experience?

There’s been a lot of challenges with that, as to how do you get that customer interaction model right? How do you use data to personalize offerings to your customers, so you don’t waste their time?  We’ve also innovated on our consumer-lending areas. We had a fairly narrow and super safe consumer loan book focused around home equity line of credit and auto. And we wanted to scale up our mortgage business. We thought the student lending business was very attractive, because the government had pushed into it and crowded out some of the big players. There was still opportunities, and in particular, opportunities to refinance student debt, which was there for the taking.

I think we and SoFi, a company called SoFi, were the two who pioneered that market, which, you know, when you think about the burden of student debt and folks mostly paying a high rate that reflects where they were 10 years ago, they’re 10 years out of school, they have a good job, they have a good credit rating, they should consolidate all their debt and pay a lower interest rate on that. On average, we’re refinancing about $50,000 in debt and saving a 32-year-old something like $175 a month, which is real money.

And then merchant finance, we struck up a partnership with Apple around their iPhone upgrade program and that’s been very successful. Apple has very high expectations around the customer experience, and we designed a process that works really well for them.

I think we’re doing some really interesting things where we’re leading the pack. We were the first super regional to launch a national digital bank called Citizens Access, where we have five and a half billion in deposits after a year of having it up and running. This was principally targeted at savers, but now that we’re gaining traction around the country, what else can we do with our digital capabilities? So that’s really exciting.

As a super-regional, how does Citizens Bank compete against the larger banks like Chase and Bank of America, while providing the kind of personal and community service people would expect from local banks?

It’s called the “middle of the river” phenomena. You usually don’t want to be in the middle of the river. Steve, one of my guys, said to me in the beginning, “You know, here’s the deal, Bruce. We’re big enough to matter and small enough to care.” So what you try to do is outcompete the smaller guys by being local and really having deep roots in the community. One thing I’m very proud of is that the bank, when I got here, we had a commitment to the communities, and we volunteered about 50,000 hours. I benchmarked it and I said, “People feel good about that, that’s really not enough.” Today, we’re hitting 150,000, so we’ve tripled that. Our executives are on 700 boards. We’re supportive of communities, promoting opportunity, taking care of the less fortunate, that’s really part of our core DNA. And that’s a good way to compete against the local players. We could do that with a little more mass and a little more scale behind us.

And then at the bigger end, I think we’ve been quite nimble on technology. The mega banks may pay more, but they’ve got a sprawling enterprise to manage, and we can, I think, be more targeted. And I think at this point, there’s a little more regulatory forbearance. Initially, when the reforms came, they were painting everybody with the same brush. And I think over time, the heavy regulation is still oriented towards the biggest banks, who have the too-big-to-fail problem. And it’s lightened up a little bit on us, so I think we have a little more flexibility than some of the bigger banks.

Are you worried about a potential recession? What’s your plan if one were to arise?

Our best guess is that there’s no signs that a recession is imminent. And typically, you would see some excesses popping up in the economy. You’d see some trouble in credit on the consumer side or on the commercial side. And we don’t see any of that.

The consumer is in good shape, in particular, unemployment is at historic lows. There’s real wage growth, salary increases is 3.2% and inflation is only at 1.5%. The consumer feels good. They’re out spending money. Now, with rates coming down, they’re going out and locking in lower-class debt, so mortgage finance boom is upon us. That’ll give people more disposable income to spend. I think we’re in really good shape on the consumer side.

And commercial, the business person is pulling back and a little more cautious, given some of the trade skirmishes. [They are wondering], “Should I really buy that extra piece of capital equipment, or should I hold off and see how the dust settles?” So that’s, I’d say, having a little dampening effect on loan demand.

But I think that’ll quickly be offset by rates coming down, right? We’ve had one rate cut, we might have another, if you look at the forward markets to this year. And I’ll tell you lower cost of financing stimulates more borrowing, either people want to lock in and refinance, just like the individuals dfo with their mortgage, the companies want to refinance their debt. Or price-sensitive investors who have capital to put to work, like sponsor firms or commercial real estate investors, they’re going to take advantage of those lower borrowing rates.

I think on both sides, we’re in good shape. You know, you could talk yourself, you could worry yourself into a recession, but I don’t think that’s going to happen. It’ll be interesting to see how the whole China scenario plays out. There could actually be quite a bit of upside if it works out well, but if we just operate in a protracted stalemate, I don’t think there’s huge downside.

How have you evolved as a CEO?

I’d say everybody who makes it to CEO goes through different phases in their career, when they start out as a player, then they become a player coach, and then largely, they are a coach. And I think when you get to that level, when you’re at the CEO, you realize how important having great people in the seats is. And then if you get the great people, you want to empower them. You don’t want to have an authoritative style. You want to let people align on the vision and the key objectives, and then give people the running room to go do their thing. I think my style, just you gradually figure that out. And I think you build a good team and then you really rely on it. So, I think that’s one thing.

I think the other thing you learned too, is that so I came up through the CFO track, so I’ve always been good with finance and strategy. But as a CEO, the soft skills are quite important. How do you motivate different people? What makes people tick? And so how you’re leading one executive on your team is going to be different than perhaps another executive. I mean, that’s an art that you learn over time. Communicating effectively is hugely important. So, if you’re a CFO, you’re really talking to investors, but then when you get to be CEO, you’re talking to all the stakeholders. You’re talking to customers, regulators, employees, politicians. And so really, the art of communication becomes critically important in being successful.

So, you just pick those things up along the way. And then you just have to have a good level of self-awareness to say, “Okay, what are my strengths?” I probably don’t need to spend that much time trying to perfect my strengths. But there’s things where I have gaps where I just didn’t have to call on those skills earlier in my career, that I really need to beef up and I need to work on those things.

And never be satisfied. Constantly look for what are ways that I can improve and challenge myself and grow, even when you become a CEO.

Read more: No Organization Is Immune From Blurred Boundaries