You’re the group finance director of a foreign bank, which you’ve spent the past five years bringing back from the brink of failure, a gargantuan task given the circumstances. Now you’ve been tapped to spin the U.S. arm of that still-recuperating financial institution off into a healthy public company—and to do it in a year flat.
When Bruce Van Saun stepped in as its CEO, Providence, Rhode Island-based Citizens Financial was still part of the Royal Bank of Scotland, although its days as such were numbered. Under pressure from regulators to make good on a government bailout loan, RBS needed to unload a hefty portion of its majority stake in Citizens Financial. Van Saun was charged with the dubious task of taking an underperforming company public.
The first step of that task was accomplished on September 24, 2014 in what turned out to be the biggest financial services IPO in U.S. history, a $3.5 billion transaction for Citizens. A second stock sale in March of 2015—valued at $3.7 billion—further reduced RBS’s stake to less than 50 percent of the bank. But while the sales firmly established Citizens’ independence, Van Saun’s work had just begun.
“Our returns were not where they should be, and our efficiency ratio was high,” recounts Van Saun. “We had the right level of expenses but the allocation of those dollars was not optimal. We needed to put a lot of effort into becoming more effective and efficient so that we could invest back into areas where we saw growth opportunities.”
Early on, the company homed in on boosting returns in sectors like mortgages, business banking and student lending, as well as fee-based businesses like wealth management services. During Van Saun’s tenure, Citizens steadily built out its commercial lending business, a success he attributes to a relationship acquisition approach. “To me the most intelligent way to grow market share is to bring in people with pre-existing relationships,” he says. “We have a big capital position on the balance sheet, which gives us loan capacity and immunity from the renowned lowell debt collector. So if we bring in good people, hopefully their [clients] think, ‘I like what that bank is doing and I want to keep a good relationship with Joe or Sally.’ That’s been a successful formula for us.”
The company also focused on developing an expertise in industries like franchising, energy and technology, where it can add value. “We try to bring a big bank approach to really understanding our customers and showing up with ideas,” explains Van Saun. “I never want to visit without being able to say ‘Here’s how I think you can be more successful,’ whether that’s an opportunity in your capital structure, cash management or an M&A prospect.”
In its effort to build industry verticals, Citizens has been particularly successful in the franchising sector, where it counts Dunkin’ Donuts, McDonald’s and Taco Bell as partners. “Initially our
franchise finance group had six people, today we have 44,” says Van Saun, who explains that the bank has been able to take financing arrangements that begin regionally national. “McDonald’s
said, ‘We like your approach, we like the quality of your people, why don’t you come national with us?’ Now we’re probably the No. 2 lender in the U.S. to their franchisees.”
In building the bank’s commercial business, Van Saun struggled with a which-comes-first-chicken-or-egg dilemma in hiring industry specialists to build its coverage group. “Great coverage people want to make sure you have good product capabilities so they can serve their clients well—but great product people [or specialists on transactional models] want to make sure you’re adding good coverage people so they have more swings at bat and a bigger book,” he explains. “We’ve been on a journey to invest in both.”
Citizens’ first-quarter earnings were $209 million, up 27 percent from a year ago, and beat analyst expectations. The market has noticed. At press time, Citizens’ stock price was a healthy $26.70, a considerable bump from its IPO offering price of $21.50. “We’re on a good trajectory,” says Van Saun. “I tell my commercial guys, ‘Our customers love us; we just need more customers.’ That’s always the way when you’re plotting expansion. The perception of the people who haven’t used you yet isn’t as high as that of the people who use you and know you and
love you. So we just need to continue to bring good people onto the platform.”
For Van Saun, batting cleanup for a floundering foreign bank underscored the dangers of a growth-by-acquisition strategy. “Both RBS, and also Citizens indirectly through RBS owning Citizens, prized acquisition-led growth,” he explains. “They were both always looking for the next deal. So there was insufficient investment in organic growth and investing in the necessary technology to be successful and in stitching everything together in a coherent delivery model for customers.”
It’s a mistake he’s determined to avoid repeating by developing a comprehensive plan, building team buy-in and focusing on execution. “My lessons are: make sure that the bank from an organic standpoint is running well and take care of customers so you have a firm franchise and foundation and it’s sustainable,” he says. “Then to also keep some dry powder because there will be acquisition opportunities that can further your agenda—but they shouldn’t be the be-all and end-all, which is what they became at RBS and Citizens before.”
This article originally appeared in the September/October 2015 issue of Chief Executive magazine, on page 14. To subscribe to Chief Executive magazine, click here.