Citizens Financial Group: A Focus on Internal Growth Over M&A Deals
As regional bank mergers and acquisitions (M&A) gather momentum, executives at one of the largest U.S. regional banks, Citizens Financial Group, have underscored their disinterest in participating in the M&A wave, either as a buyer or a seller. Rather, the bank is more focused on tapping into the potential growth of its existing businesses.
Citizens Financial Group, with assets totaling $222.7 billion, is keen on continuing to consolidate its two-year-old private bank and further its expansion in markets such as New York City, according to its Chairman and CEO Bruce Van Saun. The bank is also poised to capitalize on the investments it has made in commercial banking.
Internal Growth and Expansion Focus
Van Saun, who has been at the helm of the bank since its 2014 spin-off from Royal Bank of Scotland, has largely downplayed the idea of bolt-on acquisitions. He suggests that the company’s surplus capital would be better utilized for repurchasing more shares. The first three quarters of this year saw Citizens buy back $475 million of its common shares.
“We have a lot of strong growth,” Van Saun said. “We’re always alert for opportunities, but … it would have to be a pretty high bar for us to go down that path and look at things inorganic.”
The Current M&A Landscape
The regional bank M&A activity received a significant push last week when Fifth Third Bancorp in Cincinnati announced its plans to acquire Dallas-based Comerica. This pending transaction, valued at $10.9 billion, marks the largest bank M&A deal in the past four years. This deal adds to the growing list of bank tie-ups this year, with 135 bank M&A transactions announced between January 1 and October 6, according to Laurie Havener Hunsicker, an analyst at Seaport Research Partners.
Strong Q3 Performance
In comparison to the M&A activity, Van Saun likened the build-out of Citizens’ private bank. The private bank contributed eight cents to the bank’s earnings per share in the third quarter, up from six cents in the prior quarter. “We’re competing to continue to get growth while we’re achieving very strong profitability levels,” Van Saun commented.
In an interview, he further emphasized his comfort with the current size of Citizens and the growth potential in its existing businesses. Being good at certain areas, such as private banking, is essential.
“At our size, we have the unique ability to not get siloed and to know what our broader capabilities are around the bank, and to put that together to provide strong solutions for the customer,” Van Saun said. “That means we don’t really need to get more scale.”
The Road Ahead
Citizens’ net income for the third quarter was $494 million, up 29% year over year. It reported a record quarter in capital markets fees, driven by higher M&A, debt underwriting, and loan syndication fees. The bank is still aiming for significantly higher profitability metrics and has set a return on tangible common equity target of 16-18% in the next three years.
Looking ahead, the bank is preparing to roll out a multiyear expense-cutting program, “Reimagine the Bank,” which aims to leverage artificial intelligence and other technologies to revamp how customers are served. This program will be overseen by Brendan Coughlin, who was promoted to company president this year.
“If the team is solid and … if [Brendan] is ready, if it’s a good time to peel off, I certainly can do that,” Van Saun said. “Nothing lasts forever.”
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