BorgWarner Inc. (BWA) expects a compound annual growth rate of 10% to 12% from 2014 to 2017, attributed to solid organic business growth, according to President/CEO James R. Verrier. He was speaking at Baird’s 2014 Industrial Conference, held at the Four Seasons Hotel in Chicago, Illinois.
BorgWarner manufactures highly engineered engines, drivetrain components and systems for vehicle powertrain applications. The components are designed to improve fuel efficiency, emissions and performance. The company has 43 locations in 14 countries, with most of the world’s big auto manufacturers as customers.
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Verrier said the company has a three-year backlog of new business. He expects net new business-related revenue within a range of $850 million to $950 million in 2015, $1 billion to $1.2 billion in 2016, and $1 billion to $1.2 billion in 2017.
Organic growth includes the change in sales due to net new business and excludes the impact of base business growth or shrinkage, or changes in product pricing, acquisitions, divestitures and foreign currencies.
“There’s increasing global demand aimed at improving fuel economy,” Verrier said, adding that the company’s products should be “adopted quickly in light and commercial vehicle markets.”
Approximately 70% of the total three-year net new business is anticipated to come from engine-related products such as turbochargers, ignition systems, emissions products, engine timing systems and thermal systems. The remaining 30% is expected from drivetrain-related products, including all-wheel drive systems, the company’s DualTronic transmission technology, and traditional automatic transmission products.
New business in Asia is expected to account for 55% of the total new business over the three-year period, Verrier said. North and South America account for 30%, with 25% of that total in North America. Europe is anticipated to be about 15% of the new business, down from 27% in the last three-year period.
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Discover Financial Services (DFS) is positioning itself to be the leading direct bank, said Mark Graf, the company’s Executive Vice President/Chief Financial Officer. He was speaking at the 33rd annual BancAnalysts Association of Boston Conference.
The target toward becoming the leading direct bank is to “create a strategic shift in consumer perception,” said Graf. “Today, we’re largely a credit card company in the mind of consumers.” By building upon its base of credit card users and adding in more financial services and bank deposits, the company feels it is well on track.
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Discover Financial Services has $54 billion in card receivables, $29 billion in direct-to-consumer deposits, $13 billion in personal and private student loans, and $2.5 billion in home loan originations and home equity loans. The deposit business is just over seven years old, and Graf noted, “When we think about deposits, ours is a long-term strategy. Doing it right takes time.”
The shift from branch to Web and mobile banking will aid Discover’s plans, Graf said, noting the company is going after first-time customers who are technologically savvy but without an established brand loyalty. The company hopes to attract them early and build a relationship going forward.
Among the new products being rolled out is a checking account program, which has been quietly introduced regionally and without a national rollout, Graf said. “We want to grow our checking product over time,” Graf said, again targeting first-time customers by offering non-fee, no minimum balance checking with a cash-back reward option, plus a no-fee ATM network.
“As a direct bank, we have to get the digital presence and customer service right,” Graf said.
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Regions Financial Corp (RF) is continuing to adjust its bank branch numbers as customers increasingly use mobile and technology-driven banking paths, said David Turner, the company’s CFO. He and company Treasurer Deron Smithy addressed the 33rd annual BancAnalysts Association of Boston Conference.
The Birmingham-based Regions Financial operates in 16 Southeastern states. Turner said the footprint is characterized by “high market share, high-growth markets,” and includes “some of the most attractive locations and markets in the Southeast..”
Regions has 1,671 locations. “Branches are still very, very important to Regions,” said Turner, noting that 60% of the company’s customers will walk through the branches in the next 30 days. As such, the company is experimenting with several new designs, but will continue its branch consolidation drive in the next year. Last year, almost 19% of the branch count was consolidated, Turner said.
Part of the drive for consolidation centers on technology. Turner said 37% of Regions customers are using the mobile channel, representing a 20% year-over-year growth rate. “We do understand that Millennials in particular don’t want to go in the branches,” said Turner. The company is making investments in mobile and online technology, including a new iPad application.
Regions Financial’s retail network strategy has four prongs. Flagship branches are up to 10,000 square feet and will be placed in very highly populated areas, and will have wealth management and business banking capabilities. Regions then has its neighborhood branches, which are 2,500 to 4,000 square feet. They also have 1,000-2,500-square-foot branches for the micro markets, Turner said, and will also have unmanned ATMs, some of them drive-up operations.
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JP Morgan Chase & Co. (JPM) is in 50% of all U.S. households, and the company continues to deepen relationships with its customers, says Gordon Smith, the CEO of Consumer and Community Banking at JP Morgan Chase. He was speaking at the 33rd annual BancAnalysts Association of Boston Conference, held at the Langham Hotel.
The upbeat report from Smith is reflected in the third quarter year-to-date financials. The JP Morgan Chase Consumer & Community banking division is up 18% year to date; Consumer & Business Banking is up 31%; Mortgage Banking is up 9%; and Card, Merchant Services & Auto are up 21%.
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JP Morgan Chase is doing well in the JD Power & Associates tallies of success: JP Morgan Chase is the number one credit card issuer in the U.S.; the number one U.S. co-brand credit card issuer; the number two mortgage originator and servicer; and number three non-captive auto lender.
Chase has also led the banking industry in deposit growth for three consecutive years, Smith said. “If you look at the core metrics of what we’re doing with customers, there’s really strong growth,” said Smith, who added the company has been increasing its credit card market share while maintaining a strong ranking in customer satisfaction.
As the nation continues to climb back out of recession, Smith said that consumers and small businesses are borrowing more, resulting in continued growth in the core loan portfolio. “The growth in our core businesses is now outstripping the runoff,” he said. “We’re seeing it in our mortgage business and credit cards.” Lending is also increasing to those sectors as demand increases, Smith said.
Like other banks, JP Morgan Chase is seeing more customers turn to online banking. Among its plans are a “next-gen QuickPay” system, which will improve smartphone customer abilities to pay person-to-person.
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Capital One Financial Corp. (COF) Chief Financial Officer Stephen Crawford is looking forward to a return to free markets after quantitative easing, as spoken at the 33rd annual BancAnalysts Association of Boston Conference held at the Langham Hotel.
Crawford expanded on the theme of the conference, centered around interest rates, and gave the macro view of the McLean, Virginia-headquartered Capital One in his presentation. Capital One is a diversified financial services holding company with banking and nonbanking subsidiaries.
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Noting that the company gets few questions on the effects of QE relative to its peers, Crawford said, “I find that the QE conversation is one-sided and focuses only on the liability on the balance sheet.”
“Count me as one who welcomes a return to free markets in terms of what that will do to financial markets,” he added.
The industry has moved decidedly toward being more asset-sensitive, Crawford said, claiming new regulations are among the factors that have “pushed” the industry into an asset-sensitive position.
However, he noted, “The far bigger risk is that the long-anticipated raising of rates is deferred,” noting the uncertainty surrounding the impact of the end of QE and rising rates. He noted that the end of QE would likely create “deposit outflows,” which could be offset by economic growth, and said the changes in the finance industry structure make it “hard to know how all of that will resolve itself as rates move to a more normal environment.”
But Capital One won’t have a problem when that happens. Crawford noted that it is no longer a monoline credit card company, claiming it had “one of the largest transformations in its balance sheet in the industry.” Capital One is “well-positioned for rising rates,” he concluded.
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M&T Bank Corporation’s (MTB) Chief Financial Officer Rene Jones made it clear at the beginning of his presentation at the 33rd annual BancAnalysts Association of Boston Conference: There were some questions he could not answer in regards the bank’s merger and regulatory issues. Instead he focused on how the company is adhering to changes in the banking industry.
Earlier this year, a U.S. District Court Judge ordered a forfeiture of $560,000 in alleged drug proceeds laundered through M&T’s Perry Hall, Maryland branch, according to a press release from Department of Justice. That bank branch did not report its conversion of cash into larger bills, and also did not file a Currency Transaction Report, a violation of the Bank Secrecy Act of 1970, which requires that all transactions over $10,000 be reported to the IRS.
That issue, as well as other regulatory concerns, has held up M&T Bank’s acquisition of Hudson City Bancorp, a deal pending for two years. That deal has been on hold after regulators discovered problems with M&T’s anti-money-laundering procedures, which M&T has since improved, hiring additional staff and revamping its methods, according to the bank’s 10-Q filings. Regulators still need to review and approve the changes, and the Hudson Bank deal still needs regulatory approval.
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Despite the inability to talk about those issues, Jones gave an upbeat assessment of M&T Bank, which is the 16th largest U.S.-based commercial bank holding company, with 696 branches in seven states. M&T Bank has $81 billion in assets under management.
Jones focused his talk on the changes in the banking industry, where higher regulatory expectations, a slow-growth economy and stronger competition are creating higher pressure on returns. He noted that M&T has a strong franchise, but is rethinking its processes to prepare for the future, particularly in infrastructure and data quality. Jones said the company was going to work on what he termed its “financial plumbing,” noting that a “lot of investments continue to be made.”
M&T’s 2014 capital plan is approved by the Federal Reserve through the CCAR process, Jones said. Its goals are to maintain its common dividend at $2.80 per year, make contractual payments on all regulatory capital instrument, and redeem a $50 million subordinated debt issue.
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Fifth Third Bancorp (FITB) is focusing on retail deposits as the foundation of its balance sheet funding strategy, according to Tayfun Tuzun, Executive Vice President and Chief Financial Officer. He was speaking at the BancAnalysts Association of Boston Conference, held at the Langham Hotel in Boston, MA.
The Cincinnati, Ohio-based bank, which operates 1,300 branches in the Midwest and Southeast, has total year-to-date revenue of $1.7 billion, and year-to-date average loans of $16.6 billion, Tuzun said. But in the current rate environment, Fifth Third is taking a conservative approach. Short-term borrowing is no longer viewed as prudent, Tuzun said.
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Instead, Tuzun said, “We believe there is more certainty on retail deposits…They provide a more stable source of liquidity, relative price advantage, and favorable regulatory treatment.”
As such, the bank is redesigning its retail distribution strategy and growing its regional wealth management and brokerage services. The streamlining saw record results in the third quarter for fees from its wealth management business, Tuzun said.
Fifth Third is now positioning itself for the future, Tuzun said. The company has “backed off commercial lending a bit, where structure and pricing moved beyond our comfort levels,” he said.
“The goal is to maintain flexibility,” Tuzun said, noting that the loan-to-core deposit ratio of 97% in the third quarter of 2014 keeps the company better positioned for rising rates and liquidity rules. The company is seeing deposit growth in all 16 affiliates, Tuzun said.
The overall goal moving forward is to “operate with lower leverage and higher liquidity than in the past, but that will create shareholder value with low volatility,” Tuzun said.
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CIT Group Inc. (CIT) is getting back into the maritime finance business, a niche that will complement its financial services in air and rail transportation, says EVP/CFO Scott Parker. He was speaking at the 33rd annual BancAnalysts Association of Boston Conference held at the Langham Hotel in Boston, Massachusetts.
The company recently acquired Direct Capital of Portsmouth, New Hampshire, and signed a definitive agreement to acquire OneWest Bank for $3.4 billion.
“We think the combination with OneWest is a good combination for us,” said Parker. “CIT Bank more than doubles in size, and adds over 70 branches in Los Angeles and $15 billion in deposits, including over $2 billion of commercial deposits.”
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Complementary to CIT’s North American Commercial Finance segment, OneWest’s cash management/payment solutions will become available to CIT’s existing clients, Parker said. Bolstered by the acquisitions, CIT is now re-entering the maritime financing business.
Parker termed the maritime investment as a “re-launching,” citing the opportunity created by problems with several European banks that specialized in the sector. Parker said CIT Group now has “about an $800 million portfolio” in the sector, describing it as “very diversified. We think there is plenty of opportunity to grow this business.”
In contrast, Parker said CIT Group is exiting what he termed “non-strategic portfolios.” Most of the variation in the company’s third quarter numbers were driven by the activity in the non-strategic portfolios, Parker said.
Revenue from transportation assets and international financing saw 22% year-over-year growth, Parker said, with North American commercial finance sporting 12% year-over-year growth. The transportation and international finance silos have a combined $19.1 billion in assets, split among aerospace, rail, maritime finance and international finance, Parker said.
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Minnesota-based U.S. Bancorp (USB) is pondering “the future of the branch,” says Vice Chairman/Chief Financial Officer Andrew Cecere, as the company moves toward the cutting edge. He was speaking at the 33rd annual BancAnalysts Association of Boston Conference held at the Langham Hotel.
Mobile banking at U.S. Bank now has 2.7 million active customers, making it the second most frequently accessed channel at U.S. Bank, Cecere said.
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Surprisingly, U.S. Bank has an expectation that the number of branches will remain the same in the future. “But they will be smaller, with less tellers, more sales,” said Cecere.
“People are migrating. As we think of our branch structure, we want to be able to service and sell,” Cecere said. Branches, however, will still be the “number one source of deposits.” The branch of the future will be “structured to optimize all channels,” Cecere said.
U.S. Bank is the fifth-largest U.S. bank in assets, deposits and market value, according to SNL. The company has $391 billion in assets with deposits of $273 billion. It also has $246 billion in loans and 17.9 million customers, with a market cap of $76 billion. It is primarily in the Midwest and West, serving 25 states.
It offers payment services; wealth management and securities services; wholesale banking and commercial real estate; and consumer and small business banking. “We are in all the businesses we want to be in,” Cecere said, noting revenue is derived “half from the balance sheet and half from fee income.”
Cecere touted U.S. Bank’s single processing platform, noting that any prior acquisitions are always fully integrated and that efficiency initiatives are conducted “every month, business line by business line.”
U.S. Bank’s 3Q 2014 year-to-date profitability was reported as ROE 14.7%, ROA, 1.56%, with an efficiency ratio of 52.8%, Cecere said.
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Insurance commissions are driving fee income growth at BB&T Corporation (BBT) and net interest margin is stabilizing, according to Daryl N. Bible, Chief Financial Officer of BB&T. He was speaking at the BancAnalysts Association of Boston’s 33rd annual fall conference, held at the Langham Hotel.
Bible said that the Winston-Salem, North Carolina-based bank expects insurance commission organic growth rate of 4% to 6% in 2015. BB&T offers insurance for retail commercial, employee benefits, personal, title, underwriting, MGA, life, MGU and wholesale brokerage. BB&T is the fifth-largest distributor of insurance products in the United States.
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However, its net interest margin for 3Q 2014 declined 5 bps versus 2Q 2014, attributed by Bible to lower yields on new loans and runoff of covered assets. Bible said the 4Q 2014 is expected to decline 3% to 5% bbs mainly due to covered asset runoff and changes in forecasted loan balances and yields. 4Q 2014 net interest income is expected to decline slightly versus 3Q 2014. But asset sensitivity improved slightly due to loan and deposit mix changes.
Excluding residential mortgages, BB&T loans grew at an 8.8% annualized rate versus 2Q 2014, with 6.3% growth in total commercial and 12.7% growth in direct retail, Bible said. But average total loan growth for the 4Q 2014 is expected to be down an annualized 1% to 2% due to a management decision to sell all conforming loans. Excluding mortgage loans, average loans at BB&T are expected to be up 1% to 2%.
BB&T added volume in deposits through a Texas branch acquisition from Citibank in June 2014. The acquisition included 41 branches, $2.3 billion of deposits and $87 million in loans in the Dallas, Houston, Midland and Odessa markets. The company has also added $1.8 billion in assets by acquiring the Bank of Kentucky, according to Bible.
The new surge in deposits will see BB&T focus on growing fully banked, transaction relationships and on delivering enhanced products, Bible said.
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