Trust, confidence ‘impacted’ by U.S. banking crisis, Santander CEO says
Santander US CEO Tim Wennes joins Yahoo Finance Live to discuss the ongoing bank turmoil, preventing bank failures, regulation, consumer optimism, branch expansion, and the outlook for the U.S. banking sector.
- Well, easing worries about the ongoing bank turmoil in the wake of Silicon Valley banks asset sales lifted risk sentiment for bank stocks. Federal regulators are still hard pressed to create solutions that would prevent bank failures like that of SVB and Signature Bank from impacting the financial system. Let's talk about the banking sector more broadly, as well as new insights into US consumer optimism.
Santander US CEO Tim Wennes is joining us now. Tim, thank you so much for being here. Appreciate it.
TIM WENNES: Thank you. It's a pleasure to be with you.
- As a banking CEO, we have to start with what's been going on with the banks. And just I'm just curious how you're feeling, how you have been sort of watching what has been unfolding in the US banking sector and, by the way, also with the European banking sector, since your parent company is, of course, a Spanish bank. What are some of your big-picture thoughts here?
TIM WENNES: Well, trust and confidence are really important in our business and industry. And certainly some of the recent market activities have impacted that. So for us, it's been an opportunity to get closer to our customers and stay very connected to the customers. Some of those customers have questions or worries. And so we've been very proactive and active with our customers over the last few weeks. So it's certainly added more activities. But in many ways, what we're doing day-to-day in terms of helping our customers with their savings and investments or with lending activities continues business as usual.
- Among customers and regulators, everybody has been trying to figure out what happened, why some of the banks that did fail, why that happened. And, ultimately, it came back to the managing of the risk of its liabilities as well. So after you see that play out, what is the first conversation that you have with managers at your business, supervisors, people who are also responsible for managing some of that risk?
TIM WENNES: Yeah, so we're very active in managing all of those activities and all the different risks associated with banking. But we're a very different business, right? We're largely a consumer business. The majority of our customer base is retail or consumer oriented, both in terms of deposits and in lending activities. So much of what we're doing is just very different than what we've seen here playing out recently.
- Have you seen any deposits come out of the bank in the wake of what happened?
TIM WENNES: We've been relatively stable.
- Well, that's a good place to be in this environment, most definitely. Again, to ask a bigger-picture question, you guys have expanded a lot in the US. You now have, I was looking on your website, 485 branches in the US, a lot of them in the Northeast. What are the plans for the US for Santander?
TIM WENNES: Yeah, so Santander globally is one of the 20 largest banks. And we've got over 160 million customers. Here in the US, we have nearly 5 million customers, just under 500 bank branches here in the Northeast, from Philadelphia up through New England.
But we're also the fifth largest auto lender in the country. So our largest business is actually retail auto lending. And we've been expanding here over the last few years and are looking forward to continued growth in the US.
- Well, some of that growth is going to have to hinge on the next generation of customers. Gen Z showed up within this survey that you ran as well. And one of the findings about Gen Z's respondents, they had particularly high levels of optimism. When you think about what's driving that and what's going to be the best way to go forward with the relationship with that next generation of bankers, how do you make sure that you author and maintain and foster even more of a relationship with that cohort as well?
TIM WENNES: Yeah, so, importantly, what we did in January, we went out with a survey of middle-income Americans. And that is our customer base. The majority of our customers are middle income, which is defined by Pew between 2/3 of median income up through twice that median income.
And we wanted to understand, there's so many mixed signals out there, right? And, in fact, the consumer is resilient today. We've still seen consumer spending holding up. We've seen continued activity in terms of borrowing, et cetera.
But there's a lot of uncertainty. And, as we saw in this survey, right, 2/3 of the respondents are concerned about recession. We saw inflation being very impactful, right, where more than half have impacted or changed their spending activity or reprioritized things because of inflation, but also that people are hopeful and hopeful that they still can be prosperous in the future and that their financial future is bright, right? Still 80% of the people think that in the next 10 years. The most optimistic is Gen Z, which is fantastic.
- Yeah, just--
- Just a quick follow on that as well, I mean, does it show up within consumers' or your customers' banking activity that they are bracing for a recession of any sort?
TIM WENNES: We're still seeing consumer spending hold steady. We are seeing some impact in terms of customers' abilities to make payments. If you look at particularly our auto lending customers, because of used car prices increasing and interest rates increasing, right, the average customer loan payment's $100 or more higher today than it was prepandemic. Right, so there is a real impact on everyday Americans and some prioritization that needs to occur.
But I'd say in general, we're seeing activities hold up. And people are very focused on saving and investing. And, in fact, that's the flip side of this. There's some positivity for those who have some savings and investments now can get a higher rate of return, even in FDIC-insured deposits, right, with money markets and CDs like they've not seen in over 15 years.
- Yeah, definitely. Some of them, their adult lives for those Gen Z young people who are putting in deposits in money markets. I want to zero in on auto lending for a second since, as you said, it's a big part of your business. What are you seeing there, particularly as rates move higher? Are you seeing any sort of deterioration in demand or differences in the decisions that people are making?
TIM WENNES: Yeah, so we've seen some impact in terms of demand and lending activity, particularly as rates have gone up with what's happened over the last year to Fed rates. We are seeing some normalization around delinquency. And during the pandemic, we saw very high levels of asset quality. And we've seen some return to normalization there as inflation has taken a bite out of people's paychecks there.
But what we are seeing also is some resilience in terms of car prices, right? Used car prices are down year-over-year. But the last three months, we've seen those stabilize, as vehicles are important for people. That also came out in our survey, right, where less than half of middle-income Americans have access to public transportation. The job is their primary source of income and prosperity.
And so three out of four people need that vehicle. They don't look to get a car loan, right? This is reliable transportation for them in terms of working.
- Yeah, that makes sense. And then, finally, on auto loans as well, since there is so much attention right now to assets that banks have on their books, especially those that are interest-rate-sensitive assets, I'm curious about how the auto loan book works.
In other words, the loans that you made a couple of years ago when rates were much lower-- we've all learned these new terms, like "hold to maturity." Do you hold those assets to maturity? I assume that they don't have to turn over before that happens. How does that all work, if you don't mind?
TIM WENNES: Yeah, so, look the average car loan typically would have-- is fixed rate, which is good for consumers, right, that their payments are not going up, despite other changes in interest rates. So it's a fixed period. Typically that's going to be anywhere from three to six years on average. We see the average life of these loans is between two and three years. So typically that car loan is paid off in two to three years. Either someone sells the car or they pay off that loan.
So there's not a lot of risk with respect to that. And we're seeing customers-- the nice thing is they've been locked in to that rate. If they got an attractive interest rate a year ago or two years ago, they're benefiting from that today.
- Santander US CEO Tim Wennes, great to have you in studio here with us today. Thanks so much.
TIM WENNES: Thank you so much.