Since taking over as president of business capital at Citizens Bank in July 2009, Chris Carmosino has steered the ABL unit to broaden and deepen its offerings as a way to stay competitive. A retail finance group was established in 2011, and has experienced significant growth. A lender finance group was formed two years ago, and is growing rapidly. Citizens Business Capital also supports several specialty lending verticals within the commercial bank.

In addition, Citizens Business Capital is increasing its geographic presence and origination channels, opening offices in Charlotte, Atlanta and Dallas over the past year. Another important step in the group’s expansion, has been to align the asset-based finance business more closely with the commercial bank to expand its menu of services, and manage credits more effectively from a risk management perspective.

Chris Carmosino, President of Business Capital, Citizens Bank
Chris Carmosino, President of Business Capital, Citizens Bank

“We go to market as Citizens Business Capital with our asset-based finance business, but it’s always within the broader context of Citizens Commercial Banking, with our goal to offer holistic solutions to our clients,” Carmosino says. “Our strategy is centered on thought leadership. And as an example, we closely partner with our capital markets group to offer total capital solutions to our clients. So in addition to asset-based finance solutions, we’re able to structure, underwrite and distribute the rest of the debt capital structure. Our clients value this service and it’s allowed us to differentiate ourselves in the marketplace.”

Doing Deals

Creativity is essential in landing and executing deals in today’s challenging marketplace, and a recent transaction Citizens Business Capital completed demonstrates this fact. The Carlyle Group was seeking to re-acquire AxleTech International from General Dynamics, and approached the lender for support. A major logistic challenge: The deal opportunity arose at the end of the year and during the holiday season, so it needed to close within a compressed time frame.

“We couldn’t complete everything in the same fashion we normally would, given the expedited time frame,” Carmosino says. “So we came up with some creative solutions to protect the bank, yet be able to deliver the financing for our client.”

Citizens Business Capital funded a term loan using Citizens’ balance sheet in the interim, carried it over into the new year, and subsequently distributed that portion of the capital structure to an institutional investor. “So we took the underwriting risk on that piece of the capital structure,” Carmosino says. “From start to finish we closed the deal in 30 days. We not only closed on an asset-based revolver, but we also funded the term loan.”

Broadening, Deepening Offerings

Under Carmosino’s steady hand, Citizens Business Capital has broadened the lending group’s offerings. The group started a lender finance specialty practice two years ago, which has “far exceeded expectations,” he says. “We think this is a really good place to deploy capital,” he explains. “We like the risk/reward dynamics in the space. Also, lender finance allows us to indirectly reach a segment of the lower middle market, while at the same time hedging our risk by rediscounting, and we benefit from the underlying portfolio diversification of the clients we lend to.”

The lending unit has also penetrated deeper into sectors, on one hand by sharpening its focus in key origination channels: “We have a very targeted list of strategic prospects we call on directly — including operating companies, private equity groups and centers of influence. Client selection is a critical aspect of our strategy, both in terms of risk and in terms of our value proposition” Carmosino notes.

The business capital group prides itself on particular expertise in the retail, automotive and metals industries, as well as in business services, such as staffing, outsourcing and equipment rental. And with its ties to the commercial bank, the lending group now has an entrée into newly formed specialty groups, including technology, healthcare and energy. “It has given us deeper access to our broader bank client base and prospects, Carmosino says. “So where asset-based finance is a good idea or solution for the bank’s clients and prospects, we now can directly access them.”

Surging Loan Growth

Recent Fed data revealed the banking sector experienced the highest loan growth in 2014 since the economic downturn. Citizens Business Capital is also noticing the upsurge. Carmosino notes the unit has seen assets grow by more than 40% over the last two-and-a-half years.

Carmosino says some of the growth is due to the strengthening economy and increased utilization of credit facilities by clients, but says it’s predominantly from executing against key strategies, such as leveragjng the bank’s strong capital market capabilities. Citizens was recently tied for fifth in the U.S. middle market league tables, according to Thomson Reuters. “When we boil it down, our view is that it comes down to bringing good ideas to our clients and delivering solid execution,” Carmosino says.

Beating Industry Strain

In its report on 2014 U.S. bank performance, the FDIC said the Q4/14 average net interest margin of 3.12% was the lowest quarterly average margin since 3.11% reported in Q3/1989. Recurring themes in the industry are low interest rates, tight margins, strong competition and price erosion.

“Loan margins have contracted significantly over the last few years, and that has put pressure on net interest margins and returns,” Carmosino says. “We know we have to be competitive on pricing. At the same time, we try to lead with ideas and help our clients generate more revenue, lower their expenses, manage risk and optimize their balance sheet.”

He says the current credit cycle is an issuer’s market, and borrowers have strong negotiating power; in addition, the competitive environment is as strong as it’s ever been. A number of non-bank lenders have emerged, and are attempting to take share from bank-owned, asset-based lenders, Carmosino says.

“Virtually every client, every borrower can solicit bids from several institutions. We’re always competing against a number of institutions on every opportunity that we look at,” Carmosino says. “We can’t control the competitive environment, but we can control our strategy and how well we deliver against it. And that’s our focus.”

What often turns the tide for Citizens Business Capital in landing deals often goes beyond just pricing: “In general, any ideas that can help our clients grow or help them save money or help them manage their balance sheet and liquidity more effectively are well-received,” Carmosino explains.
Market Opportunities

Seeing no shortage of deal opportunities in the marketplace, Carmosino is excited about the prospect of tilling some of this fertile ground

“Manufacturing is making a comeback in the U.S. That’s good for asset-based finance. Energy, while it’s very cyclical, we believe is a long-term secular growth opportunity. We do a lot of business in the service sector and it is growing very rapidly. Many businesses and industries are, at any given time, in some state of change, and that creates transitional opportunities and restructuring opportunities. There’s also an opportunity in terms of generational ownership transition, which is happening across corporate America, as owners retire. That creates financing events, which create an opportunity for us. So I think that our growth in the next few years will be driven by all of those factors.”

Unwritten Story

Carmosino says Citizens Commercial Banking has invested heavily in and developed a sophisticated capital markets group, which is leading more deals and syndications in the marketplace, focusing on its core middle market, upper middle market and mid-cap borrowers, as evidenced by the league table rankings.

“Our commercial bank is growing very rapidly, and we’re growing very rapidly in asset-based finance,” Carmosino says. “I think we have the right strategies in place. I think we’re executing well against them, and I see lots of growth opportunity for us over the next several years,” he says.
Carmosino is also proud of the team he and other leaders have built and the culture they have created. “We’ve got outstanding first and second line leaders throughout the business. We’ve got a deep bench, and we’ve got very talented colleagues throughout our business who are very focused on our clients.”

People are noticing. Citizens was recently awarded two Greenwich Excellence Awards — one recognizing overall customer satisfaction at Citizens and another recognizing overall satisfaction of clients at Citizens using treasury solutions capabilities. Carmosino says, “We’ve significantly transformed our group over the last several years. I’m really excited about where we are and where we’re going. Citizens right now is a very dynamic story.”