Transcription:
Penny Crosman (00:03):
Welcome to the American Banker Podcast. I'm Penny Crosman. The Trump administration's tariffs have so far brought uncertainty more than anything, but they're bound to have a profound effect on banks and their customers. John Buran, CEO of Flushing Financial, a $9 billion commercial bank in New York that does a lot of small business and community lending, is here to talk about the effects he's starting to see already. John, welcome.
John Buran (00:28):
Thank you. Thank you for having me. Penny.
Penny Crosman (00:30):
Thanks so much for coming. So how have your business customers been affected by tariffs so far? If they have been?
John Buran (00:38):
So far it's been really just uncertainty. Things have not solidified quite yet. Obviously there have been changes in terms of what the administration has originally spoken about and what transpired. So there's been a little bit of back and forth there that has really just contributed to further uncertainty. I would say that most of our businesses are in the preparation mode of putting together their defensive strategies with respect to what could be coming down the pike, some further ahead than others. But I would say everybody is thinking about it. Everybody is trying to put themselves in a better position.
Penny Crosman (01:27):
Are they putting certain things on hold? Like if they were going to buy at more office space or start a big new project, because they're not sure what's going to happen?
John Buran (01:40):
Interesting about office, and this may be not a direct tariff effect, but because of some of the strains on office space, we're finding that landlords are much more willing to part with some offices, whether they are industrial offices or retail space. We recently, for example, had a successful Caribbean restaurant that decided to buy its location. The landlord decided that they needed to divest themselves of this particular piece of property in order to deal with other stresses and strains in their portfolio, and as a result, restaurateur got a good price on it. So that was one thing that happened, not quite in the tariff area, but certainly a reaction to what's been going on in the marketplace. But as it relates to tariffs, I think that people have taken a variety of ways of looking at this and preparing for it. So for example, we had one manufacturer of children's clothing that was looking at a 30% tariff increase, and that's not yet solidified, but they have contacted their suppliers and contacted their customers, and they're trying to split that 30% three ways so that everybody is feeling a little bit of pain, but everybody's able to survive.
(03:19):
So companies that are taking actions such as that to put themselves in a better position and looking to have everybody kind of contribute to the pain.
Penny Crosman (03:34):
That's interesting. They're coming up with creative strategies for handling this. Are there any businesses that either are your clients or that you know of that would really just be killed by this? If we had a 30% tariff across all of Europe and in some of these other countries where their business would just be so hard hit, it would just be almost impossible.
John Buran (04:00):
I think customers who have been concentrated with certain suppliers. So for example, if China was your only supplier, you could be running into some very, very severe difficulties. But I find that once the idea of tariffs came out, most of the businesses that we deal with took the opportunity to jump right on it and try to engage other suppliers. So for example, we have manufacturers who get their product from China, who have gone now to Vietnam, they've gone to India as well. So we are seeing those types of movements take place. I have to say that I can't think of one particular business that we deal with that is so tied to its suppliers that they don't have alternatives, and we're fortunate in that regard.
Penny Crosman (05:13):
That's interesting. Would you say you know of any business that is trying to migrate from suppliers in say, China, Vietnam, et cetera, toward U.S. suppliers as a result of this?
John Buran (05:29):
Sure. We have an interesting situation. We had helped a manufacturer of finance, a plant in Canada. They were looking to disperse some of their manufacturing facilities outside of the U.S. into Canada. Timing is everything. So now they have this plant in Canada that that does provide them with certain cost improvements. So what they decided to do is they wound up splitting their manufacturing. So instead of the original plan was to do, let's say, 100% of the manufacturing in the Canadian facility and take advantage of economies of scale up there, now what they're deciding to do is they'll do some of the manufacturing in Canada and they'll do the final manufacturing and the finishing of their product in their U.S. plant. So by kind of bifurcating their manufacturing, they're able to take advantage of opportunities not to have the full impact of the tariffs. So another very, very creative solution. They're able to take the best of both worlds, those opportunities, economic opportunities out of the Canadian facility, and then diverting some of the negative tariff effect or potential negative tariff effect by finishing the product in the U.S.
Penny Crosman (07:08):
That's interesting. Have you seen any change in consumer behavior due to the tariffs, less spending or more concern or anything like that?
John Buran (07:24):
I think the consumer is probably a little bit more hard hit by just the general inflationary pressures. And because we haven't seen those tariffs really develop into significant inflation to date, we're not really seeing much of that. I think the consumer has been buffeted by the ongoing inflationary pressures that took place really up until relatively recently when inflation growth started to reduce. But we're still operating with a obviously high price environment, although we're seeing gasoline prices, for example, going down. But I think the major inflation that took place over the last few years or so is really putting a strain on the consumer.
Penny Crosman (08:28):
And how about loan demand? Have the tariffs affected loan demand or loan activity for you?
John Buran (08:35):
Yes. I would say that clearly the effect and the potential effect of tariffs going forward have really due to the uncertainty, put everybody on their back foot, so to speak. There is not a great deal of investment that's taking place. Customers, business customers are wary of potential effects. So there's a general reduction of investment, and as a result, we're seeing loan demand, loan demand was a little bit better earlier in the year. It's starting to lessen, I guess, as we go through the remainder of the year.
Penny Crosman (09:24):
Have the tariffs forced you to look at risk mitigation differently?
John Buran (09:29):
Absolutely. Absolutely. We're being very, very circumspect about customers who have a significant amount of trade finance. So we don't do a lot in that area, but certainly we're aware of where supply chains exist. We're very, very careful about manufacturing overseas and particularly the availability, the availability of materials, continuing availability of materials and supply chain disruptions.
Penny Crosman (10:12):
Are you seeing tariffs leading to an increase in precautionary loans?
John Buran (10:18):
We did see a little bit of that, but I think businesses are very wise in terms of not over-leveraging their position at any point in time. So you may see some lines that are coming on board, precautionary increases in lines, but I think most businesses are being cautious in terms of their approach to putting on additional debt. So there may be availability, there may be closer relationships with their banker, more contact with their banker, but we're not seeing a great deal of activity in terms of new loans coming on the books, either precautionary or for investment. So we're not by any means in any sort of a sharp slowdown, but we are seeing people that are waiting to make any long-term moods. So we are in kind of a hold position as it relates to the market. And as an institution, we're kind of waiting, we're in a very good capital position waiting for the dam to break, so to speak, and for some business to start flowing in. So we're being a little bit more cautious as it relates to lending in general.
Penny Crosman (11:53):
And as you think ahead, as the tariffs really do start to have a direct effect on businesses and on consumers, what are some short and long-term impacts you think banks and business clients need to kind brace themselves for?
John Buran (12:13):
Well, I think the important things are things that we've talked about, increased risk, supply chain disruptions. Some of the things we might have experienced during the COVID situation where supply chains were disrupted and it was difficult to find product. Certainly we are already seeing new ways of pricing product. So in the construction industry, for example, when contractors are bidding on jobs, they are having their customers actually go to the material supplier, rather than taking the responsibility to get the materials and earn a small profit on the materials. So they're now foregoing those small profits that they might've made on materials and just making sure that they're not taking that risk off on the customer for the supply chain situations that may cause increased costs.
Penny Crosman (13:35):
So you probably don't want to get political, I would imagine, but if you had a wish list and tariffs could be handled according to your wishes, is there anything you would specifically like? For instance, I would imagine you'd want less uncertainty and to have them all be settled pretty quickly.
John Buran (14:01):
You hit it right on the head, just tell us where we're going to be. And then business people will figure out how to make the proper adjustments. And you're seeing that already, people are trying to get prepared, they're trying to find other means of developing supply chains, they're trying to work creatively with their customers. All of those things are part and parcel of what business people do on a regular basis. All you have to do is tell us where we're going to be. And I think the biggest problem is just this continuing uncertainty back and forth. The tariffs are going to be 30% one day, then they're going to be 20%, then it's going to be 50%. So I think that movement is really the thing that causes businesses to get locked up. And once we have a good understanding as to where we're going to be, we can all make proper adjustments to put ourselves in the best possible position. So that would be my wish.
Penny Crosman (15:12):
That makes sense. Well, John Buran, thank you so much for joining us today and sharing some of your thoughts and to all of you, thank you for listening to the American Banker Podcast. I produced this episode with audio production by Wen-Wyst Jeanmary and Anna Mints. Special thanks this week to John Buran at Fleshing Financial. Rate us, review us and subscribe to our content at www.americanbanker.com/subscribe. For American Banker, I'm Penny Crosman and thanks for listening.