Name: Discover Financial's CEO on Recession: 'Short' followed by 'Robust Economic Growth'
Uploaded: 2022-10-19
Duration: 8 min 38 s
Description: Roger Hochschild says 'the strong job market' is the 'safety net for the economy'

Roger Hochschild says "the strong job market" is the "safety net for the economy"

Discover Financial's CEO on Recession: "Short" followed by "Robust Economic Growth"

Leadership

Discover CEO: "Short" Recession, Then Robust Growth

roger, thank you so much for joining us. Let's talk about the economy and consumer spending. You have a great perspective on this because you collect a lot of information from your credit card, customers discover and diner's club and you run a big bank discover financial that focuses on consumers. So here's what people want to know are is the U. S. Economy already in a recession? And if it is, how bad is it going to be? So in terms of what we see with our customers, they're actually doing very well. Sales are growing. Delinquencies are well below historic levels. So, you know, a recession is really a a technical term, I would say, based on what we see with our base. No, and my, I am one of those who hope for a soft landing, um you know, I think the Fed will keep raising rates until inflation is under control. But the underlying strength of the job market will see support most consumers. And again, my hope is something short and then a return to economic growth. But there are some troubling signs that we're already seeing. Maybe not to discover, But many people are living paycheck to paycheck. They're relying on their credit cards to pay their day to day expenses like food and gas? What about the consumer trends that you're seeing? So without a doubt, many households are struggling and my hope is that with the rapid decline in gas prices that will help them. We we operate mainly in the prime segment and they're the employment market is robust. So we're seeing good growth in sales. Were seeing payment rates on credit cards that are higher than historic levels. We're seeing strong demand for our savings products. So again, based on our customer base, they're doing well in this economy. Do you see that changing? You said you don't see a recession right now? But what about six months from now? What about a year from now? I think there will be a further slowdown because the Fed has been very clear they're going to raise rates until inflation comes under control. They'll do whatever it takes. And that really means a slowing of the economy. But again, my my hope is it will be sort of the soft landing scenario and will recover and move back to robust economic growth. I don't know if this is the case at discover, but a lot of credit cards companies are saying that new account openings have been surging. How concerned are you that consumers will fall behind on paying their their bills and are going to rack up debt. So for us we take a very conservative approach to credit and to our underwriting. It's always been a hallmark of discover and we do that in good times and in bad. So right now we actually have been tightening our credit standards at the margin and yet are still seeing very significant growth in new accounts for us. I think it's about having a differentiated product and a better customer experience. Well, it doesn't help that for those who are taking on more debt, that interest rates are going up and going higher and that means that it's gonna take a lot more money to pay off that debt, right? Yeah. You know, most, most credit card products do have a variable rate. Um but but given the overall payment, the interest rates rates we've seen increased, you know, you've got to keep in mind they're coming off record low levels. So again, are really starting to approach more normal levels. And we're still seeing payment rates for trans actors as as well as those carrying a balance stay above historic norms roger. You've been working in financial services for most of your career. So you've lived through many good business cycles and bad ones. How do you see this one playing up? This is I think probably the hardest cycle to predict. And I think part of that is we're still seeing real distortions in the economy that trace back to the covid pandemic. And so you look at consumer demand for travel right? Even with very elevated um hotel prices, airfares, you saw a surge in consumer travel. And I think that was just the pent up demand that will start to cut back. You're seeing distortions around purchases of hard goods because a lot of people made major purchases, Redid their backyards when they were at home for the pandemic. That slowed down at the same time, a lot of retailers are getting caught with inventory. So you have those distortions. I would say though, our most important driver is the job market and there you are seeing continued strength. I think the job market has the ability to absorb many more people and that will provide an underlying safety net for the economy overall seem pretty optimistic about the outlook. But wondering that what's the most important thing you still need to do as ceo to lead your company and lead your employees if business really slows down. So we we try and take a long term view. And I think to to where you start your question, I've seen many cycles. You know, I don't worry about a recession because I know one will come and for us it's not that different whether it comes in three months, six months a year. We try and just be conservative. We don't hire too many people. We don't change our credit criteria and that lets us support our employees and our customers when times get more challenging. Let's talk about another way that you're leaving a discover. You recently opened a call center in an under invested community on the south side of Chicago in Chatham. And on opening day you said that the center is quote transforming us and opened our eyes to new ideas and possibilities. What did you mean by that? I couldn't be more excited about our center and Chatham and what it's doing for discover, you know, a lot of companies talk about diversity equity and inclusion. Um but then it it isn't a core part of their business. And so for us, we looked at the systemic bias that has been there in corporate site selection and we said we're gonna do business differently. Were you going to bring jobs to an under invested community? And Chatham is a vibrant black community on the south side of Chicago. Um over 90% of the employees come within several miles of the facility and they're transforming the culture of discovery. They're bringing new ideas, new ways of working. We've had employees from all over the company go there to help with the training and to build out and we're applying those lessons learned from the Chatham center all across the organization. So are you surprised by the success of your Chatham center? You know, I was optimistic, but I must confess. I am surprised. You know, we take customer service very seriously here discover. Um we are the only major bank with 100% us based customer service. But the fact that our Chatham site is already the top performing across all of our coal centers with significantly lower trip faster speed to proficiency for new agents and company leading customer satisfaction scores. You know, I knew we'd be successful with enough effort, but I should have, I should have had more confidence in, you know, when you bring opportunity to people who have been denied that chance. just the magic that can occur, you mentioned a moment ago about the importance of diversity and inclusion and you know, so many people are looking to businesses to and business leaders to see step up and do the right thing. When it comes to diversity and inclusion from your Chatham experience, what are your takeaway leadership lessons? So for us, I think it's really just a question of just just do it, commit, bring jobs to these communities because only large companies can bring jobs at scale will create at least 1000 positions. But the halo effect for the community. When I was down there, I met a woman who runs a nail salon across the street. She's hugely excited to have all of our employees be customers. I talked to one of our first hires, he was saying he can be a better father because he doesn't have an hour and a half commute. He can take his daughter to daycare in the mornings. And so the opportunities that so many of us take for granted we can bring to these communities and again, to the incredibly talented people that live there