ConnectOne Bank CEO Remains Bullish Amid Economic Risks

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2:03Frank Sorrentino III:You're listening to Bloomberg Business Week with Carol Masser and Tim Stenevek on Bloomberg Radio. One person we go to regularly for his view on the economy here in the United States and rates is Frank Sorrentino. He's chairman and CEO at the publicly held New Jersey based community bank Connect One Bank Corp, which is the parent company of Connect One Bank. It counts small businesses and construction companies among its customers. And the bank has some 63 locations, maybe in counting, in New Jersey, New York, and Florida. And the bank earlier, you will remember this, merged with First of Long Island Corporation.

2:37Now, its total assets are about$14 billion. That's as of the end of September. Frank joining us here in our Bloomberg Interactive Broker Studio. Did we get anything wrong? Anything to add? No, you got it all right. That's because I wrote it. And great to be back. Great to see you. It's good to have you here. We love talking to you because we are at this moment where we're trying to figure out, I feel like I can say this a million times this year, like where we are in the U.S. economy, what's ahead, what kind of clarity do we have? Tell us about your business and what you're seeing. We left the nice, calm part of the pool, and now we're into the rapids.

3:10Wait, this was calm? And the more turbulent it was when you look back before Liberation Day. Oh, okay. Okay, fair. Certainly, you know, we're seeing a lot of people have a lot of apprehension about where we stand right now, right? So small businesses have a lot of concerns. There's so many things going on. There's so many different data points to look at or not look at or not have information in front of them. But, you know, I know we've talked about this before. I keep saying I believe we're on a robust footing here with our economy. Because you see it in terms of what, loan generation or what?

3:46Our clients, you know, they discuss the issues of, you know, not being sure what to do next. Yet, when you ask them, how are sales? What's going on? You know, are your revenues up? Are you thinking about expansion? Are there opportunities? Are you looking to hire people? In our market anyway, in the New York metro market, which is the market we represent, we're finding that people, the businesses, business owners here are doing quite well. and they're continuing to do well. And there's so many inputs that are helping that. AI is helping in a lot of cases. Just the amount of capital coming into this region, the amount of construction going on, the amount of heavy and highway work, just you name it.

4:34Manufacturing, I think today there was a fact that came out about New York manufacturing's on the rise, something that was actually a little bit of a surprise to most, not to me, Our clients are telling us that business is continuing to improve, yet they have trepidation about where they settle right now. However, interestingly, if you ask them where they think they'll be in six months from now, everyone says they think they'll be in a better place. Oh. So everyone is counting on the economy getting better. Right. Or at least their conception of what better may be from where they are today. What I say is they're in a good economy now and it's going to continue to do better.

5:13Now, there's also the tale of two different stories here. There are some parts of our economy that are not doing as well as others. And I think we saw some of the reaction to that relative recently in some of the political events that have occurred. So I think we do need to take a look at this. What's the distribution of where wealth is being created and not created?

5:34Frank Sorrentino III:As a New Yorker, it's nice to hear that things in the New York City area are looking good. But it also makes me think of the changing politics of the city and mayor-elect Zoran Mamdani. And this is not a political question. It's simply a question about how people should plan for the future. We reported last week, the Bloomberg News team, that is, that aides to President Trump have spent the days following Mamdani's victory in New York reviewing federal funds that benefit the city to potentially suspend or cancel, a White House official said, highlighting the threat of retribution over the Democratic Socialists win.

6:05Frank Sorrentino III:And if we were to see in New York City or New York State funding cut off for some of these projects, would that have a big effect on the economy? Look, I would believe the answer would be yes. It will have some effect on the economy. Because you mentioned some infrastructure projects that you're seeing. I don't know how big that would be. And I don't know what the, you know, it seems to me in this economy, at least over the last 12 months or so, there seem to be so many inputs that have been maybe going in one direction, maybe a negative way. and something else turns around and comes back in the other direction.

6:38So, look, New York has always been New York, and we've been through all different types of political environments, and there have been ups and downs. But if you chart the growth of New York from 1609 or whenever, when the first settlement started here, through to today, it has been an uphill, nonstop economy. And so I have every confidence that New York is going to continue to be the place to be. Are there challenges here today about affordability and who can live here and, you know, some of the changes that need to be made? Absolutely. I think we'll get those things right. One thing I have learned from this administration, there are a lot of threats that are made and a lot of, you know, there's a lot of saber rattling at the end of the day, though.

7:22I think our president loves the city of New York. I can't see him doing anything that's generally going to be harmful to the city. Frank, correct us if we're wrong, though. We were talking with some of our folks who also cover the banking area. And our understanding is you do have some exposure to rent-regulated properties or apartments, I think, via your CRE lending. So with the Mamdani win here in New York City, how do you feel about that exposure and what he has said about his pledge to freeze rents? So look, for those properties that we're trying to convert from rent regulated or rent stabilized rather to market rent, those properties are going to have some challenges going forward because that's not going to happen.

8:06And part of that was the 2009, let's not forget the 2019 law made that change. And it was interesting, right? The candidate everybody wanted to win, which was Andrew Cuomo. He's the one who signed that law. So everybody's afraid of the mayor coming in. But yet, you know, it was the one who ran against him that brought that law to pass. For the balance of the rent-stabilized properties that are out there that are already cash-flowing and have been underwritten under those terms, I think they're going to be fine. As a matter of fact, the current mayor-elect has spoken many times about programs possibly to lower property taxes for some of those property owners and come up with insurance programs to sort of help out to keep the rents at a lower rate.

8:51So if that's true and, you know, if there's going to be some level of negotiation around what to do or how to do it to keep the rent increases lower, I'm all for it. That's great. What we have found over the years is that there have been rent increases. There was just one passed recently for, I think, about 3 % that went into effect in October. And let's not forget that the current mayor has six picks still on the rent guidelines board. And they're not, you know, they are supposed to look at the economy on the ground today. Where are our expenses? You know, the city does raise your taxes and your sewer fees and the cost of everything else goes up.

9:31So rent should go up appropriately as well, you know, based on inflation. So I do think there'll be a give and take there. And at the end of the day, look, I think having affordable apartments is a very, very great thing for our city. I'd like to see us be able to do more in that regard here in New York City. Why don't we do more? And I guess I ask that because... Oh, we would need a very long program to get into what... There are cities and towns, New Rochelle is an example of that, where they've taken the opposite approach, which is let's build as many apartments as we can possibly build. Let's let the developers go build.

10:04Yeah, it stands up there. They did that. And, you know, the laws of supply and demand are sort of like gravity, right? They, you can't undo them. And so they built a lot of supply. And guess what happened to the rents? They came down. They didn't go up. They went down.

10:21Frank Sorrentino III:We had the mayor, Yadira Ramos Herbert, on a few months ago talking about this and the zoning changes. You have background as a builder. You actually went to college for this before you were a banker. and I think it's fair to say that all I'm not going to say all economists most economists would agree the way to decrease housing prices is to build more housing how do you do that in New York City and our developers going to do that in New York like what would developers need in the next administration in order to do that apart from zoning changes like what would they need to hear from City Hall that says you guys can go ahead and build and build more housing well we would need zoning changes we would need the ability to build housing that is affordable to build you can't add on all of these issues yeah listen i'm i come from a union family so i love you know unionized workforces but if you're going to force every small apartment builder to build using union labor you're going to drive up the cost if we're going to force buildings to not be able to use certain types of uh natural gas appliances or they got to meet certain environmental these are all issues that new york city has has absolutely and builders have faced here and so they keep adding all of these things on and it makes the projects unaffordable and if they're unaffordable they don't get built i have like five more questions go we have it's not that hard we have 70 seconds no i know we don't have a long time just one last question because i've got it we're bloomberg um we do have a last fed meeting come december what are you expecting what do you think we do need based on you sound pretty upbeat just got about 40 seconds here fed the fed's got a tough job ahead of them.

11:56On the one hand, you know, unemployment and the employment structure in the economy is giving some mixed signals. Yeah. You know, larger businesses may be hiring, smaller businesses may be laying off. That could be temporary in that camp. I do believe that the smaller businesses are going to catch up soon. I do think there is, I don't think there's a lot of inflation built into the economy. I think the tariffs are sort of skewing some of those numbers. I think they're going to have a tough call. My hope would be that they continue on the path and they cut rates another 25 basis points in December.

12:32Frank Sorrentino III:Well, just another excuse for Frank to come and hang out with us again. And get to the other five questions that we've had here. December 10th is that day when we get that decision from Jay Powell and the Federal Reserve. You're just up the street, so come back soon. Will do. Frank Sorrentino, Chairman and Chief Executive Officer of ConnectOne Bank, joining us right here in our Bloomberg Interactive Broker Studio.

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