Bloomberg TV's Erik Schatzker speaks to Citigroup CEO Vikram Pandit from the World Economic Forum in Davos, Switzerland. Pandit talked about Citi's strategy and said that costs will come down at the firm between $2.5 and $3 billion this year. He also re-affirmed his commitment to the firm's fixed income andsecurities businesses.
On Pandit decreasing operating costs at Citi this year vs. 2011, and whether this is a reversal in strategy:
"Let me be very clear, it's not a reversal. Let me talk about what we did in 2011. Let me talk about what we are going to do in 2012. In 2011, we invested $4 billion dollars in our business. Some of it was for regulatory purposes, some of it against our consumer business, some of it against our trade finance businesses, some of it against our markets businesses. We paid for half of that out of savings, re-engineering program that we have in place where we take 3-5% out every year off our costs. In addition to there, that we have sort of one time legal settlements, issues of that sort, and I think it is important, when you put it all together, than 2012 is a different year than 2011."
"We're going to take out $2.5 or $3 billion dollars in costs verses what we had in 2011...At the same time we are going to invest. But how we are going to invest is going to be related to how we create savings. Some of our re-engineering savings are going to go into investment. The process of rebuilding Citi since the crisis has been a very steady process. Last year was an important year, and having said that we are completely focused on expenses, completely focused on execution. We do think our costs are going to be $2.5 to $3 billion dollars lower next year."
On cutting 5,000 jobs:
"When you look at the 5,000 positions I'd say a lot of those are positions that maybe you re-engineer. There may be different ways of doing business. There may be better ways, cheaper ways of doing business. That's part of it. Part of it is securities and banking, part of it is people who support securities and banking. There are lots of different places around the company. But that's a continual process, that's the process we go through. If we're going to get to 3-5% re-engineering savings, we've got to evaluate every aspect of everything we do and make sure it's as efficient as it can be."
On the mood in Europe:
"The sentiment is a lot better than it was a few weeks back, and that's because of some very strong actions that were taken by the ECB, but also the European Union is also very much focused on the fiscal compact. A lot of the actions that are happening are moving in the right direction of a stronger Euro, a stronger Euro zone, and they should definitely buy all of us a lot of time here to see if we can create a path to a much more sustainable Euro. It's going to take some time though."
On how long it will take to resolve economic crisis in Europe:
"The one major issue that was overhanging the market was about the banks. To the extent the ECB has provided the liquidity they have and they stand behind providing that liquidity going forward, that is a good thing because it takes some of the negative scenarios off the table."
"The most important thing to recognize though is that countries are still borrowing at an elevated interest rate and GDP is not doing what it needs to. We've got to get these two things right. They require more than Europe coming together - it requires a lot of fiscal action, requires a commercial union in addition to a monetary union."
"There is no question that fundamentals are ultimately driven by how the region grows, and there is no question that there is a sense that Europe may be sliding into a recession. Those are things that concern all of us. But if some of these actions that have been planned are taken on time, I think that could cause a positive impact."
On whether America is back on top in terms of the banking industry:
"I do think the banking industry still has a lot of work to do in terms of rebuilding trust. There is still a lot of anger out there directed at thefinancial industry for the crisis. That's something that has to be addressed."
"I'll tell you what we are doing. We're focused on going back to the basics of banking, supporting the real economy. We're focused on responsible finance, making sure that every transaction we do is in the interest of our client, it adds economic value, and is systemically responsible. And if transactions don't do that, we don't do those transactions. I think banks have to startserving clients and really serve them rather than of serving themselves."
"The trust has been croken. That trust has to be rebuilt and the role of banks is!to support the real economy, grow the real economy, and rebuild that trust. The colleagues I've talked to are embracing that, more importantly they believe it."
On how Pandit feels about the markets for 2012:
"I do think that one has to be realistic in this environment...The cycle that brought us here is not the cycle that is going to bring us out of this. It's going to be a new cycle, it's going to be a new paradigm and we're all still searching for it. As we search for it, it creates uncertainty. It creates uncertainty that is of a kind that goes well beyond risk."
"I do think that 2012 could be a year for decisions. It's year where maybe we can address some of the sovereign risk issues, not only Europe but also the U.S. By the way, 2012 is a year where there are 32 elections around the world. Major elections. These are Prime Ministers, Presidents, talk about a resolution of leadership. There is an opportunity to do it and hopefully if we get a couple of these types of decisions together businesses could start investing, investment may drive growth and that leads all of us to turn from being realists to optimists."
"There is no question the sentiment is a lot better [than the fourth quarter]. I think the markets are a lot better. Investors are much more willing to take risk. They weren't at the end of the fourth quarter. Having said that, as you pointed out Erik, there are still fundamental issues that need to be figured out. As they do get figured out on time, I think they can create some momentum in the market."
On David Rubenstein's comments that the developed world has 3-4 years to fix their problems or it's 'game over' for capitalism:
"The biggest issue facing largely developed countries is leverage. There's really no question that the biggest trend that is driving Western behavior is deleveraging. It's important that we get that deleveraging just right. It's about paying down debt, but it's also about collaborating that against growth. I'm absolutely a believer that we don't have much time to resolve these uncertainties, uncertainties about how we are going to address sovereign debt, how we are going to address this balance between growth and paying down debt. These are important questions. I'm also a believer in the secular growth in emerging markets, and when you put those things together those are two major trends driving the world and it could be a different world as a result."
"The markets are very wary of these deleveraging issues and I have full confidence that the media, the markets, all of us are going to make sure that we bring our full focus on these issues. These are not only issues for politicians or government officials or bankers, they are issues for each and every individual in the countries. The political process ought to be one that really gets you to a point where we do address them."
On the Fed's interest rate decision yesterday:
"A lower interest rate environment is hard, but being realistic, as a CEO of a bank, that's what you need to accept in the developed worlds. By the way, it's not new in Japan. It's been that way for a very long time and it does have an impact on the kind of investment that happens out there, the kind of borrowing that happens, the kind of spreads that one can earn on deposits verses lending and there is an impact to that."
"When you look at Citi, half our business comes from the emerging markets. A big part of our business is in financing trade flows and financing capital flows around the world. We think the two big drivers of growth are the emerging market consumer and trade finance and capital flows, globalization so to say. Those two drivers are what are going to really provide the engine for the world to grow and we're very much focused on that and that is what is going to drive our profitability and our margins."
On Pandit's commitment to Citi's equities and fixed-income business in light of regulatory changes:
"We're committed to those businesses, those capabilities are important to our clients. When we bank a client, and we bank them around the world, we're probably the only bank that can serve them in 160 countries around the world. That goes right from providing them with trade finance, with loans on ground in the countries, it's about liability management, it's about credit risk management. When they need capital, it is up to us to take them to the equity markets. When they need to do something strategic, it is about making sure we have the capabilities to help them execute on an M&A transaction. So when you go down to the basics of Citi, it is about our clients and what our clients need."
"What I will tell you is that if our clients need change, we will change with them. So one of the things we are committed to doing is making sure that our businesses, our size to the opportunity, size to what our clients need."
"The markets-related businesses have generally not been kind to many banks and a lot of that is environmental and some of that could be secular. Changes in regulation, changes in the way companies want to finance, changes in the types of companies that come to a market, are going to have an impact. We are extremely cognizant of that and as I said we're very focused on making sure that our resources are aligned against what our clients need. We will make sure that we are sized correctly to these markets."
On Citi CFO John Gerspach's remarks that the firm's investment banking business will face some management and execution challenges:
"Let me be very clear, we have a great management team in our securities and banking business. And as a matter of fact, when you look at the Fortune 500, 85% of the Fortune 500 are our clients. We've been very methodical in making sure that we align all our resources against our clients. In that process, we've been also very diligent in making sure that our product capabilities are those that our clients need."
"There is a shift in the market place. Volcker Rule as an example is an important rule that causes us to change the way we look at how we make markets. Well those are all execution issues that we need to deal with. And some of those are not going to get clarified. It is going to take time to know what those rules are. We are going to have to put the right capabilities in place for that."