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Citigroup - U.S. Taper Is Not QE Tightening

Stock-Markets / Quantitative Easing Jan 23, 2014 - 05:21 PM GMT

By: Bloomberg


Michael Corbat, Chief Executive Officer of Citigroup Inc., talks about the structure of the bank, Federal Reserve monetary policy and global growth rates. He speaks with Erik Schatzker on Bloomberg Television's "Countdown" on the sidelines of the World Economic Forum's annual meeting in Davos, Switzerland. Corbat told Schatzker, “People shouldn’t want us to be everything to everyone…We’ve gone through a pretty significant transformation. We’ve got the right business mix.”


Erik Schatzker (ES): Michael Corbat is the Chief Executive Officer of Citigroup. Mike, nice to see you again.

Michael Corbat (MC): Good morning.

ES: We got this kicked-off last year. You were hundred days into the job. Now you’ve been there for a little more than a year. Now here’s the thing I ran into a mutual friend of ours who said he saw you yesterday and you’re pumped. That’s the word he used ‘pumped’. What are you pumped about?

MC: Well, it’s not a word I would use necessarily, but I am excited about the start of 2014. I think I got a lot accomplished in terms of 2013. I think we have got more work to do. The world feels like it’s becoming a better place and I’m excited about our position in it.

ES: If there is one word that you could use to describe Citigroup and its approach right now what would it be? What sums up the bank?

MC: Execution. We’re focused. We got the right strategy, we got the right business model, we got terrific people and it’s just about executing on behalf of our customers and clients.

ES: Hang on one second. A year ago we sat here and I asked you more or less the same question and you gave me more or less the same answer. Why is it still execution?

MC: Because again, I think we got the right business model, got the right strategy, the world is becoming a better place and again it’s up to us to make sure to do the right thing. We got the resources, we got capital, liquidity. We’ve got the right business mix, we got a unique business model coming to work in a hundred countries a day. It is tough to replicate. Our competitors don’t have those things.

ES: What is unique about Citigroup? Yes, you operate in more countries than pretty much any other bank in the world. But people need a little more depth than breadth. If you went deeper into the bank how would you describe its uniqueness, the things that set Citi apart from everyone else.

MC: Well, we’ve got the combination of breadth and depth. When you look at our businesses we operate in a hundred countries, but in those countries, in many we operate both institutional and consumer businesses. And in our institutional business the full range of products from investment banking through sales, trading, transaction services all the way to our private bank. In our consumer bank it’s the same, it’s cards, it’s retail banking. It’s all the pieces that come together. In many places it’s mortgages. So it’s not just the breadth, but it’s the depth that goes with it.

ES: Can you see a time, a year from now, two years from now, maybe further down the line where execution alone ceases to be the priority and something else takes its place?

MC: When we look at execution we may need to draw a bit beyond that. The execution has various phases to it. So what we focused on last year when you and I sat here and you asked me ‘Mike, what are you going to focus on?’ and the answer was a significant re-positioning. We need to get some costs out of the company, we need to become more competitive. A year later we’ve taken those 900 million out of the company we talked about. We need to get some businesses right-sized so we went through a series of things. You saw us exiting five consumer businesses. You saw us restructuring different businesses around the company to get more competitive. And I think you saw results throughout the course of the year. You saw the benefits of those things and I think it’s more of those things.

ES: How difficult is it going to be to manage an institution of Citigroup size through the taper?

MC: You know when you go back and you look at rate transitions they are never smooth, right? I think we actually go into this one probably a bit better than we have historically. Again, we have to remember the taper is actually a taper. It’s not tightening, it’s actually removing what was put in in some ways as excess liquidity in the system and we’re really just getting back to where we think we should be.

ES: There’s a tremendous amount of confidence and I can feel it from you as well. In the [feasibility] to manage this without creating a lot of market volatility. Why is there so much confidence? This is truly unprecedented.

MC: It is unprecedented. It is. I think it is when you look at why are we beginning to taper it’s because as I described earlier the world and the US is becoming a better place. So if you are extracting that excess liquidity as the rest of the economy that powerful engine is coming behind it and it should create a better transition.

ES: Does Citi’s international breadth make these things more difficult because you have sizableoperations in so many countries that are on the one hand adversely affected by the Feds withdrawal of liquidity and on the other still stuck at a different phase of quantitative easing and monetary policy in Europe, in Japan and elsewhere in the world.

MC: I think if you look at growth we are probably going to see 2.6-2.7% of growth in the US this year – up a bit. You look at the emerging markets …

ES: So you are not in the 3% camp?

MC: … It could trend up towards that. You know our own belief is probably somewhere around 2.6-2.7. Overall global growth probably around three and a quarter and so developed markets 2% with Europe recovering, emerging markets at 5%. So we are going to see growth in the emerging markets, still, at more than twice the rate of the developed markets. So if you think about the mix of our franchise having big presences in the US and in Europe. But again in other places around the world we have got a balance for that.

ES: What about the currency volatility that people expect in places like Brazil for example?

MC: Well, I think if you look at it clearly over the summer we have identified what are the fragile five and what do the fragile five have in common – they have current account deficits. But I think as we go into this we are going in as a world where we got countries that are much stronger. Foreign exchanges, we’ve got floating rate exchange mechanisms that are there, so I think the world’s better positioned for that.

ES: Mike, how important is it for people to see Citigroup as a universal bank?

MC: We don’t put ourselves out there and talk about just being a universal bank. We want to make sure we are there positioned against what our customers and clients want to do.

ES: If you look at the financial institutions around the world you see a [inaudible] taking place. You see certain very large financial institutions calling themselves universal banks and saying we’ll be anywhere providing any service to any client and then you see others that are focusing more intently on certain markets where they feel they need to be or can afford to be because of the cost of capital that it takes to participate in some businesses.

MC: I think we look at the industry and certainly from our perspective we are not going to be… we shouldn’t be, people shouldn’t want us to be everything to everyone…

ES: Really? Because that is not what people thought of ten years ago at Citigroup. Would you agree that this is a change?

MC: Yes, you know we’ve been through a very significant period of transformation of our company, really taking our company back to its roots of being a global bank and the things that come with that and the things that we can do on behalf of our customers and clients. So when you look at the exit out of the asset management business. There are a lot of things that we shed as part of Citi Holdings those 700/800 billion dollars of non-core assets. Those were things that didn’t fit with really who we are and who we want to be.

ES: Is there anything you are doing now that won’t be part of Citi’s future?

MC: No, I think we’ve got the right business mix.

ES: And how about costs. You mentioned you were taking 900 million dollars of costs out of the business. I think that amounts to about 4% of your operating expenses. Would you want to take out a similar amount in 2014 or are you close to being done there?

MC: In March this year we introduced a series of metrics, so that people publicly could view what we wanted to do. We wanted to create the balance. Once of the things we put out there was an efficiency ratio – per dollar of revenue what are we going to spend or earn that. We put targets out there and I want the balance. I want the balance of growing revenue and cutting expense and we got to make sure we create the right incentives in each direction.

ES: I love the fact that you brought up the word balance, because one of the things that people are talking about here, in fact Goldie Hawn got people talking about it is work-life balance. How much do you think about work-life balance?

MC: Probably in the last years quite a bit – work-life balance, family… you got to have things outside of work. Work cannot consume every minute, every hour of your life. You see it when you come to work with a healthy attitude, when you got other interests, when you maybe get the ability to get some exercise it clears your head.

ES: And what about for your employees?

MC: It’s the same.

ES: Do you feel as though that Citigroup is at a stage like some other banks appear to be where you need to make working conditions a little bit easier? Or do you need to tell them for example – go home, you don’t need to work here all weekend long.

MC: Absolutely, people need to have balance. You can see it in people’s productivity, in the way they come to work. You want them in a healthy state of mind.

ES: Have you ever given any thought to the number of hours anybody should or should not work a week? What’s too much?

MC: I think it depends on the job and the pace of the job, the stress of the job, what kind of job that is, so I think it varies by what we are asking people to do.

ES: Mike, great to see you here and thank you very much for taking time out here for me at the World Economic Forum.

Copyright © 2014 Bloomberg - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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