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CNBC EXCLUSIVE: CNBC TRANSCRIPT: CITIGROUP INC CEO VIKRAM PANDIT SITS DOWN WITH MARIA BARTIROMO TODAY ON CNBC

Steffanie Marchese
Monday, 18 Jun 2012 | 5:50 PM ET

When: Today, Monday, June 18th

Where: CNBC’s “Closing Bell with Maria Bartiromo

Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Citigroup Inc CEO Vikram Pandit today on CNBC’s “Closing Bell with Maria Bartiromo.” Following is a link to the video of the interview on CNBC.com: http://video.cnbc.com/gallery/?video=3000097061.

All reference must be sourced to CNBC.

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MARIA BARTIROMO: Thanks so much. Joining us right now is Vikram Pandit, CEO at Citi. Vikram, it's great to see you again.

VIKRAM PANDIT: Well, thank you, Maria. Thank you for doing this.

MARIA BARTIROMO: Thank you so much for joining us. So let me ask you first about the Greek elections and what's going on in the euro zone right now. How tough has Europe been and how do you protect Citi in the face of these European banks that are selling assets, needing capital and perhaps could be troubled counterparties?

VIKRAM PANDIT: Uh-huh, well, I think-- first you've got to start by saying the Greek elections are positive for keeping the euro together. I know there are a lot of challenges ahead still. And-- for all of us as banks we've got to be prepared for any and every eventuality that may occur. That's exactly what we've been doing for the last 18 months.

And we've been doing that by 1) limiting our exposure to some of the sovereigns in Europe. Secondly we've been managing very tightly our exposures to certain financial institutions. But most importantly what we've been doing is looking at every country on its own, it's like each tub on its bottom. And so when you go to Greece if you made loans you want to make sure you get local funding, you have local deposits to cover that. That's called asset liability matching. That reduces your risk.

That's what we've been doing for the last 18 months. But one thing we also have been doing is we've noticed that the European banks find it tougher to help some of the multinationals that are headquartered in Europe and they need dollar-based financing, we've been stepping in, providing them trade finance. We've been providing them dollar-based funding that they need to run their businesses around the world. And we're going to continue to do that.

MARIA BARTIROMO: Are there opportunities in Europe right now given the low valuations? I mean, I recognize money is tight and there isn't a lot of sort of acquisitions going on right now. But do you see opportunities in terms of valuations having dropped so low as a result of the banking sector there?

VIKRAM PANDIT: Well, certainly you can look at the valuations here and around the world and you can-- clearly look at the numbers. And there are some compelling values, I'm sure, around the world. But the most important thing that's going on is a question in the market's mind in terms of the future of the euro and how it's going to evolve. And there's something else going on in Europe though that's important.

Europe as a financial system has almost $40 trillion of assets and that's compared to $14 trillion in the U.S. banking system. So it's almost two and a half times the U.S. system. That's big. They're going to have to de-lever. They're going to have to shrink. And a lot of the activities that are going on in Europe is banks in Europe trying to figure out what they should be doing going forward.

It's tougher for them to be in the dollar financing business, and they're also shrinking back a little bit. And that creates opportunities for us as banks as we help our clients in that part of the world, particularly the multinationals. They may be headquartered there, but they're global.

MARIA BARTIROMO: You said you've been doing a lot of repositioning over the last 18 months, you've been shedding assets. Are you done with the headcount cuts or are there more cuts coming to headcount?

VIKRAM PANDIT: Third, fourth quarter last year and earlier this year we decided that we had to restructure some of our businesses. And this by the way was part of a long restructuring project we've been on for the last three years. And we've done a lot of that. We cut back in some of our trading businesses, some of our capital markets businesses. But where we are today, we think, is sized correctly for this environment. Having said that what we always have to do is keep an eye out for what capacity we need, how we need to serve our clients. And it's going to be an ongoing process.

MARIA BARTIROMO: Ongoing process. In terms of the Moody's Ratings downgrade, we're all expecting Moody's to-- downgrade the ratings on the-- on the U.S. banks. How do you prepare for that? Are you expecting a two notch, three notch downgrade. Tell me what you're expecting and how this impacts the banks.

VIKRAM PANDIT: Well, we're ready for any eventuality that comes out of here. And-- so take whatever the worse case is that they have in mind, we're ready for that. And frankly one of the things that's changed (and I think it's for the better), is money managers and people who own instruments are doing more of their own work. Now, some of that was mandated by Dodd-Frank, some of that comes out of the EU directive.

But you don't have the same direct mechanical linkage from Moody's advice to a fiduciary action. And I think that's a good thing. We're seeing more and more of that happen, it's not something that's happening uniformly. But we don't expect the impact to be material on us.

MARIA BARTIROMO: Well, I guess we're all anticipating it. But it does make your financing of debt more expensive?

VIKRAM PANDIT: I-- again when we look at the market prices and where the debt is trading-- and when you look at the funding that we've been doing-- you're right. A lot of this completely anticipated. We think it's in the markets. More importantly as a bank a big part of our book is funded by deposits around the world. We have over $900 billion of deposits as a company. And that really finances-- a lot of the activities that we have in terms of lending which is where you need long term financing.

MARIA BARTIROMO: Which is the argument to keep the large banks in tact whereas you could have, you know, one area of the bank that is riskier, but you have got that very strong fortress deposit base to actually offset anything. But let me-- let me ask you about your comfort in your derivatives portfolio relative to JPMorgan for example given what we've seen-- at JPMorgan at this-- with this huge trading loss.

VIKRAM PANDIT: Uh-huh. So-- I don't know the facts on JPMorgan. I can again talk to you about what we're doing. And it-- really revolves around our liquidity portfolio. We have about $400-420 billion of liquidity today on our balance sheet. It's very conservatively managed. It's almost all in cash and government securities.

And more importantly Basel is going to come out with liquidity rules. They haven't finalized them yet-- but we're operating as if some of those rules are already in place. And we actually have more liquidity than Basel would require us to do. So th-- we've taken a very strong conservative approach to our liquidity pool. In terms of the rest of our balance sheet-- and how we trade our derivatives or collateralized, they're risk managed constantly, we have tight risk limits around them. And we're doing them as a accommodation for our clients.

MARIA BARTIROMO: So in terms of capital requirements in the coming years are you compliant to Basel III today or are you moving toward that?

VIKRAM PANDIT: Today we are at-- 7.2% on tier one common on Basel III. By the end of the year-- we should be over 8%. All of us are waiting to see exactly what the G-Sifi charges are going to be on banks like ours. The minimum number is seven, we're above that. Having said that we all know we're going to have to carry a lot more capital.

But those-- requirements are not in place until the end of 2018. We'll be there far ahead of that, far, far ahead of that. But the most important thing to me today is when you look at Basel I, which is today the operative capital requirement, we're at 12.5% and we've got over $400 billion of liquidity. Financial strength balance sheet, that's not the issue. I think we're all focused on what's going to happen to the economy, how's it going to grow, where can we help our clients. That's where the growth's going to come from.

MARIA BARTIROMO: So in terms of complying with Basel III in the next couple of years, 2018-- where does that come from? Does that come from shedding assets? How do you raise more capital to get there?

VIKRAM PANDIT: Well, first of all we've got earnings. And so by the end of the year we're over 8%. And let's suppose the G-Sifis require 9-9.5%, earnings could get us there. Not only that-- we've done a great job at reducing Citi holdings which used to be 40% of our assets with a lot of capital tied up there. It's now down to 10%. That continues to shed, as well. So the combination of Citi holdings coming down over time and the combination of our earnings profile and our earnings capability should comfortably get us there a lot, lot sooner than 2018.

MARIA BARTIROMO: We spoke to one of your leading investors recently, Prince Al-Waleed, who's a friend of the program. I want to get your take on what he had to say. Listen to this.

MARIA BARTIROMO: "Are you expecting a dividend this year in 2012?"

PRINCE AL-WALEED: "I think I would just quote Vikram on what he said publicly. He said that we expect to return shareholders and some of the capital which means with the buyback or dividend and yes, I expect a dividend in 2012."

MARIA BARTIROMO: "And if you don't get a dividend in 2012 are you going to be an active investor and force for change at that company?"

PRINCE AL-WALEED: "No, I will call Vikram and tell him, 'Please give me a dividend.'"

MARIA BARTIROMO: Will he get his dividend?

VIKRAM PANDIT: Well-- so we re-filed our-- CCAR submission to the Fed. One of the things we did decide to do is not ask for return of capital this year. And the reason for that is when you look at the timing filing now when we hear back-- 2012 is really gone. We're focused on 2013. 2013, by that time our tier one-- common and Basel III is over 8%. And we think we're going to be in position to work with the Fed to figure out how to return capital to our shareholders.

MARIA BARTIROMO: So the dividend really is a 2013 story?

VIKRAM PANDIT: Oh-- at this point it is-- it's a decision we need to make by the end of the year when we file, but certainly not sooner than 2013.

MARIA BARTIROMO: What happened with all of that? It seemed like when JPMorgan came out, you know, and told everybody, "Look, you know, we're compliant with the Fed and the stress test, we're raising our dividend." And then, you know, you failed the stress test, everybody wondered did-- you know, did the Fed, you know, give you the poor end of the stick? What went on there?

VIKRAM PANDIT: Well, I think first thing I would say is that-- the Fed did approve certain capital actions-- redeeming of-- corrupt securities and certain other things that we had in place. But in terms of buying back stock or paying out a dividend the Fed-- wanted us to resubmit. And without that action our stress test results were right-- basically on top of a lot of our peers.

And I think the most important thing to us is to make sure we continue to have that dialogue with our regulators, continue to make sure that we keep building our capital strength, keep-- earning the kind of ear-- money that we've been earning in our core businesses. 'Cause ultimately we and they and everybody else wants to make sure that-- that we're ready for any eventuality that comes about. Most importantly we're now focused on 2013. I think 2013 is when we'll file our CCAR and we'll look forward to that time, we'll work with them.

MARIA BARTIROMO: You know, it seems to me that-- from an investment standpoint if you want to make a wager on JPMorgan the wager is that Jamie Dimon is going to lead that company through the regulatory hurdles. If you want to make a bet on Citi the wager is that you will lead Citi throughout the strength that we're seeing outside the United States certainly-- Asia, the Asia customer, the emerging markets customer. And yet these regions are slowing. What can you tell us about the emerging-- and yet these regions are slowing. What can you tell us about the emerging markets activity today?

VIKRAM PANDIT: Well, they're still growing. The emerging markets are still growing. They're growing a little bit slower than they were a few quarters back. Some of that is natural. Some of the economies have grown-- at a very fast clip for a long time. C-- countries like China and others are having an impact off the European uncertainty on them, as well.

Having said that when you go into these countries, when you look at the basics, the middle class is still rising, the consumers are getting stronger. There is a substantial amount of growth. They've stepped back a little bit in terms of absolute growth, but the secular growth is there and still strong. For us we're doing a couple thing. One is that we're banking the emerging market consumer as a bank.

But most importantly we're also banking multinationals, the new multinationals that are coming out of emerging markets. And we're connecting the developed world to the emerging markets, as well. When you put all of those things together-- we're focused on globalization, we're flo-- focused on the rise in emerging markets and we're focused on the rise in global trade. All those three things, we think, are very strong t-- trends. And frankly there's not another bank that can do this as well as we can for our clients.

MARIA BARTIROMO: Vikram, final question here. You're here to celebrate your 200 year anniversary at Citi which is extraordinary. 200 years the bank is in business. And yet you and the company over the last couple of years seem to have been a bit in limbo.

You get criticized from the press for not moving fast enough. You get regulators announcing changes at a snail's pace. You've got the Fed holding interest rates at low levels, manipulating the long end. And you've got an economy globally that certainly is uncertain. How do you take this bank to the next level in the coming years?

VIKRAM PANDIT: Well, we've got to start by admitting that the crisis the U.S. went through and some of the things we're seeing around the world are really once in a lifetime, once in a generation, maybe once longer than that kind of events. And these have been substantial events. The other side of that is we have a much stronger financial system in the U.S.: stronger capital, stronger liquidity, recovering and resolutions plans that make these banks stronger, as well.

So I come into the sec-- this third century as a bank with Citi and our 260,000 people with one of the strongest balance sheets ever. And we come at it with a very clear strategy. The strategy is focused around the basics of banking. It's focused around emerging markets, grow in globalization connecting the world. And as importantly we're going to be the digital bank going forward. And you know what that means? That means-- banking anywhere, anyhow you want. And we look at all those things as a very strong path for leading this company into the third century.

MARIA BARTIROMO: You think the Volcker Rule takes effect this year?

VIKRAM PANDIT: I don't know. I know there's a lot of work going on. It is a rule that requires a lot of thinking in terms of how you define market making versus proprietary trading. And by the way we were very supportive of the principle that banks should not be speculating with the c-- with their capital. Having said that the details may take a little bit of time.

MARIA BARTIROMO: Vikram, good to have you on the program.

VIKRAM PANDIT: Thank you Maria, thank you for doing this.

MARIA BARTIROMO: Wonderful to see you. Vikram Pandit, CEO at Citi.

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