WHEN: Today, Friday, June 18th at 4:15PM ET
WHERE: CNBC's "Closing Bell with Maria Bartiromo"
Following is the unofficial transcript of a CNBC interview with Vikram Pandit, Citigroup CEO, today on CNBC's "Closing Bell with Maria Bartiromo."
All references must be sourced to CNBC.
MARIA BARTIROMO: Thanks so much for joining us.
Mr. PANDIT: Maria, thank you. It's good to be here with you.
BARTIROMO: Let's talk first about financial reform. We know regulatory reform is coming. What are you expecting?
Mr. PANDIT: Well, I do believe we're going to get strong financial reform, and I think that's good because banks should be going back to supporting the real economy, making loans, helping people save, helping people invest. I think there are going to be rules against banks speculating with capital, there'll be rules on transparency. Obviously, we've all heard about derivatives clearing houses. But, of course, we've got to wait and see the details.
BARTIROMO: What about derivatives? I mean, a lot of people are worried about that in the industry, that it's going to take a big chunk of earnings out. What is it going to cost Citi?
Mr. PANDIT: You know, we've got to take a long-term perspective on this. If you can put derivatives into clearing houses, you make them safer. That could increase volume. So I don't think we should look at a shorter-term impact of some of these rules. The longer-term benefit to all of us from a safer system, people really trusting derivatives more is a good thing.
BARTIROMO: What about proprietary trading, splitting that off from deposit bases, the Volcker Rule? When you were talking on stage today, you had a great analogy of, you know, a major bank. Well, you explain it. I mean, how important is using a deposit base to actually service corporate clients?
Mr. PANDIT: Corporations need loans. We've known that forever. And then the question is, how do you fund those loans? And you've got to fund them by having a deposit base, so you've got to be in the retail business to gather those deposits to turn them into loans for corporations. That's the main business of a bank, a universal bank. The question on the Volcker Rule is a proprietary trading question, and that relates to should you take that capital away from what is necessary to make loans to corporations or help them with other capital commitments and put it to use for your own account as proprietary trade? And that's a different question. You know, there are banks that do that. We do that on a very small way, but, frankly, it's not core to our business.
BARTIROMO: It's not core to your business, but it does change the business model quite a bit, doesn't it, if you--if you're not tapping into deposits in order to make loans to corporate?
Mr. PANDIT: Yes. Now, that we'd be able to do under the Volcker Rule. And, from what I understand--of course nobody knows the details, we're all waiting for the details--but from what I understand, we'll all be able to commit capital on clients we have. It's really putting capital to work for your own account that will be affected.
BARTIROMO: Tell me where Citi stands. You've overseen restructuring, a tremendous transformation already since, obviously, two years ago when we were knee-deep in the financial collapse. Where are you in terms of selling off assets, good bank from the bad bank, as you yourself have discussed?
Mr. PANDIT: We've come a very long way. We are a fundamentally different company than we were a couple of years ago, and that's true in capital, in reserves, in liquidity. But also, we had a very strong first quarter, and that was a result of taking our cost structure down significantly as well as really making a big event of selling those assets that you asked about. We've come a very long way. We've got some ways to go, but we believe all the elements are in place for continued profitability.
BARTIROMO: So what is on the agenda now? You've taken about half a trillion dollars out of the balance sheet or more than that?
Mr. PANDIT: That's about where we are. We still have work to do in our Citi Holdings, and we continue to chip away at it constantly every day, every quarter. And that's going to happen. But now the story is turning to our core earnings story. This is about Citicorp. It's really not about Citi Holdings. And every day that goes by, this will be about Citicorp, not Citi Holdings.
BARTIROMO: What can you tell us as far as the global economy when you look at Citicorp, when you look at lending today and the consumer?
Mr. PANDIT: We like what we see in the emerging markets. Those markets seem to have turned. The credit situation there is better. There's good demand for loans from both consumers as well as corporations. The US market has improved a lot, credit has gotten better. Obviously, we're all hoping for those jobs. We need to see more jobs, that's going to drive it. And we're not in the consumer business in the European markets. That's a decision I made a couple of years ago when we sold a lot of those businesses. So the credit story seems to be getting better in the markets that we're in. Obviously, we need to watch the US a little bit more.
BARTIROMO: Well, what a smart move to be selling those assets in Europe at a time when Europe is as weak as it is.
Mr. PANDIT: Well, we're happy we did that, and I won't ask whether it was clear thinking or luck, but we'll take it either way.
BARTIROMO: As far as the Basel rules coming up, this is another issue that you discussed, and certainly, that the industry's looking at as the Basel rules require more capital. What--for the banks to hold. What kind of an impact are you expecting from that, if in fact we do see this materialize?
Mr. PANDIT: I'm concerned about the Basel rules, not so much because of the impact they will have on us or most American banks. I think American banks are generally in very good shape, and we certainly are as well. But the bigger impact is the amount of liquidity they would require you to hold and the amount of capital they'd require you to hold is going to have a real impact on the amount of lending and credit creation in the world. And I know that the IIF put out a study that talked about how this could take down GDP by almost 3 percent. I mean, these are big numbers. And so we all want the banking system to be safe. There's nobody, by the way, who wants it more than I do, having been through what I've gone through, but we've got to make sure we don't make a false choice between bank safety on one hand and the underperforming economy on the other hand. I believe we can balance these two things. And what we really need to do with Basel is calibrate it correctly.
Mr. PANDIT: How is exactly by looking at the notion of what kind of economic growth we need to have around the world. And certainly, when you look at the US banks and what they've done to recapitalize themselves, they've done a pretty good job of making sure they're safe. And so the how comes down to recognizing that more's not better and even more is not even better, that there is a balance that is required between creating a strong banking system and good economic growth, and we can achieve it. We just need to get people together around the table, more people focused on it. We've all been focused on Washington, but it's now time to focus on Basel.
BARTIROMO: Do you worry that the regulators will move too far because of what we've just been through and overregulate and keep a clamp on growth?
Mr. PANDIT: Most of the regulators that I've talked to in the US understand that that is not where we should be going, although we should all admit we do need these reforms and we need to move that pendulum. But we seem to be getting to the right place in many countries around the world. We just need to work together in Basel to make sure we land in the right place.
BARTIROMO: Do you feel like business is back in terms of what you do as a company and sort of the panic is behind? I mean, there were reports today that you're raising money in terms of private equity hedge funds. Does that mean that things are back to doing what you should be doing?
Mr. PANDIT: We are back to doing what we should be doing. Now, the volumes are different. And let's acknowledge it, the markets are still volatile, there's still a lot of uncertainty. We may have gotten the crisis behind us, but we haven't gotten all the economic issues behind us still. The imbalances are still there. We still need to address high amounts of leverage in the West as far as government spending is concerned. But until the market sees credible plans for these things, you're going to have volatility, and that's going to affect volume. But we're really doing the usual kind of business we've been doing for all these years.
BARTIROMO: What did you say, you said there's still a third too much debt? What was--what was the comment that you did?
Mr. PANDIT: The numbers we've run about the sovereign debt in the West, we're talking about Western Europe, US, and the developed markets combined, on average have about one-third too much debt compared to what they have. Now we've got to address it. Now, some of that debt, by the way, came out of the extraordinary measures that had to be taken to save the world from the crisis. Completely understandable, but now it's time to create a credible plan to get to the other side.
BARTIROMO: Vikram, would you like to add anything else that I may have missed?
Mr. PANDIT: Maria, you've been very complete. Thank you very much for your time.
BARTIROMO: Thank you for joining us.
CNBC is the recognized world leader in business news, providing real-time financial market coverage and business information to more than 340 million homes worldwide, including more than 95 million households in the United States and Canada. The network's Business Day programming (weekdays from 5:00 a.m.-7:00 p.m. ET) is produced at CNBC's headquarters in Englewood Cliffs, N.J., and also includes reports from CNBC news bureaus worldwide. Additionally, CNBC viewers can manage their individual investment portfolios and gain additional in-depth information from on-air reports by accessing http://www.cnbc.com.
Members of the media can receive more information about CNBC and its programming on the NBC Universal Media Village Web site at http://nbcumv.com/cnbc/.