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CNBC EXCLUSIVE: CNBC TRANSCRIPT: CNBC'S MICHELLE CARUSO-CABRERA SITS DOWN WITH VIKRAM PANDIT, CITIGROUP CEO, TODAY

Vikram Pandit
Citigroup
Vikram Pandit

WHEN: Today, December 16th at 1PM ET

WHERE: CNBC's "Power Lunch"

Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Citigroup CEO Vikram Pandit today, December 16th on CNBC's "Power Lunch" at 1PM ET.

All references must be sourced to CNBC.

MICHELLE CARUSO-CABRERA: 2010 has been a year of milestones for Citgroup. Shedding of major assets, return to profitability and finally the exit of the government and it's massive stake. What are gonna be the big events of 2011?

VIKRAM PANDIT: You're right. We're quite delighted with the way 2010 worked out. Our big goal for 2010 was to establish sustainable profitability. And with-- over $9 billion of net income for the first three quarters-- and what I believe-- to be-- a sustainable-- company with all elements in place for a sustainable profitability. We're really focused now on driving growth, responsible growth for the future.

And that to us comes from supporting America's businesses as they go global. We are the world's global bank. It comes from restructuring our U.S. business. And today is a good day 'cause we're here in Union Square. And-- we're seeing the example of the restructuring of the U.S. business.

And of course global trade-- trade finance, capital flows are all gonna increase. And so our key, key focus is still the same. Keep out strategy, focus on our strategy, keep focused on execution. And switch from sustainable profitability to sustainable growth.

MICHELLE CARUSO-CABRERA: There's been a lot of focus since the exit of the government on whether or not you would be able to pay a dividend now or whether there would but shared buybacks. In fact, a lot of analysts are pricing in that there's gonna be a divi-- dividend in 2011 and increased dividends in 2012 and 2013. Are they right? Are they getting their hopes up?

VIKRAM PANDIT: We were-- pretty clear on this, on our earnings call last quarter. And I think what we said was 2012 is an important year 'cause that's the year we wanted to meet all the Basel requirements even though we don't have to meet them yet. But that's an important year. And we plan to do that and we also said that leaves in a position for excess capital. And we would be willing to look at ways to return that to our shareholders. But that's a decision we need to make then.

MICHELLE CARUSO-CABRERA: So when an analyst estimates four cents next year in dividends, they are wrong?

VIKRAM PANDIT: Well, I can't comment on what the board's gonna do in terms of dividend policy-- or shared buybacks. But we've been very clear. We think 2012 is the year to look forward to. Again, I think it's important for the company, for our customers, for our shareholders that we meet all the Basel requirements and meet them in full force-- and use that as a platform to start returning capital to our shareholders.

MICHELLE CARUSO-CABRERA: So 2012 is the year to watch for. Thirty billion shares, the process of the bailout was incredibly dilutive. Two years from now, where is that number when it comes to the number of shares outstanding?

VIKRAM PANDIT: Again-- I believe what matters more is market value and the total value of the company. And-- and-- you know, while we thing the markets is-- are increasingly recognizing who we are, we've got some ways to go. We think with out global businesses and with our-- with our reach and the power we have in our creating businesses and our trade finance businesses-- we'd like to s-- have the market appreciate even more what Citi is. And so I'm really focused on market value. That's the key attribute for me.

MICHELLE CARUSO-CABRERA: So the overall market cap, the stock price, a lot of your investors maybe have ridden the stock from $30 down to $1 back up to $4. What do you think is the most important thing that finally gets that stock to move and to increase the market cap as you wish?

VIKRAM PANDIT: I-- and I completely appreciate the fact that we've had to go through some very trying times to get here. But now that we're here I feel very good about how we're positioned. If the growth's gonna come from emerging market consumer, if the growth's gonna come from global trade, global finance, global capital flows. And for us, growth is gonna come from restructuring our U.S. business. And you put all those things together, the key attributes I think that are important are earnings. We gotta see earnings keep going up and-- and be robust.

The second attribute is to keep winding down Citi Holdings. And we're doing that in a methodical way. We've got plenty of capital liquidity to do that just right and we actually have done a pretty good job of doing that. You put those two things together and-- and-- I'm pretty confident the market will start seeing the attributes we have at Citi and appreciating them even more.

MICHELLE CARUSO-CABRERA: So in the last two years when it comes to Citi Holdings you have reduced the number of assets-- there by nearly 50 percent. That's been pretty rapid. Is it gonna be as rapid for the remaining 50 percent? How long is that gonna take? And it's still a big drag on earnings. Is it gonna continue to be the big drag on earnings?

VIKRAM PANDIT: So you're right. I think our people have done a pretty good job of brining the assets down to where they are. By the end of the year-- we believe they'll be below $400 million. At that time that'd be less than 20 percent of the company's balance sheet. And-- and increasingly as we sell more it becomes-- less and less of-- a balance sheet issue.

And you know these are economically sensitive assets. Most of these assets are in U.S. mortgages and-- with U.S. consumers. And as that starts stabilizing, as the U.S. start-- economy starts growing, that could actually-- turn out to be a good thing for Citi Holdings as well. And so we are right on it, very methodically. We are selling down the assets, but we're gonna sell 'em down at the pace that we think is right.

MICHELLE CARUSO-CABRERA: Is the economy stabilizing? Have you seen, for example when it comes to foreclosures-- the pace of them, is that ebbing? Is that increasing? Is it decreasing?

VIKRAM PANDIT: The big fear for the economy was whether or not we're gonna have a double dip. And our people-- our economists all believe that's really not gonna be the case. And I think that's positive. That are-- the core, core issue for the economy we all know is, "Can we grow at a rate that's large enough to create jobs." And I think that's where we are. And although we're seeing some positive signs. We are seeing some positive signs.

The housing market usually takes a little bit longer. And that's not only today's-- phenomenon. That's been true whenever there have been housing cycles. And yes-- but we know that. It's all in the market. It's discounted. The key, key indicator for us is to watch what businesses do, how they grow, how they invest-- and that's gonna create jobs.

MICHELLE CARUSO-CABRERA: The issue of-- you know, this morning we learned that Bank of America is in talks-- for settling the issue of whether or not they're gonna have to buy back mortgages. And certainly they have far more exposure than you do. But analysts are trying to get a handle on your exposure as well. Some have said two to nine percent of net income between now and 2013, anywhere from $2 to $7 billion when it comes to maybe having to buy back-- mortgages. Can you give any clarity on that range?

VIKRAM PANDIT: And we are a lot smaller than many of the larger banks. And not only because we are smaller in that business, but also because we've sold a lot. And this is part of the Citi Holdings strategy and so our portfolios are much smaller on that. Also I'd say-- and we've talked about this in our third quarter earnings in some detail. Be believe we're well reserved. We continue to make sure we're well reserved so our 8Ks, 8Qs, our disclosures are pretty complete.

MICHELLE CARUSO-CABRERA: When you look at what Merrill's doin' for Bank of America any regrets about Smith Barney not being a core asset anymore?

VIKRAM PANDIT: We think Smith Barney's a good business. And-- and we were convinced that the combination between Morgan Stanley's retail business and Smith Barney would actually pay off dividends, both in terms of the cost structure of the business-- but also in terms of offerings-- we can bring the best the city has to offer. Morgan Stanly can bring it's capabilities. And that was the core strategy.

You know, we still ow-- own 49 percent of that business-- although Morgan Stanley has the ability to buy that out over time. So we are positive about Smith Barney and the business. But for us-- it was really important that we make the right decision to serve our clients. And we're happy about that decision.

Also our core focus now at Citi is on the private bank. We have a great private bank around the world. We're very large in A-- in-- in Asia, very large in Latin America. I believe we're number one and number two in both of those places. And we are beginning to see us being even larger in the U.S. So we are committed to serving our-- private wealth clients through our private banking strategy around the world.

MICHELLE CARUSO-CABRERA: So we're here at a branch. In the past Citi has been criticized for not having a coherent-- not having a strategy when it comes to North American retail customers. Is there a strategy? What it is?

VIKRAM PANDIT: We have a very clear retail strategy. We have a very clear global retail strategy. We've got a very clear strategy in the U.S. Globally we are committed to being a big factor in serving to hundred biggest urban cities in the world. And that's important because the trends that are driving the world are globalization, urbanization.

And we believe we can serve those clients incredibly well. And U.S. is a big part of that. We are in 16 cities. Ten of them are part of the hundred largest cities in the world. And the big change to us in the U.S. is we've taken the company from a product led strategy where people were served differently if you had a card or a mortgage or a student loan or a car loan. To one that is very much a client based strategy, which is we're putting the client at the center of everything we do.

So our core strategy and the U.S. is client driven, it's customer experience driven and we want to serve those clients that can use our capabilities. And those capabilities are our global reach, our technology, our vast set of resources. And-- we're starting to see success.

MICHELLE CARUSO-CABRERA: How does that translate into more revenues and more profits?

VIKRAM PANDIT: And-- the-- if you look at the architecture of the U.S. retail business and you look at where we've been, and certainly we are making money. But a lot of that-- is gonna get enhanced as we change the structure by which we do business. C-- Cici Stewart who is gonna come join us shortly is gonna be a great addition for us as well. And she's gonna run the U.S. retail bank.

And while we haven't given out any projections, we wouldn't be making the investments nor would we be doing the restructuring if we didn't believe we could serve our clients well and if we didn't believe it was gonna be profitable for our shareholders.

MICHELLE CARUSO-CABRERA: You used to manage money. Everybody knows you as the C-- C-- CEO of Citigroup now, but you ran a hedge fund, Morgan Stanley. You were very much involved-- with investing in institutions. If you were still managing money right now would you be in the market? Where would you be investing?

VIKRAM PANDIT: Well-- the good news is I'm managing Citigroup right now. And I am investing. And let me tell you where we're putting money to work. We are putting to w-- money to work in the U.S. And you've seen that today. This is really important. I think the consumer banking business in the U.S. is gonna change significantly: regulation, technology, consumer behavior. We all want to be ahead of that curve, and we are. And so that's one area. We're spending our money and investing.

The second place we are investing money is in the emerging markets. Because they do represent a growth cycle that American businesses can tap and export into. So we're growing branches there and we're investing in those markets. And the third place we are investing money as a company is again, globalization.

We think globalization is in its young phase. There's a lot more that's gonna happen. It's about global (NOISE) trade, it's about global capital flows, we're doing that. But one caveat to that, which is really interesting, is if you really look at trade flows, it's that trade flows between emerging market to emerging market. Asia to Latam, Latam to Africa, Africa to Asia and intra in EM that are really growing exponentially. And there's no other bank that has the footprint to get in those flows better than Citi.

MICHELLE CARUSO-CABRERA: You just talked about all the trade flows between Asia and Latin America, Latin America, Africa, et cetera. You didn't mention the United States. Is the United States losing its competitive edge? Where do we sit right now in the wake of this financial crisis that we've been through in the United States?

VIKRAM PANDIT: Well, United States remains the largest economic power in the world. We have so much presence and so much to contribute. Of course we've got some work to do as far as the economy is concerned. But there's no question that just as the U.S. is gonna do well, some of these other markets are doing extremely well, as well.

And I think the challenge and the opportunity for all in the bus-- all of the businesses in the U.S. are straightforward. 1) How do I make sure I export more? 2) How do I make sure I get into the emerging market to emerging market flows as U.S. companies? And 3) how do I make sure that I ins-- how do I make sure the U.S. and Europe together have trade flows as well between them?

And so when you really look at all of this I think the things the administration is doing in terms of the Korea Free Trade Agreement. And all the focus Ron Kirk and everybody in the administration has in terms of economic zones: Panama, Columbia, Southeast Asia. These are really important things. So we've got a big role to play in the world, big l-- role to play in how trade and capital flows globalize even more. And actually I'm looking forward to that for our own bank, Citibank.

MICHELLE CARUSO-CABRERA: Final question. knock on Citigroup for a long time, it was too big to manage. Is that no longer the case, still the case?

VIKRAM PANDIT: So-- you know, we-- when we created Citi Holdings we put 40 percent of our assets, 40 percent of our businesses in what we considered to be non-core. And the rest of the businesses are very clearly thought through. The retail businesses and our institutional businesses against the trends that we see going forward: globalization, the rise of the emerging markets and the changing nature of the American consumer. Those are the three trends against which we've got our businesses aligned.

So yes, this is a great company. It is designed to be extremely manageable. And not only that, we've shown over the last so many quarters we can really execute against the goals we set out. So-- you know, I look at where we are today at Citi and consider that we made exactly the right moves. Selling Citi Holdings down, reforce-- focusing our strategy and actually looking forward to growth from here.

MICHELLE CARUSO-CABRERA: Anything I should have asked you or you expected me to ask you?

VIKRAM PANDIT: Michelle, you've been absolutely complete and thorough (LAUGH) and I appreciate your coming down to Union Square and-- and seeing-- this new branch. I'm really excited about this. It's-- it's a flagship for us in New York City, and that's our home market.

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