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CNBC TRANSCRIPT: CNBC'S "THE STRATEGY SESSION" TALKS WITH CITIGROUP CHAIRMAN RICHARD PARSONS

Richard Parsons
John Amis
Richard Parsons

WHEN: THURSDAY, MAY 19, 2011

WHERE: CNBC'S "THE STRATEGY SESSION" AT 12PM ET

Below is a portion of the unofficial transcript of a CNBC EXCLUSIVE interview with Citigroup Chairman Richard Parsons on CNBC's "The Strategy Session" at 12pm ET.

The full interview is available on www.cnbc.com

Key to the Citi with Dick Parsons: http://video.cnbc.com/gallery/?video=3000022379

Citi's Dick Parsons Talks Social Media: http://video.cnbc.com/gallery/?video=3000022394

All references must be sourced to CNBC.

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DAVID FABER: NOT SURE IT WAS THAT MUCH FUN. THAT WAS VIKRAM PANDIT, DECEMBER OF 2007. HIST FIRST TELEVIZED INTERVIEW AS CEO OF CITIGROUP. CERTAINLY HASN'T BEEN THAT MUCH FUN FOR CITIGROUP SHAREHOLDERS SINCE THEN. SINCE PANDIT TOOK OVER FOR CHUCK PRINCE, STOCK DOWN 88%. NOW LISTEN FAIR OR UNFAIR THAT CERTIANLY EARNED PANDIT HIS FAIR SHARE OF CRITICS ALTHOUGH THAT HASN'T STOPPED HIM FROM GETTING A DECENT PAY PACKAGE THAT WITH PERFORMANCE INCENTIVES COULD TOTAL UP TO 23 MILLION. RICHARD PARSONS IS THE CHAIRMAN OF CITIGROUP, NICE TO HAVE YOU. THANKS FOR MAKING SOME NEWS BEFORE YOU WENT ON.

RICHARD PARSONS: ALWAYS GOOD TO BE HERE. DAVID.

FABER: ALSO WANT TO GO BACK TO OUR '90s THING. BUT FIRST LETS START OFF ON PANDIT. OBVIOUSLY, PEOPLE SEE THE HEADLINE NUMBERS.IT COMES IN A LOT OF DIFFERENT WAYS FOR A LOT OF DIFFERENT THINGS, BUT NONETHELESS WHAT DO YOU SAY TO PEOPLE OUT THERE WHO ARE JUST READING THE NEWSPAPER SAYING WHAT ARE YOU PAYING THIS GUY 23 MILLION FOR A COMPANY THAT WAS A WARD OF THE STATE.

PARSONS: ACTUALLY, I THINK THE COVERAGE HAS BEEN PRETTY BALANCED AND PRETTY FAIR. BUT LET ME GIVE A LITTLE CONTEXT AND LET ME PUT THIS PACKAGE IN THAT CONTEXT. ON ALMOST ANY BASIS, RIGHT, VIKRAM PANDIT, WHO'S WORKED BASICALLY FOR A BUCK A YEAR FOR THE LAST SEVERAL YEARS HAS BEEN ONE OF THE MOST, IF NOT THE MOST SINGLE MOST PRODUCTIVE EMPLOYEE IN TERMS OF UNIT PAY FOR UNIT PERFORMED IN AMERICA. SO WE WANT TO KEEP HIM. WE WANT TO KEEP HIM. HE'S DONE A TERRIFIC JOB. YOU KNOW, CITI IS REALLY IN SORT OF A POST CRISIS MODE. WE'VE GOTTEN THROUGH THE CRISIS. WE'VE PAID THE GOVERNMENT BACK. ACTUALLY A PRETTY FAIR RETURN. WERE NOW AT FIVE, SIX, CONSECUTIVE QUARTERS OF PROFITABILITY. WE'RE BACK ON THE TRACK OF CONSISTENT PROFITABILITY. RECENTLY REINSTATED THE DIVIDENDS SMALL RIGHT NOW, BUT GOING TO GROW OVER TIME.SO, WE'RE BACK IN THE GAME AND A LOT OF THAT IS DUE TO VIKRAM AND THE TEAM HE PUT TOGETHER AND SO,WHAT WE PUT TOGETHER AS THE BOARD AND COM COMMITTEE IS THE PACKAGE THAT'S DESIGNED TO RETAIN HIM. NOT LOOKING BACKWARDS, GOING FORWARDS. THIS IS ALL AND I WOULD POINT THIS OUT THIS IS ALL PERFORMANCE-BASED COMPENSATION. HE'S GOT TO CONTINUE TO DELIVER GOING FORWARD IN ORDER TO GET TO THE KIND OF NUMBERS YOU WERE TALKING ABOUT.

FABER: I DID LOOK THROUGH SOME OF IT THOUGH AND SOME OF IT IS NOT BASED ON METRICS THAT SOMEBODY AT HOME CAN LOOK THROUGH A FINANCIAL STATEMENT AND IDENTIFY. ITS THINGS LIKE REGULATORY CONSIDERATIONS, ORGANIZATIONAL CULTURE. TALENT DEVELOPMENT. I DONT KNOW FEELS TO ME LIKE THOSE ARE THE KINDS OF THINGS YOU CAN SAY HE'S DOING GREAT IN THREE YEARS AND JUST GIVE HIM THE MONEY.

PARSONS: AGAIN, PUT THAT IN PERSPECTIVE.THE PACKAGE WE PUT TOGETHER CONSISTS OF THREE PARTS. ONE IS, WE HAVE A PROFIT SHARING PLAN IN CITI FOR THE SENIOR MANAGEMENT. VIKRAM WAS NEVER A PART OF IT BECAUSE HE HIMSELF TOOK HIMSELF OUT OF IT. I ONLY WANT TO MAKE A BUCK A YEAR UNTIL WE GET BACK ON THE PATH TO SUSTAINABLE GROWTH. SO WE'RE PUTTING HIM IN THE PROFIT SHARING PLAN. WHAT THAT MEANS YOU GOT TO MAKE PROFITS BEFORE YOU GET A SHARE.THAT'S THE BIGGEST PART OF THIS. SECOND, WE GAVE HIM SOME OPTIONS. AND UNLIKE MOST OF THE OTHER FINANCIAL INSTITUTIONS OUT HERE, WE GAVE HIM SOME AT MARKET, BUT A GOOD CHUNK PREMIUM PRICED TO MARKET IN OTHER WORDS.

FABER: THEY'RE OUT OF THE MONEY.

PARSONS: THATS RIGHT HE'S GOT TO CREATE 50, $60 BILLION WORTH OF VALUE BEFORE HE GETS IN THAT FINAL FORM. THATS A STRETCH. THE THIRD PIECE, WHICH IS ABOUT 10% OF THE WHOLE PACKAGE, IS SOME OF WHAT YOU CALL THE SOFTER SIDE, BUT YOU KNOW THOSE OF US WHO HAVE BEEN INVOLVED IN MANAGING A BUSINESS AND IN OVERSEEING THE MANAGEMENT OF A BUSINESS, THOSE ARE REALLY THE IMPORTANT THINGS. NOT EVERYTHING IS MEASURED IN NUMBERS. WHAT KIND OF CULTURE DO YOU CREATE IN AN ORGANIZATION. ENORMOUSLY IMPORTANT. HOW DO YOU DEVELOP THE TALENT IN THE ORGANIZATION, WHICH IS YOUR PRIMARY RESOURCE. ENORMOUSLY IMPORTANT. YOU CAN'T PUT NUMBERS ON THAT. HOW DO THE PEOPLE WHO WORK THERE FEEL ABOUT THE ORGANIZATION.DO THEY RECOMMEND IT TO THEIR FRIENDS? DO THEY STAY? RETENTION. HUGE, IMPORTANT THING.THOSE ARE THE KINDS OF THINGS WE ALSO WANT TO GET MANAGEMENT TO FOCUS ON AND THERE THE SHAREHOLDERS AS MANAGEMENT ARE GOING TO HAVE TO RELY ON THE JUDGMENT OF THE BOARD IN TERMS OF HOW WELL HE IS DOING AGAINST THOSE METRICS.

GARY KAMINSKY: YOU SAID VIKRAM HAS BEEN VERY PRODUCTIVE.YOU TALK ABOUT PROFITS OBVIOUSLY INCREASING THE MARKET CAPITALIZATION THROUGH GROWING PROFITS. HAS VIKRAM AND HIS TEAM GOTTEN ENOUGH KNOWLEDGE OF THE BUSINESS THAT THEY'VE COME TO THE BOARD YET AND GIVEN THEM THE REAL EARNINGS POTENTIAL OF WHAT THIS COMPANY LOOKS LIKE NOW FOR THE NEXT THREE TO FIVE YEARS?

PARSONS: WELL THE ANSWER IS YES AND NO. THEY'VE GIVEN US A VIEW OF WHAT THEY THINK THE NORMALIZED EARNINGS OF CITI CAN LOOK LIKE DOWN THE ROAD. THE REASON I SAY NO THOUGH IS BECAUSE THERE ARE A LOT OF VARIABLES THAT ARE NOT WITHIN OUR CONTROL THAT ARE GOING TO AFFECT THAT. FOR EXAMPLE, WHERE THE FINAL SORT OF REGULATORY CAPITAL REQUIREMENTS SUGAR OFF. HOW MUCH CAPITAL DO WE NEED TO HOLD AGAINST OUR VARIOUS BUSINESSES IN ORDER TO BE IN THOSE BUSINESSES? BECAUSE THAT IN TURN WILL REFLECT ON THE RETURN THAT YOU CAN GENERATE ON THAT CAPITAL, BUT WE THINK WE HAVE A PRETTY GOOD SENSE. WE THINK THAT CITI CAN RETURN TO THE IM GOING TO CALL IT THE PRECRISIS LEVEL OF EARNINGS BUT THIS TIME

FABER: THERE WAS A TIME WHEN THIS COMPANY WAS EARNING 20 BILLION DOLLARS A YEAR.

PARSONS: WELL THAT'S YOUR NUMBER, BUT YOU'RE RIGHT.

FABER: I REMEMBER IT.

PARSONS: YOU'RE RIGHT. WE THINK WE CAN GET BACK TO THOSE PRECRISIS LEVELS STILL MANAGING THE THING IN BETTER RISK CONTROLS WITH BETTER RISK MANAGEMENT.

KAMINSKY: BUT THE CAPITAL THE REQUIRED CAPITAL GIVEN BASIL 3 AND OTHER REQUIREMENTS IS GOING TO BE A RESULT OF HOW THAT EVENTUALLY GETS DOWN TO THE BOTTOM LINE.

PARSONS: THAT IS DEFINATELY GOING TO AFFECT THAT, AND SO THAT IS STILL A MOVING TARGET. BUT GIVEN THE POSITION THAT CITI HAS, I MEAN EVERYBODY AGREES EVERYBODY THAT COMES ON YOUR SHOW AGREES, WHERE THE ACTION IS MOVING, WE'LL TALK ABOUT THE INTERNET IN A MINUTE, BUT WHERE THE ACTION IS MOVING IS INTO THE EMERGING MARKETS. THAT'S WHERE GROWTH IS. THERE'S NO FINANCIAL INSTITUTIONS BETTER POSITIONED TO THOSE EMERGING MARKETS THAN CITI IS AND WE THINK THERE'S A HUGE OPPORTUNITY OUT THERE AND THE CHALLENGE NOW, THIS IS THE CHALLENGE WE'VE PUT BEFORE VIKRAM. REMEMBER THIS IS A FOUR, FIVE-YEAR PLAN. HE DOESN'T GET THIS MONEY UNLESS HE PERFORMS. THE CHALLENGE OVER THE NEXT 3, 4, 5 YEARS IS TO GO OUT AND SEIZE THAT OPPORTUNITY AND MONOTIZE.

FABER: OF COURSE, A LOT OF BUSINESS STILL HERE IN THE STATES. YOU KNOW, GOT A LOT OF OTHER BUSINESS TO GET TO, BUT GIVE ME A QUICK SNAPSHOT OF WHAT YOU SEE IN THE U.S.

PARSONS: THINGS ARE GETTING BETTER. THEY'RE JUST GETTING BETTER SLOWLY. WE'RE SEEING LONG DEMAND COME BACK. LOAN DEMAND IS COMING BACK, BOTH IN THE BUSINESS SECTOR, COMMERCIAL REAL ESTATE. AND CONSUMER LOAN DEMAND IS COMING BACK. THE PLACE WHERE IT'S NOT COMING BACK AS STRONGLY AND THE PLACE THAT'S STILL LAGGING, RESIDENTIAL HOUSING.THAT'S GOING TO BE A SLOWER REBUILD, BUT YOU KNOW, WE FORGET FUNDAMENTALS SOMETIMES IN THIS 24-HOUR CABLE NETWORK NEWS WORLD. FUNDAMENTALS ARE WE HAD A SURPLUS OF SUPPLY. WE HAD PROBABLY 2 MILLION HOMES IN THE U.S. MORE THAN WE NEEDED. AND WE JUST GOT TO WORK OUR WAY THROUGH THAT SURPLUS TO GET THE SUPPLY DEMAND BACK IN BALANCE.WE'RE SEEING THINGS COMING BACK AND OPTIMISTIC ABOUT GOING FORWARD.

KAMINSKY: ONE QUICK THING ON THE CAPITAL JUST WANT TO CLARIFY. YOU DON'T SEE ANY SCENARIO WITH REGULATORY CHANGE WHERE CITI'S GOING TO NEED TO RAISE ADDITIONAL CAPITAL?

PARSONS: NO, I DON'T. I DONT. CITI'S PROBABLY ONE OF THE BEST CAPITALIZED LARGE FINANCIAL INSTITUTIONS IN THE WORLD TODAY.THE ISSUE IS HOW MUCH CAPITAL YOU'RE GOING TO HAVE TO HOLD AGAINST VARIOUS --

KAMINSKY: EXACTLY BUT THERES NO NEED TO DO ANYTHING DILUTE OF CAPITAL RISK

PARSONS: NO, NO.

FABER: THAT ULTIMATELY GOES TO PROFITS. STAY RIGHT THERE. WE WANT TO REVISIT 1999 WITH DICK PARSONS.

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