New York: New York-based Citigroup Inc.’s plan to profit from growth in foreign markets may put chief executive officer (CEO) Vikram Pandit at odds with the US government’s stated interest in curbing risk and stoking the domestic economy with loans.
Pandit, 52, said in a 15 June speech in Detroit that Citigroup is looking for gains away from credit creation and the US consumer by harnessing globalization. The treasury department and Federal Reserve cited market stability and the need for credit flows to households and businesses as reasons for injecting $45 billion (around Rs2.2 trillion) of bailout funds last year into the bank.
The treasury is poised to become Citigroup’s biggest shareholder in September with a 34% stake under a pending preferred-stock conversion, so Pandit may have a hard time selling his plan. “With a stock below $3 and analysts forecasting the bank will post a second quarter operating loss later this week, it probably isn’t the time to focus overseas,” said Matt McCormick, a money manager at Bahl and Gaynor Inc. in Cincinnati.
Under stress: Citigroup’s CEO Vikram Pandit said in a 15 June speech in Detroit that the bank is looking for gains away from credit creation and the US consumer by harnessing globalization. Daniel Acker / Bloomberg
It sounds great on paper to have foreign operations and revenue streams, said McCormick, a banking industry specialist whose firm oversees $2.2 billion and doesn’t own Citigroup shares. But the average American is going to look at this and say, “Why in the world aren’t we focused on something that’s going to benefit the US taxpayer directly?”
‘Earn your way’
Pandit, a former hedge fund manager who took over in December 2007 following the ouster of Charles O. Chuck Prince, had said in an interview with PBS’s Charlie Rose in November that Citigroup will emerge from the financial crisis as a high-end retail bank serving clients that need its globality.
He said in the Detroit speech that he expects slow US economic growth in coming years because Americans are saving more and borrowing less. That means Citigroup must use profits from its global banking network, especially in emerging markets, to restore its health, he said. “As every businessperson knows, the best way to repay debt is to earn your way out of it,” Pandit said.
Pandit’s focus on emerging markets might not sit well with Federal Deposit Insurance Corp. (FDIC) chairman Sheila Bair, who has questioned Pandit’s leadership and wants the bank to reduce risks by selling off businesses, including some overseas, said people familiar with the matter who declined to be identified because Bair’s views are private. The bank should target global units that, while not big cash producers, still might fetch attractive prices, one of the people said.
FDIC role