Excess reform may mar recovery

Citi CEO Vikram Pandit

By Kim Jae-kyoung

Citi has been the symbol of globalization and advanced financial services provider. The global financial crisis triggered by the U.S. subprime mortage meltdown has tarnished its image but it is now bouncing back fast and regaining its reputation as a leading global player.

In this regard, the head of the U.S.-based banking giant is the best person to provide insights about where the global financial market is heading and what measures should be taken to prevent another financial crisis.

Following the crisis, the Group of 20 (G20) member nations have put their heads

Headquartesr of Citi Group
in New York

together to reform the global financial system for more sustainable and balanced growth and a safer banking system.

In an interview with The Korea Times, Citi CEO Vikram Pandit suggests that the G20 should take a more cautious approach to prevent any regulatory reform from having a negative impact on global growth and financial markets.

“There will continue to be a lot of discussion around the need to combat protectionism. In the case of financial reform, it will be vital to guard against new regulatory systems that impair growth. Another priority will be considering more ways to achieve the elusive balance between fiscal consolidation and growth,” he said.

He said he is supporting both the reforms recently enacted in the U.S. ― which do much to protect consumer rights ― and the direction of the Basel Committee proposals, which with proper regulatory supervision will make the banking system safer.

“I am however concerned that reform might have negative effects on financial inclusion and aggregate demand. An unintended consequence may be to restrict credit to the less affluent and to cause banks to cut back service in those communities. In addition, less lending could mean less economic activity, precisely when the world economy most needs a boost,” he said.

“There has been talk that G20 leaders might use the summit to call for further capital requirements above and beyond the Basel III levels. I think this would be a mistake. Higher levels are not necessary to make the financial system safer and they would likely act to curtail economic growth.”

Business summit

The veteran banker stressed that the Korea’s efforts to put global business CEOs at the heart of the G20 discussion will help the forum find workable solutions to support global growth.

“I support this approach. I believe the role of the business summit in the G20 platform is crucial, as countries will soon require private investment to replace policy stimulus as the primary driver of economic stability and, we hope, recovery,” he said.

“As many governments are being stretched to the limit, the responsibility for investment, growth and job creation will fall more heavily on the shoulders of the private sector. This is a responsibility that the private sector must recognize and accept. After all, commerce and not government is the core driver of globalization,” he added.

He emphasized that the world needs to build a stronger foundation between the private and public sectors.

“The business summit provides a rare opportunity for the CEOs of world-leading corporations to come together with political leaders and discuss urgent issues. Better cohesion and understanding between governments and corporations are critical to building a more stable, resilient economic structure.”

Pandit said that the formation of the G20 reflects how the global economy continues to integrate, noting that the nations in this group account for almost 85 percent of global gross national product, 80 percent of world trade, and nearly two-thirds of the world’s population.

“The concerted and decisive actions of the G20, with its balanced membership of developed and developing countries, played a key role in helping to deal effectively with the global economic crisis. The current meeting can help ensure that the group continues to make a significant and positive contribution to establishing a stronger and also more balanced world economy,” he said.

Under the G20 umbrella in the post-crisis world, the veteran banker said that the world needs a financial system that returns to its basic role of supporting and driving global economic growth.

“As regulators at the national and international levels continue to address systemic issues, we all need to realize that we cannot fully stop future crises. But we can mitigate them, manage them more effectively, and build the tools to overcome them.

“We have an opportunity to create a new, stronger architecture for a financial system that works in society’s interest,” he said.

“We also need a global business environment with a stronger culture of responsibility. From a financial services perspective that means banks should be banks and focused on serving their clients.”

Future business strategy

Pandit sad that Citi’s key strategy is to focus on banking business by capitalize on its extensive global network.

“Our strategy is be a client-focused bank and to put our unmatched global footprint and resources to work for our customers. Our global presence means we are uniquely positioned to take best advantage of all the key factors driving global growth ― including world trade, capital flows and growth in the emerging markets,” he noted.

“We are also focused on being a bank, not a financial supermarket. We have core businesses that serve the needs of globally-minded individuals, multinational corporations, and public sector institutions,” he added.

He pointed out that another key advantage of our global presence is that we have the strength and scope to scale up innovations quickly around the world. “We can take a new product, service or technological innovation in one country and integrate into others. That’s a key competitive advantage for Citi.”

‘Citi is fabric of Korea’

The Columbia University graduate said that Korea is one of the most important market for Citi because of its long history and large presence here.

“South Korea is one of our key strategic priorities globally and is a market where we have established very deep relationships. Citi is part of the fabric of South Korea,” he said.

“We were honored to be one of the first international banks to open for business in South Korea in 1967, and since then we’ve had a front-row seat as the country has developed into one of the world’s most dynamic economies,” he added.

Pandit said that Citi will seek to increase its presence here by strengthening its business activities in many areas.

“Today, we are a leading player and the largest foreign bank in South Korea. This market has our third largest retail branch network globally, after the United States and Mexico. And we have ambitious plans to grow further across our platform, from retail banking to private banking to global banking to global transactions services.”

He pointed out that a capital increase case during the crisis illustrates how highly Citi is committed to the Korean market.

“At the end of 2008, when there was an exodus of foreign capital during the crisis, Citi injected a further US$800 million into our local franchise. This played a critical role in bolstering Citibank Korea’s capital base and stabilizing the foreign exchange market in the country,” he said. At the end of last year, our total investment in South Korea had reached KRW 5.38 trillion, making Citi the largest foreign bank investor in the Korean market.

Who is Vikram Pandit?
Vikram Pandit is the chief executive officer of Citi. Before being named CEO on December 11, 2007, Pandit was chairman and CEO of Citi's Institutional Clients Group, which includes Markets & Banking and Citi Alternative Investments.

Pandit was a founding member and chairman of the members committee of Old Lane, LP which was acquired by Citi in 2007.

Previously, he was president and chief operating officer of Morgan Stanley's institutional securities and investment banking business and a member of the firm's Management Committee.

Pandit serves on the boards of Columbia University, Columbia Business School and the Indian School of Business. He is a former board member of the NASDAQ, Trinity School, the New York City Investment Fund, and the American India Foundation.

Pandit earned a PhD in Finance from Columbia University in 1986. He also received an MS degree in 1977 and a BS degree in electrical engineering in 1976 from Columbia.