[SINGAPORE] "A bit like becoming the captain of the Titanic after it hit the iceberg", was how Citigroup CEO Vikram Pandit once described taking over the helm of the financial giant in December 2007, in the midst of the global financial crisis.
He has spent the better part of the last five years trying to take the 200-year-old bank back to its roots, by refocusing on its core strengths of providing basic banking and serving clients, rather than creating exotic financial products and engaging in proprietary trading.
"Crisis or no crisis, we had to change our strategy," he said, in an exclusive interview with BT. "The supermarket approach to me did not represent who we truly were as an institution. Because our heritage goes back to us being a core bank.
"And so, we refocused the institution on our core strengths: the basics of banking and connecting the world to our clients. It wasn't a new strategy, it was the strategy we had from the start. Whenever we've done that historically, we've thrived. And whenever we've strayed from that, it's something we've had to put right."
The 55-year-old Mr Pandit, formerly an investment banker with Morgan Stanley and hedge fund manager, has acted aggressively to transform Citi after it had to be rescued by the US government, which poured in US$45 billion of taxpayer funds to recapitalise the bank after the crisis.
Citi has trimmed its staff strength from 375,000 to 260,000, sold some 60 companies, shed US$600 billion worth of assets, rebuilt its capital and overhauled its risk management. "We're now smaller, simpler, safer and stronger," Mr Pandit said.
But the biggest part of the change at Citi is what he calls "a cultural transformation".
"This basically comes down to our people asking three questions before they do anything for a client: Is it right for our client? Does it add any economic value? And is it systemically responsible? The answer must be 'yes' to all three before we do that transaction or provide that service."
Mr Pandit pointed out that Citigroup is no longer interested in proprietary trading. "These are all businesses that we have moved out of, or are in the process of moving out of," he said. "Our capital should be available to our clients, not for us to put to use for ourselves."
He also affirmed that Citi supports the concept behind the so-called Volcker Rule, proposed by the former Fed chairman Paul Volcker, which seeks to prohibit banks from engaging in non-client-related proprietary trading, and from owning or investing in such entities as hedge funds and private equity funds.
"At the most basic level, it's about making your capital to work for your clients rather than for yourself," said Mr Pandit. "Conceptually, it is completely in line with our thinking."
He added, however, that there are practical issues relating to what constitutes market-making, which is an essential role of a bank. "It's easy to define proprietary trading when all people are doing is sitting behind glass walls and doing bond trading for the bank's own account, without regard to whether there's a client on the other side. That part is easy. But defining what exactly we mean by market making is something that needs a lot more calibration."
On the issue of bank regulation generally, Mr Pandit suggested that much of the public debate has been wrongly focused.
"All the discussion we see in the press seems to be about what products banks should be allowed to sell. But there is little discussion that takes account of the fact that the companies that have had problems include monoline companies, small banks and large banks.
"Really, the discussion needs to be about the software of running a financial institution. There are two key parts of the software. One is the culture in the organisation. The second is supervision. It's important to get that supervision right, not only to monitor an institution's safety and soundness but also to ask questions about its culture. What's needed is a continual dialogue with regulators, continual sharing of information and learning from each other."
Currently Citigroup's revenues (US$78.4 billion last year) are roughly equally derived from developed markets and emerging markets (EMs). The bank's future, according to Mr Pandit, will be shaped by the major secular trends in the global economy, notably the rise of urbanisation and the changing nature of globalisation.
"Globalisation is at a very early stage, and is going to look different going forward," he said. "You will find a lot more EM-EM trade than before. There are going to be a lot more financial centres in the world. It will also be a point-to-point world. For example, Sao Paulo can deal direct with Singapore, unlike the old days when you had to go via New York or London. Intra-EM flows are going to be very large."
Urbanisation will also be a huge trend, he observed, noting that Citi is focused on 150 urban centres in the world that account for about half of global GDP.
"So there are three core trends behind our strategy," he explained. "Globalisation is clearly one, urbanisation is another, and then there is digitisation, which makes it all happen.
"These are all trends where emerging markets are going to be at the forefront. For us, it's great to have this differentiator, which is that we're in 17 countries in Asia, 24 countries in Latin America, 17 countries in Africa, and many countries in Eastern Europe. So we can connect EM to EM, and we can also connect developed markets to EMs. And that's a very unique footprint."