Citigroup’s Corbat Says Spending Needed for Full RecoveryDonal Griffin and Chitra Somayaji
Michael Corbat, hunting for revenue seven months into his tenure as chief executive officer of Citigroup Inc., said the improving U.S. housing market and declining unemployment won’t ignite the nation’s economy unless companies start spending.
“We continue to see corporations defer hiring, we continue to see them deferring capital expenditure,” said Corbat, 53, in his first television interview in Asia, with Bloomberg Television’s Susan Li in Hong Kong. “Until we really see the other side -- that corporate side -- step in, I don’t think we can look and say that we’ve really got a full U.S. recovery.”
Corbat and his fellow CEOs at other U.S. banks need stronger economic growth to fuel revenue that’s being undermined by a slump in trading and regulators’ efforts to rein in risks in the wake of 2008’s credit-market turmoil. While the nation’s six biggest lenders increased total first-quarter profit by 45 percent, their combined revenue fell, leaving most of them to rely on a mix of tax benefits, staff reductions and cost cuts to increase earnings.
“What we see in the U.S. economy is a consumer that is slowly healing,” said Corbat, whose New York-based bank is the country’s third-largest by assets, behind JPMorgan Chase & Co. and Bank of America Corp. “We’ve seen it in terms of house prices starting to come back up but, interestingly, we haven’t seen the follow-through on the corporate side.”
Median prices for single-family homes rose in the first quarter from a year earlier in 89 percent of 150 metropolitan areas, as the U.S. housing market extended its recovery from a five-year slump, the National Association of Realtors said in a report May 9. The rebound has helped improve sentiment, with the Bloomberg Consumer Comfort Index at minus 29.5 in the week ended May 5, close to the highest level in more than five years.
While corporations have resumed hiring, they’re still showing restraint. When the U.S. economy slumped during the latest recession, business investment in equipment and software plunged even more, causing its share of gross domestic product to shrink to 6.4 percent by mid-2009, almost a four-decade low. At 7.5 percent in this year’s first quarter, the share is still below both its pre-recession level and the record 9.6 percent reached in mid-2000.
President Barack Obama, in an annual economic message to Congress in March, said job creation is the “top priority” of his second term. In announcing a $3.8 trillion budget proposal last month, he called for $50 billion in infrastructure spending and the development of high-tech “manufacturing hubs” to spur private investment and employment.
Corbat, who previously led a unit that disposed of Citigroup’s unwanted assets, replaced Vikram Pandit, 56, as CEO in October after Pandit navigated the bank through a near collapse and repaid a $45 billion U.S. bailout. Since taking the helm, Corbat has announced plans to cut 11,000 workers and pull back from consumer banking in markets such as Turkey, Pakistan and Uruguay.
Citigroup was alone among the largest U.S. banks this year in seeing its shares rise in the daily trading session after reporting first-quarter results. Excluding accounting adjustments, the bank’s revenue rose 3 percent, helped by hedges and earnings from advising companies on deals. The stock has climbed 33 percent since Corbat took over, compared with a 13 percent gain in the Standard & Poor’s 500 Index.
“We looked at some things that we needed to do in terms of right-sizing our company,” Corbat said. “Those were very difficult decisions to make.”
Corbat has worked at Citigroup and its predecessors since graduating in 1983 from Harvard University in Cambridge, Massachusetts, where he earned a bachelor’s degree in economics and played football as an all-conference offensive guard. He started at Salomon Brothers Inc., which became part of Citigroup under Sandy Weill in the 1990s, and learned about the company’s operations while moving among its divisions. Pandit, in contrast, joined Citigroup as a hedge-fund manager after an earlier career at Morgan Stanley.
Corbat became head of emerging markets in Citigroup’s fixed-income unit, and took over corporate lending in 2004. Four years later, he was assigned to run the wealth-management division, which included serving ultra-high-net-worth clients.
Pandit assigned him in April 2009 to divest $573 billion of assets as permanent head of the Citi Holdings unit, which held unwanted businesses. They included private-equity stakes, auto loans, a life insurer, a student-loan firm, a fund-of-hedge-funds business as well as mortgages and corporate bonds.
By the end of 2011, when Corbat was transferred to become the bank’s European regional chief, the assets in Citi Holdings had been cut 61 percent to $225 billion. When overseeing businesses, he said he prefers a methodical, multistep process - - a management approach Fortune magazine called “a little dull” in an article this month.
“I like to study the question or the problem or the opportunity in hand, work with the team to come with the right answer, make a decision and act upon it,” Corbat said in the Bloomberg interview. “Some people have said that, actually, today they pretty much like their bankers dull.”
Companies in the U.S. have added 6.15 million workers to payrolls since February 2010, when employment reached a decade low in the aftermath of the worst recession since the Great Depression. That leaves the level 2.58 million workers short of the peak reached in January 2008, according to figures from the Labor Department.
“It’s been slow, it’s been stingy,” Corbat said of job creation in the U.S. “But it’s started. So I think we’re seeing signs, but we’ve got more to do.”
Corbat spoke in Hong Kong after concluding a day-and-a-half of management committee meetings in the city.
Citigroup, which began operations in the Asia-Pacific region in 1902, will devote a “meaningful” share of resources to expanding there, he said, without providing specific numbers. About a third of the 150 cities identified by the bank as important markets are in that region, he said. The firm is focused on consumer banking and providing services to corporate clients in those countries, he said.
Revenue from Asia at Citicorp, the division that contains trading and investment banking, climbed 1 percent from a year earlier to about $4 billion, accounting for about 20 percent of the company’s total sales. The unit’s profit from Asia was $1.1 billion, 29 percent of Citigroup’s net income, according to a financial supplement.
In consumer banking -- where first-quarter revenue from the region fell 2 percent and profit dropped 17 percent -- Citigroup will focus on the “mass affluent” in cities, rather than jockey with domestic lenders in the countryside.
“You’re not going to see us competing in any country really in the hillsides against the domestic banks,” Corbat said. “We’re going to be urban-based.”
In its work with corporate clients, Citigroup is tapping into demand for services from “Asian champions” that are looking to expand manufacturing, shipping or energy operations abroad, he said.
“It’s not only a destination for our clients from elsewhere around the world,” Corbat said. “Asia is in the process of exporting a number of great companies around the world that we’re happy to be leading out of Asia.”
The CEO, who’s also traveling to Japan this week, said he’s “excited” about policymakers’ efforts to bolster inflation expectations and stimulate economic growth there.
Weakening the yen is “an important first step,” Corbat said. The currency slid past 102 per dollar for the first time since October 2008 as Group of Seven finance chiefs indicated they will tolerate its decline.
Citigroup directors ousted Pandit after concluding that he mishandled key operations, causing setbacks with regulators and costing credibility with investors, a person familiar with the matter said at the time. Pandit had helped the company navigate the financial crisis, when the firm took the U.S. bailout to avoid collapse.
Corbat already has avoided pitfalls that undermined Pandit. In March, his bank outperformed JPMorgan and Goldman Sachs Group Inc. on key measures in the Federal Reserve’s annual stress test of U.S. lenders in a hypothetical downturn. The Fed approved Citigroup’s capital plan after rejecting Pandit’s proposals a year earlier.
At Corbat’s first annual shareholder meeting last month, a majority of investors also endorsed the firm’s compensation practices after objecting last year amid criticism that Pandit would collect millions of dollars too easily.
“Vikram managed the company through an extremely difficult time and made a series of very tough decisions that I think positioned the company extremely well,” Corbat said of his predecessor. “My goal, my ambition, my obligation is to make sure that as a company we execute against that.”
Citigroup Chairman Michael O’Neill, 66, led Pandit’s ouster. He told shareholders last month that he’s “not intrusive” with Corbat in managing Citigroup.
Jamie Dimon, CEO and chairman of New York-based JPMorgan, faces a shareholder vote next week on whether he should relinquish his dual role.
Having a separate chairman “really leaves me to focus on the day-to-day running of the company,” Corbat said, declining to comment on competitors. “For us, it works very well.”