Interview with Citibank CEO Vikram Pandit: 'There Is No Reason for Exuberance'

During the financial crisis, US taxpayers bailed out Citibank to the tune of 45 billion dollars. Now, the bank is once again profitable. SPIEGEL spoke to CEO Vikram Pandit about what he has learned from the crisis, the future of banking in the US and why Indians make good bankers.

Citibank CEO Vikram Pandit: "It is still too early to draw conclusions." Zoom
Werner Schuering / DER SPIEGEL

Citibank CEO Vikram Pandit: "It is still too early to draw conclusions."

SPIEGEL: Mr. Pandit, you just announced a profit of over €10 billion for 2010. But your investors were disappointed because they had expected more. Is the financial crisis already over?

Pandit: It is still too early to draw conclusions because we can't tell yet how sustainable the recovery will be. As you know, the development of the banks is linked to the economic recovery. In addition, regulators across the world are just designing new rules for the financial sector. This could change the business model of some financial institutions.

SPIEGEL: The economic recovery is still sluggish, at least in the US. The unemployment rate is high. Yet business on Wall Street is booming once again.

Pandit: There is no reason for exuberance. That would be inappropriate given the still difficult situation. In spite of the good numbers, the upswing is still fragile. But it is normal that an upswing starts with the recovery of the financial sector and the stock market -- and that as a result, job creation can follow later on in other areas, too. Everybody benefits if the banks are doing better, because companies need a functioning banking system to provide them with sufficient capital.

SPIEGEL: One could also say, though, that the country is still paying the price for what happened. The banks however -- which created the chaos in the first place -- have returned to business as usual. Your bank, for instance, was bailed out with $45 billion in federal money.

Pandit: We owe a debt of gratitude to the American taxpayer for the investment in Citigroup. The US government and thus the taxpayer sold the last of its shares last year and made $12 billion in profits.

SPIEGEL: Citigroup is a prime example for all the things that went wrong in the run-up to the financial crisis. The company lost a whopping $27.2 billion in 2008 due to the failure of highly complex financial bets. Now it is again making a nice profit. How did you turn your company around?

Pandit: Prior to 2008, we operated as a "financial supermarket" and tried to be all things to all people. Since then, however we concentrated on our core business and sold other businesses and assets that we consider not to be part of our strategic growth plans, for instance the retail business in Germany. All in all, we sold 40 percent of our company.

SPIEGEL: You also slashed over 100,000 jobs during this radical restructuring.

Pandit: That is correct: We downsized from 375,000 to now 260,000 people globally. And most of those former employees are now working for the companies that bought the businesses they worked for. But we also used the difficult times to implement structural changes. We returned to our distinct strategy of linking companies and individuals across the world. We exploited synergies and cut our costs by $12 billion. Still, that was the easier part.

SPIEGEL: And the more difficult one?

Pandit: We adjusted our corporate culture. Banking shouldn't be an end in itself; it must support the real economy. Immediately before the crisis, one could have gained the impression sometimes, that some people had forgotten this principle. For this reason, we have unequivocally reaffirmed our one and only tenet: the clients come first.

SPIEGEL: That sounds great. But how did you get this across to your people?

Pandit: One needs to communicate clear principles and make sure they are complied with.

SPIEGEL: Are you saying that the former gamblers have seen the light?

Pandit: I don't like the expression, because it is incorrect. By far the largest part of our business has always been customer focused. There have been unpleasant outliers, though. For this reason I welcome the new regulatory rules. Cultural changes are only possible if companies create different incentives, for instance by linking remuneration more closely to the sustainable success of the business. And managers must lead by example. Young employees model their behavior on that of their seniors.

SPIEGEL: You are earning a fixed salary of $1.75 million per year from 2011 onwards. Previously, however, you worked for just $1. Did you want to set a positive example by doing so?

Pandit: It was a personal decision I made in view of the government funds the bank received. But it is not just the gesture that counts. Young people notice the principles guiding their managers in their decisions -- whether managers act responsibly by instinct. At the same time, we are not on an island....

SPIEGEL: ...meaning that Citigroup must once again pay many employees million-dollar bonuses this year to keep them from straying to your competitors?

Pandit: One must give one's employees incentives, yet they ought to be based on long-term success. Clearly, nobody wants to return to the excesses that almost caused the breakdown of the financial system. It is important that all parties involved comply with these principles. I believe that those who don't should be reminded of them more often.

SPIEGEL: Politicians made sweeping requests during the crisis of the global financial system. They wanted to break up big banks like Citigroup, for instance. Now it seems that nothing has changed.

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