Vikram Pandit, CEO, Citigroup
    Executives' Club of Chicago Global Leadership Luncheon

    As Prepared for Delivery

    February 17, 2011

    Remarks by CEO Vikram Pandit at the Executives' Club of Chicago Global Leadership Luncheon

    Thank you to the members of the Executives' Club for inviting me to be part of your Global Leaders series.

    Many banks measure leadership in products–how many, and how much, they can sell. For us at Citi, leadership is about community–and we've been proud to be a part of the Chicago community for decades. We've been active in the public finance sector here since the early 1970s and have maintained a strong branch presence since 1984. Chicago is one of Citi's priority urban markets in the US–and globally. We employ more than 2,000 people in the metro area, operate more than 70 retail branches, and offer services ranging from corporate banking to transaction services.

    We also work hard to be a good citizen and to form meaningful partnerships with the communities we serve. In Illinois in 2010, Citi loaned approximately $278 million and invested some $181 million in community development projects that created 618 units of affordable housing. We support training and lending for entrepreneurs, in part through our work with the Illinois Hispanic Chamber of Commerce and Jewish Vocational Services, to ensure that this city's small business sector remains healthy and diverse. And our national program with the KIPP charter schools, which provides kids and their parents with college savings opportunities starting at a young age, was piloted right here in Chicago.

    Our commitment to community transcends Chicago–it extends to every market in which we operate. Above all, we're committed to supporting our home market, the United States of America.

    Most would agree that the financial crisis is now behind us. Yet many of the structural problems that created the crisis are still with us. Impediments to growth include continued weakness in housing markets, public and private over-leverage, and stubbornly high unemployment.

    I believe the core role of banks today should be to get the American economy moving again and help American business become more competitive. That's how banks should lead. I want to talk about three specific things that banks can do–and that we at Citi are doing–to help lead the American economy.

    The first is lending–making credit and capital available to businesses.

    The second is helping American businesses navigate and harness the new drivers of global growth, namely the rise of the emerging market consumer and the explosion in trade and capital flows within emerging markets.

    The third is helping Americans overcome the challenges of the recession, rebuild their savings, and enjoy the benefits of the global financial system.

    On the first point: the role of banks is to support the real economy. Lending and making capital available are fundamental banking responsibilities–one that we at Citi take seriously.

    Larger businesses today are well served by the banking industry and capital markets. Interest rates are among the lowest in decades, credit spreads are tight, and companies are stockpiling $2 trillion in cash. In other words, neither a lack of credit nor a low supply of capital is slowing down investment. To the extent that investments are not being made, there are other causes–including an understandable reluctance to jump into the economy feet first until more and clearer signs of recovery are visible.

    On the small business side, there are some challenges. Big banks can find it difficult to reach and connect with smaller firms. The "last mile" problem is hard to overcome. Small businesses tend to have relationships with community banks, which have traditionally played a stronger role in financing their needs. But some of those banks have closed. Others are dealing with high levels of foreclosed real estate, in particular commercial properties, still on their balance sheets. As a result, they are being extremely prudent with their lending.

    Despite these challenges, last year we at Citi increased our small business lending by one-third.

    We also launched a $1 billion partnership with the U.S. Export-Import Bank, to offer relief from credit constraints to American small and medium-sized businesses that sell their goods abroad. The program currently supports 4,500 companies and many of our clients plan to grow significantly with the help of these increased lines credit.

    And we are always looking for creative ways to serve small business clients. For instance, here in the US, we are funding small businesses through the Communities at Work Fund, a $200 million effort that makes capital available to Community Institutions with strong ties into underserved and hard-to-reach communities. Organizations in local communities are critical in carrying these initiatives through the last mile.

    The second way banks can bolster American competitiveness is to help American companies navigate the new global economy.

    It's clear that the growth model of the last decade cannot be the model for the future. Growth in the developed world was predicated on excessive borrowing and consumption–one result was the financial crisis. Its legacies include high deficits and unemployment. New growth areas are yet to be defined but we know we can count on two: the growth of the emerging market consumer and increasing globalization, particularly through growing trade and capital flows within emerging markets.

    The first point is critical because of the rise of the emerging market consumers' power to drive global GDP.

    Emerging markets' share of global trade has risen from 21% in 1995 to 35% in 2009–and today is rising slightly faster than their share of global GDP. According to one estimate, by 2020, three-quarters of incremental consumer spending will come from emerging markets. If that estimate is correct, then Asia will overtake North America as the world's largest consumer bloc.

    In addition, trade and capital flows within emerging markets are rising rapidly–from 6% of world trade in 1995 to 13% in 2009. These countries' trade with advanced economies is still larger than their trade with each other, but the gap is closing. Moreover, the advanced economies' share of global trade is now 65%, down from 79% in 1995. Brazil, South Korea and China help to illustrate the trend. Brazil's trade with Asia represented just 6% of its total in 1995. In 2009 it was 18%. In 1995, South Korea's trade with China was 9% of that country's total. By 2009 it had more than doubled to 20%.

    There is more is come. Just this past December, the Indian and Chinese governments agreed to double trade between the two countries to $100 billion by 2015. FedEx announced just over a month ago the establishment of direct service between India and China.

    American companies can bolster their own bottom lines by harnessing these trends. They have a huge opportunity to appeal to the emerging market consumer and in the process boost their own economy. But to do that, they have to revive their export sectors. What needs to happen is a role reversal. Instead of American consumption helping the emerging markets build their exports and their economies–the model of the last several decades–the new model requires American companies to tap emerging market demand to restore the competitiveness of the US.

    Despite all you've heard about the decline of manufacturing in the West, the world's #1 manufacturing economy remains ... the United States.

    Even more promising, other countries have demonstrated that it's possible–even with high labor costs and expensive products–to succeed in selling briskly to customers outside the developed world.

    Germany is the best example. In the mid-1990s, Germany's economic performance was starting to lag. Growth was sluggish, and the structural reforms needed to deal with the reunification were significant. Yet, the German economy has reestablished itself. Labor productivity is up and costs are down, helping German exports rise, bucking the trend of many developed economies.

    This was not an accident but the product of design–good policy and careful planning. Germany shows that, even in a high-wage, high cost economy, building exports is not only possible–it's profitable.

    On intra-EM trade, the solution is simple, though perhaps hard to execute. Simply put, American companies must insert themselves into those trade and capital flows. Concentrating on East-West flows, or North-to-North, or North-to-South, won't be enough anymore. To be successful in the future, multinational companies will have to intermediate South-to-South flows.

    On the banking side nobody is better positioned to help businesses succeed in these markets than Citi. No bank is in more countries, or can claim more local expertise. We've been some countries more than a century.

    The third thing banks should do is help Americans get through the recession. At Citi we are doing this in a variety of ways.

    Through loan modifications and other means, we've helped more than one million Americans stay in their homes–and avoid potential foreclosure on mortgages totaling more than $125 billion. We also continue to make mortgages available so that people can move to where the jobs are. Labor market mobility is absolutely critical to the economic recovery.

    Another priority for us is to promote broad-based financial inclusion. People tend to assume that the problem of the unbanked–those who lack access to basic financial services–is isolated to the developing world. Certainly, concentrations are higher there. But it's an issue here at home as well. Even in an economy as advanced as ours, millions of people don't have bank accounts.

    Recent reforms could unintentionally make this problem worse. At Citi, we supported Dodd-Frank and believe it will meaningfully strengthen consumer protections. But rules that limit interchange and overdraft fees will change banking. On the retail side, margins will tighten, requiring banks to reevaluate the feasibility of extensive branch networks, think hard about who they serve, and devise new fee and cost structures.

    Let's be clear: we could be heading for an environment in which less credit is available, access to financial services contracts, and the costs of such services rise. All of that will have an impact on financial inclusion.

    At Citi we consider this a call to action for our industry. A business model that depended on unfair fees needed to be revised. The challenge is to create new models with lower cost structures that make it economically viable for banks to serve the more people fairly.

    Innovation and technology will be key.

    With the digital divide closing fast, it has never been easier–or cheaper–to provide access to banking services. We are bringing to the U.S. the approaches Citi has used in Asia in mobile banking and digital banking. It's an important way to appeal to both the affluent and those entering the banking system for the first time.

    Upper income consumers–with their plethora of digital devices–demand and expect ubiquitous, always-on connectivity. At the other end of the scale, vastly more people have cell phones than bank accounts. Reaching those unbanked will be easier and cheaper through digital technology. We can both reduce the cost of serving our customers and increase customer satisfaction using the same tools.

    We are also addressing financial inclusion through a variety of business and philanthropic efforts.

    To expand access to savings, we are creating new products specifically for the underserved, and working with both public sector and non-profit partners.

    We were one of the banks that launched the Bank on California initiative. The goal of the program is to give the unbanked and underbanked the opportunity to gain access to banking and financial services. Since its inception, the program has created nearly 10,000 new bank accounts.

    One of our most exciting initiatives is Kindergarten to College–or K2C–the first universal savings program in the United States. Through the program, every kindergartener in the San Francisco public school system receives a college savings account pre-loaded with a small bank balance at Citi. Incentives to save and financial education are part of the program, which is designed to be replicated across the country.

    We are also addressing financially education. We have made a 10-year, $200 million commitment to financial education that includes investing in research to understand which populations and communities in the United States are unbanked or underserved. That data will help us develop new products and services to reach those communities.

    I focused in these remarks on what we at Citi are doing not to toot our own horn but to make a broader point. We can't look solely to the government to revive the economy.

    Ultimately, the private sector must lead. And the role of banks is clear. We must bring capital and talent together to unleash America's magic–its competitive spirit of entrepreneurship and innovation. We must continue to ensure capital is available to support projects that ultimately will generate jobs, drive growth and create value.

    That is what we strive to do every day at Citi.

    Thank you.