Citigroup CEO Michael Corbat discusses the recession, the coronavirus pandemic, and negative rates

Andy, good to be with you. Thanks for having me.

Well, I would say so far we've come through it, I think, in a very strong fashion. And I think throughout 2020 we've continued to demonstrate the significant earnings power of our franchise, which has shown itself in terms of, at this point, three quarters of the way through the year, revenue growth of 3% despite the crisis. A strong quarter, net income of $3.2 billion, $1.40 a share. The underlying diversity of our business model, I think, has served us well. If you look in there, you mentioned the performance of our markets business: fixed income business up 42%, equities business up 8%, our banking business up 13%. So across the board, I think very good, strong performance. And at the same time, you know, from those earnings, it's allowed us to continue to add to our reserves. So again, not knowing necessarily where this health crisis is going to take us, we've more than doubled our reserves so far this year, taking our reserves up to $29 billion. And so I think that combination of the diversification of our earnings, the power of the business model, and our ability to make sure from a capital, from a liquidity, and from a reserving perspective that we go into this from a position or we're operating in it from a position of strength.

So I'll start with the consumer banking piece. I think clearly, from an industry, not just a Citi, but an industry perspective, obviously the revenues in that business remain under pressure due to the impact of the pandemic. From a Citi perspective, that's manifested itself or shown itself predominantly in the decline in credit card spending. Credit card is a big business for us, a big part of our clients' spend historically has been on the travel and leisure space, and so we haven't been able to obviously escape that. But I think at the same time, through the programs that we've offered in terms of forbearance and other things, I think we've seen a consumer, not just here in the U.S. but around the world, that's in many cases, in many ways, shown phenomenal resiliency. We see savings rates up, we see delinquencies and we see credit charge-offs actually at levels below where we were a year ago, I think, which many people would believe and cite to be extraordinary. And again, in this quarter, you know, from an income perspective, our consumer franchise made $1.4 billion despite those challenges that are out there. I think, Andy, from a share price perspective, you know, that Citi's performance relative to other banks has varied through the crisis, and you know, that could continue over time as we move past this crisis and demonstrate our resiliency. And again, I think the way we've come through the past nine months has shown that so far. We believe the stock price will adjust accordingly. Back in March, along with other U.S. banks, we took the proactive step to suspend share repurchases to further bolster our capital. Our capital is up at 11.8% common equity tier one ratio and obviously gives us a position of strength. We continue to pay our dividend. We got a 51 cent per quarter dividend that we came into the crisis paying, we continue to pay, and you know, we're committed to continue to do that. And I think when you go out and talk to our investors, they have varying reasons for kind of how things are behaving in these highly volatile markets. And I would say that there is a huge degree of uncertainty. We are a global business and this pandemic is not U.S., it clearly is global. So I think time and consistency of results will lead to strong stock performance. And if you look back at before January, before all this started, January, February, U.S. bank stocks were performing pretty well and Citi shares were above $80. So our goal is to make sure we do the right things, we make good decisions, and we come out even stronger on the other side of this, and we think the stock will react to that.

Well, I would say first that you know, we are disappointed that we've fallen short of our regulators' expectations. And as we said very publicly as an institution, we are fully committed to thoroughly addressing the issues identified in those consent orders. As part of that, there are four main areas of focus in there around risk management, data governance, controls, and compliance. And I think what importantly, what ties these together is the need or the desire to continue the modernization of our infrastructure, our governance, and our process. And we have had remediation programs in place, and while we've been making progress against those, we're simply not where we need to be. And we acknowledge that. And I would say while this is disappointing, we are committed to addressing the issues and you know, continuing to kind of push forward in those areas that we've described. You know, we've already begun making structural changes and accelerating our programs and investments. And you know, as a firm, I think we're absolutely laser-focused on automating processes, ensuring accurate data can be assessed quickly. And we're, you know, if we're producing management regulatory reports, and again, nine months into the crisis, you know, those systems have served us well, but we can certainly make them better.

83.

Well, I think first, Andy, we need to recognize kind of what this is. And you know, at its core, this is a pandemic. It is a health crisis and will not be solved until we have an answer to that. So we have a health answer to that. Clearly, a manifestation of this health crisis is significant economic challenges, not just here but around the U.S. So I think different from some other crises that have affected the financial markets, the financial markets are not at the center of this, right? It is a derivative effect of the health pandemic. And I think the great news or the silver lining in this is that I think the financial system globally, and in particular in the U.S., comes into this as a source of strength. We talked about capital, we talked about liquidity, we talked about reserving. And I think very importantly, what's different this time, in particular from the last crisis, is the fact that the banks, and in particular the big banks, have played a very important role as that transmission mechanism between government programs, fiscal, monetary, whether it's central bank or broader government programs, and the real economy. So whether it was the early days of the crisis when the Fed was injecting liquidity or they were putting in place certain types of lending facilities and liquidity facilities for the markets to take advantage of, it was the banks, in particular the big banks, that actually really brought those to life. You move to PPP and you know, unprecedented volumes of loan processing, and again, it was all banks but in particular the big banks that really got this out into our communities quickly. That was so important to the businesses, to the people, and to the future trajectories of communities and kind of how this thing would continue to play forward. So a health crisis with economic ramifications. Good news is I think the financial system, and in particular the banks, come at this as a source of strength and are actually part of the solution rather than part of the problem, which has been the case sometimes historically.

Well, I would say that the U.S. economy has actually performed better than expectations, right? If we take a look at, you know, what you would think would be happening around GDP, around unemployment, around the challenges of individuals, families, small business, bigger business, I think, you know, so far the programs that have been put in place by the Fed, those programs that have been put in place coming out of Treasury, I think have served us well. What we don't know from where we are is what the forward trajectory looks like. And so I think right now we're all trying to watch the data to see that as we head back into colder weather, as we head back into flu season, do we actually see a continual uptick or resurgence in terms of COVID cases? As of late, we've seen a bit of that, I would say, in some cases that was expected. But really, what we want to see is again, we want to see that curve turn and bend and start to go back down. And clearly, I think we all have optimism and there's a lot of work going on in terms of the vaccine and the antivirus out there, and you know, hopefully that's not too far in the future and that we can get that out, we can get that scaled, we can give people the benefit of that so that we can start to have a more expedited return to normalcy. Our willingness to use mass transportation, our willingness to go into crowded spaces, our willingness to go indoors into a restaurant, I think all of those things are critical. From a stimulus perspective, I think without a doubt, people recognize that we probably do need another round. I think we've got the ability to be more targeted this time in terms of those businesses, those geographies, those areas that have been more acutely affected by the virus. And I think at this point, it sure feels like to me it's not about are we going to get it, it's when will it come and exactly how will that be designed as we go forward.

Well, I would say one, Andy, is that as a company, as a bank that operates all over the world in 100 markets all over the world, we've experienced negative rates, right? We've seen them in Europe, we've seen them in Japan, we've seen them in different places in the world. So negative rates aren't, while they might be new to the U.S. when they come, they're certainly not new to a company like Citi and the way we operate. I would argue, and I think that Chair Powell has argued and stated in his testimony, that the transmission mechanism of negative rates isn't necessarily that effective in the places where we've seen it. I think it creates strange behaviors, it creates strange bubbles, and I would say, you know, hasn't in totality been all that successful. I think what I've heard Chair Powell speak is a reluctance to go there, and I think, you know, kind of feeling that there's maybe some other tools in the toolbox that could be more effective. I think as an example, away from the Fed, I think moving away from the monetary side of things being the answer, maybe taking a harder look at what type of fiscal programs, you know, we've had a lot of talk about infrastructure or other things that are out there that could actually provide a lot of benefit broadly across the U.S. economy or other economies. And so again, we're in unprecedented times and I think that we should continue to think and act creatively in terms of how we attack this. And for me, negative rates is probably not, from what we've seen, the next or best place to go.

You know, it's a scenario that people talk about, and I would say that it's, you know, kind of one of the things that we are and certainly will be keeping an eye on. Again, we are a political institution and, you know, the people speak, the people vote, and you know, we certainly respect that process. In terms of, you know, kind of market disruption or how that plays forward, you know, hopefully the results are clear, whatever they are, and hopefully there's a smooth transition around that. But again, I think the markets and Citi will certainly be prepared. And you know, I would, you know, this year we've gone through unprecedented periods of volatility, of volumes, and I think the markets have stood up very well to that.

Well, we've got around the globe, as I said, you know, operating in about 100 countries and territories around the world, we've got a little over 200,000 employees. You know, at the peak of working remotely, we had the vast, vast majority, 90-plus percent of our people working remotely. And I would say that the investments that we made in systems and infrastructure so far have served us really well. And my operations and technology colleagues have done a great job. That, you know, during peak periods, we've had in excess of 150,000 of our colleagues in our systems, you know, working online through the Citi systems. And you know, they've stood up very well. And I think that, you know, a year ago if you and I would have had this conversation and said, and I said, you know, let me tell you what we're prepared for and let me tell you what I think, you know, we can do the kind of numbers I'm talking about, you probably would have wished me well but probably thought I was a little bit crazy in terms of the ability to do that. Well, I think here we find ourselves and that in fact has happened. It is our goal, it is our objective to get our people back in the office safely. And as part of that, we're being driven by the data. It's not about a date, it's about the data. And so again, when you look at the places we come to work, we've probably got about 60 or a bit over 60 percent of our people back in China and Taiwan. We've got over 30 percent of our people back on average across Asia. And I would say in Europe and the U.S., we're probably more in the low single digits to low teens in terms of where we are. And obviously watching things closely. But again, I think the investments that we had made in a number of areas have served us well so far. And so, you know, I think we're prepared for whatever course this thing takes as we go forward.

Yeah, I'm here. I'm here. Yeah, I've been back for a while. And again, here at headquarters, we've probably got somewhere about 10, 12 percent of our staff in. And obviously, that, you know, depending on the trajectory of things, will continue to come up. But I really commend our people in terms of the work that they've done and the safe environment that they've created for us to return to.

Well, you know, clearly the events not just of this year but, you know, how things have moved or lack of movement over time certainly hasn't been lost on us. And when you think of Citi's central role in local economies and the financial lives of Americans, we believe that we can have a significant impact on helping, in this case, to address and to close the racial wealth gap. So in June, as protests for racial justice intensified, I challenged Citi's business leaders, my team, to develop solutions that, you know, we could go at and attempt to tackle systemic racism in our local economies and communities. And the announcement we made, Andy, around our Action for Racial Equity was our response. And what we did in there is try to go at this with a pretty comprehensive approach to providing greater access to banking and credit in communities of color. By the way, what we do, right, that is our day job. Increasing investment in Black-owned businesses, expanding home ownership among Black Americans. And if you go back the last 10 years or so, we have, while not being the largest bank or the largest real estate bank in the U.S., we have consistently been the largest lender to the low- and moderate-income housing across the U.S. And so we thought, you know, we could bring some expertise to that. And obviously advancing anti-racist practices in the financial services industry. So in our billion-dollar commitment, $550 million to support home ownership for people of color, $350 million in procurement opportunities for Black-owned businesses. So as a company that manages big businesses and, you know, we spend a lot in our communities, we obviously have the ability to drive that spend and to push that spend and really try and support our Black-owned suppliers. $50 million in impact investing for capital for Black entrepreneurs, again, kind of reaching out there. $100 million in support for the minority depository institutions. Right, the minority depository institutions operate in a number of these neighborhoods that have been significantly affected in the COVID pandemic. And ways that we can support them, and whether that's with monies, whether that's with lending support, whether that's helping to provide them expertise or other things that we can do to help them continue to build their institutions. And finally, $100 million from our foundation and grants to support community change agents for addressing racial equity. So, you know, real money, real tangible actions. We're excited as an institution around it. We've already begun to get out there and to kind of put these monies and to put our efforts to work. And the institution is completely behind it and I think excited by it.

That's right.

I would say, you know, first maybe talk a little bit about why now and kind of how I came to my decision. And I would start out, Andy, by saying that there was really no one thing that led me to my decision. But my thinking was influenced by a few things. One is going back to 2017 when we did our big investor day, we embarked on a three-year plan that would take us through the end of 2020, and it's kind of always been my ambition to see that through. Second, as you mentioned, I have a ready-now successor. Jane has been with us for going on 16 years. She's had a number of jobs across the organization. She and I have worked always very, very closely together. And you know, in many ways, we've been preparing her for quite a while for this. And by the way, I think she's ready for the job. And I think third, that as proud as I am of all that we've accomplished, you know, during my time here and as CEO, there's obviously more work that needs to be done. And I think as we come through and come out of COVID, we'll obviously be looking hard at the strategy. And as an example of that, I think, you know, one of the lessons learned here is the likely acceleration of the push towards digital. We talked about some of the regulatory initiatives. And so to me, it felt like a good time. And if you look around my table and you look at the leadership team, you know, we've over the past couple of years, we've got a lot of fresh faces there, we've got a lot of energy, and it's time for the next generation to step in. And I couldn't be more excited really for them. As I kind of think about the accomplishments or kind of what happened on my watch, obviously coming out of the crisis, we increased Citi's net income from around $7.5 billion to over $19 billion last year. We more than doubled our return on assets in terms of our portfolio. Our return on tangible common equity went from above 5% to north of 12%, closing the gap with our peers. We went from returning hardly any capital in 2012 to returning nearly $80 billion in capital to our shareholders in the last six years. And we've reduced our share count by about 30%. And I think all of that hard work and what we've done so far is very positively manifesting itself in terms of how we're coming through COVID, in terms of our performance, of our resilience, and I think the trajectory that the firm is on. So I'm proud of what we've done and I'd say I'm very confident in terms of the great management team we have in place. And I know Jane's going to be a fantastic CEO.

Thanks for having me.