Citigroup to Expand Reach Abroad as U.S. Faces Slower Growth

By Josh Fineman and Michael J. Moore

June 16 (Bloomberg) -- Citigroup Inc. Chief Executive Officer Vikram Pandit said his bank will look abroad for growth as the U.S. economy goes through an “adjustment period” marked by greater savings and less credit.

“There is a clear trade-off between stimulating the economy on a short-term basis and saving more,” Pandit, 52, said in the keynote address yesterday at the Detroit Economic Club’s National Summit. “Businesses are going to have to search for new growth drivers away from the U.S. consumption and credit creation.”

Citigroup is focusing on overseas markets after the bank’s overdependence on U.S. consumers stoked its financial woes, Pandit said. The company racked up more than $100 billion of credit losses and writedowns during a credit contraction that began in 2007. The U.S. government has pumped $45 billion into the bank and will become the largest shareholder when as much as $25 billion of the Treasury’s preferred shares are converted into common stock.

“Citi had a business model that was predicated on ever- rising U.S. consumer spending and credit creation,” Pandit said in prepared remarks. “We too were very credit-dependent and relied too greatly on non-core, or wholesale funding sources, including securitization and other aspects of the shadow banking system.”

The deleveraging of the U.S. financial system means reduced credit creation, and less available financing and working capital, Pandit said. This will also lead to lower gross domestic product growth.

New Technology

Pandit said he was “optimistic” and said the country will benefit from new technology developed during the crisis.

“We’ve all heard the phrase, ‘A crisis is a terrible thing to waste,’” Pandit said. “I’m confident that this crisis will re-ignite the creativity and entrepreneurship that has been the hallmark of the U.S. economy for over 200 years.”

Pandit said companies and consumers have borrowed too heavily and the country is paying the price.

“We have too much leverage as consumers and as a financial system,” he said. “This leverage funded consumption and created the illusion of enhanced financial returns.”

The GDP growth rate may decline 1 percent to 1.5 percent unless the “shadow banking system” of non-bank lenders returns, Pandit said. “It is not hard to envision a significant gap in the availability of credit,” he said.

Regulators should focus on uniform regulation to restore trust in the financial markets that has been “shaken” during the financial crisis, Pandit said.

Changes Coming

President Barack Obama’s regulatory proposal, to be announced June 17, would put the Federal Reserve in charge of monitoring firms for systemic risk and create a resolution mechanism to unwind non-bank financial institutions, Treasury Secretary Timothy Geithner wrote in a Washington Post commentary yesterday with Lawrence Summers, director of the White House National Economic Council.

“For money to come back into the markets, individuals need to believe their capital is safe and they can rely on regulators and entities like rating agencies,” Pandit said. “Policy makers are focused on uniform regulation. The key goals surround regulation of all systemically important institutions.”

Citigroup is making efforts to fix the financial system. It has extended more than $200 billion in credit commitments to U.S. consumers, businesses and communities since October, Pandit said. The company has helped more than 525,000 homeowners stay in their homes and aided 1.4 million credit-card customers with their debt through forbearance programs, he said.

To contact the reporter on this story: Josh Fineman in New York at jfineman@bloomberg.net; Michael J. Moore in New York at mmoore55@bloomberg.net.