WEBVTT - Citigroup Chair John Dugan Talks Banking Volatility

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news. It is John Dugan

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<v Speaker 1>in the flesh. He is the chair of City Group,

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<v Speaker 1>has joined the board since twenty eighteen and has really

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<v Speaker 1>seen a whole host of cycles after formally being the

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<v Speaker 1>occ chief during the financial crisis. John, thank you so

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<v Speaker 1>much for being with us. I want to start with

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<v Speaker 1>this idea that there just are so many unknowns, whether

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<v Speaker 1>it's regulation, whether it's trade policy, whether it's tariffs. How

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<v Speaker 1>much are people in the banking industry somewhat paralyzed.

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<v Speaker 2>I don't think so, and I'll give you a good

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<v Speaker 2>example our trading business. This can be a very good

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<v Speaker 2>time of the year because there's volatility. As people are,

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<v Speaker 2>there's uncertainty, and when there's volatility, that's good for our

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<v Speaker 2>markets business. On the other hand, there are other businesses.

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<v Speaker 2>If you're an investment banker these two weeks leading up

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<v Speaker 2>to the election, they're not likely to be active in

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<v Speaker 2>the deal space. But this too shall pass, and people

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<v Speaker 2>are navigating it and just looking ahead to see how

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<v Speaker 2>they will navigate it.

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<v Speaker 1>One of the levels of uncertainty just how bifurcated are

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<v Speaker 1>the scenarios depending on whether Kamala Harris wins or whether

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<v Speaker 1>Donald Trump wins, and if you could just bring us

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<v Speaker 1>into a window of city groups thinking of what the

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<v Speaker 1>parameters are, you know, what's the sort of base case.

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<v Speaker 1>In the extreme case, I Kamala Harris gets into office,

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<v Speaker 1>and what about with Donald Trump?

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<v Speaker 2>So I think if Kamala Harris gets into office, we

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<v Speaker 2>can expect more of a continuation of the policies that

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<v Speaker 2>we've seen under Joe Biden, although we could be that

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<v Speaker 2>it would be a little bit more business friendly because

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<v Speaker 2>we may have a Republican Senate and that's the conventional

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<v Speaker 2>wisdom now, and that means nominations in order to get

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<v Speaker 2>through the Senate are going to have to be a

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<v Speaker 2>little bit more negotiation with the Republicans and that could

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<v Speaker 2>change the makeup of the people who get through. So

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<v Speaker 2>that's a more modest change I think. On the other hand,

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<v Speaker 2>if Donald Trump wins the election, there will be very

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<v Speaker 2>significant changes to personnel and that could change the whole

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<v Speaker 2>nature of who our regulators are and how we operate.

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<v Speaker 2>And that's an unknown, but it will be very different

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<v Speaker 2>and it's a little difficult to plan for because we

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<v Speaker 2>don't know exactly what that would mean.

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<v Speaker 1>Typically, less regulation, a lot of people think of as

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<v Speaker 1>a positive for banks that allows them to be more profitable.

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<v Speaker 1>City is in a unique position because you are a

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<v Speaker 1>global bank that really does benefit from trade and from

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<v Speaker 1>the free flow of cash between different economies. How would

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<v Speaker 1>City group really rearrange if free trade is impeded, if

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<v Speaker 1>you do get a real restructuring with tariffs and other

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<v Speaker 1>protectionist measures.

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<v Speaker 2>Yeah, I think the way we look at it is, yes,

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<v Speaker 2>it is true that globalization has benefited City because we're

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<v Speaker 2>in one hundred countries on the ground and do business

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<v Speaker 2>and another fifty. But the fact of the matter is

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<v Speaker 2>if people change from being in a lot of countries

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<v Speaker 2>to being somewhat fewer countries and changing and figuring out

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<v Speaker 2>how to change those supply chains, we are in a

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<v Speaker 2>very good position to assist people as they make those

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<v Speaker 2>changes because we have people on then in the places

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<v Speaker 2>they're going to and the places they're coming from, and

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<v Speaker 2>so we see that as business opportunities. That's the kind

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<v Speaker 2>of thing we navigate all the time.

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<v Speaker 1>How much do you see Donald Trump really differing in

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<v Speaker 1>terms of regulation when it comes to any trust and

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<v Speaker 1>some of the banking capital oversights, especially given some of

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<v Speaker 1>the commentary that we've heard from his vice presidential running

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<v Speaker 1>mate with respect to the current FDC leadership. And I

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<v Speaker 1>ask this because I have to be honest. I was

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<v Speaker 1>with a banker when that news dropped about Capri and Tapestry,

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<v Speaker 1>and he was just beside himself. He couldn't believe that

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<v Speaker 1>this was sort of the framework with affordable luxury handbags.

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<v Speaker 1>I'm just wondering if that is sort of the expected

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<v Speaker 1>norm going forward for you.

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<v Speaker 2>I think the way I would put it, I think

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<v Speaker 2>there's an expectation that there will be more transactions and

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<v Speaker 2>more deals that will get done, and that's a positive

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<v Speaker 2>thing for our deal business, and so we would look

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<v Speaker 2>forward to that. If it doesn't happen that way, we

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<v Speaker 2>will not navigate the other side.

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<v Speaker 1>So ten days ago, Citygroup came out with earnings and

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<v Speaker 1>it showed that it was seeing strength in a lot

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<v Speaker 1>of the different five business lines. Is extreamlind things. It

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<v Speaker 1>was a beat across the board, really good shares popped

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<v Speaker 1>and then Jane Fraser got on the phone and with

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<v Speaker 1>analysts and someone asked her about a possible asset cap

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<v Speaker 1>about whether potentially there could be some implementation, and she hesitated,

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<v Speaker 1>and the shares plunged, and then she clarified, no, there

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<v Speaker 1>is no asset cap and there is not any plans

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<v Speaker 1>for any kind of asset cap, and yet the shares

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<v Speaker 1>still fell on a day. How frustrating was that for you?

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<v Speaker 2>Very frustrating because she did clarify it within minutes of

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<v Speaker 2>the uncertainty around it, and what she said is absolutely clear.

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<v Speaker 2>There is no asset cap, we don't have an expectation

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<v Speaker 2>for an asset cap, and our business performance was really

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<v Speaker 2>very strong in the third quarter or so. It's a

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<v Speaker 2>bit of a mystery, and yes, it was frustrating.

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<v Speaker 1>At a city group get out from under this regulatory

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<v Speaker 1>cloud that seems to be a sort of inc reasing

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<v Speaker 1>a lot of skepticism in investors.

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<v Speaker 2>We have to make progress slowly and surely every quarter

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<v Speaker 2>in making proof points of doing what we say we're

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<v Speaker 2>going to do business so I so, for example, in

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<v Speaker 2>the third quarter, as we had committed to our revenues

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<v Speaker 2>were up three percent on an next divested your basis,

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<v Speaker 2>Our expenses were down two percent, operating leverage increasing in

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<v Speaker 2>each of those five business lines. Those are the kinds

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<v Speaker 2>of things that we've got to keep doing to show

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<v Speaker 2>that we're making progress. Toward towards our medium term targets

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<v Speaker 2>of an eleven to twelve percent return on tangible common equity.

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<v Speaker 1>Where is any group in this transition to streamlining these

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<v Speaker 1>five businesses right now?

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<v Speaker 2>I think we're in a very good, very exciting place.

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<v Speaker 2>I think the board is quite excited about how the

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<v Speaker 2>company is doing as measured by those five business which,

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<v Speaker 2>by the way, is much more transparent now you can

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<v Speaker 2>see it much more. There's a less few, there's a

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<v Speaker 2>removal of a layer between the board and Jane and

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<v Speaker 2>those businesses. They're much more accountable because it's so transparent

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<v Speaker 2>about how they're doing. And we saw some very exciting

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<v Speaker 2>things in the third quarter. I don't mention three of them.

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<v Speaker 2>The Apollo credit deal twenty five billion dollars deal, very innovative.

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<v Speaker 2>We had the largest deal transaction with the Mars acquisition

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<v Speaker 2>of Kelenova that was announced where we were the sole advisor.

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<v Speaker 2>And we had a very exciting deal with MasterCard to

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<v Speaker 2>tap into their international debit network. And these are the

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<v Speaker 2>kinds of things where City really is getting on its

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<v Speaker 2>front foot in each of these businesses.

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<v Speaker 1>How much are you thinking about another deal like the

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<v Speaker 1>Apollo one.

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<v Speaker 2>Well, it's early days on Apollo. I think, as I said,

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<v Speaker 2>we're quite excited. We think that really gives us the

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<v Speaker 2>ability to offer a whole range of things to clients

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<v Speaker 2>that we wouldn't otherwise be able to do. And that's

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<v Speaker 2>the important piece. Let us see how it goes before

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<v Speaker 2>we go down another.

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<v Speaker 1>Path as a global bank. Are you still sort of

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<v Speaker 1>emphasizing that global reach to time where everyone's looking at

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<v Speaker 1>the US and saying that's pretty good.

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<v Speaker 2>Over there still a lot of business going on all

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<v Speaker 2>the world. We're there to help people in their cross

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<v Speaker 2>be the pre eminent bank for companies with cross border needs.

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<v Speaker 2>They may have different cross borders that they're using in

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<v Speaker 2>cross border needs, but we're there to help them for

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<v Speaker 2>exactly that.

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<v Speaker 1>John Dugan, wonderful to see you. Thank you so much

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<v Speaker 1>for being with us. That was John Dugan, the chair

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<v Speaker 1>of City Group's board, and John, I'm going to send

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<v Speaker 1>it back to you.