00:00:00
[Music]
00:00:02
this podcast is brought to you by
00:00:05
knowledge at Wharton please visit
00:00:06
knowledge Wharton upendi d you for more
00:00:10
information
00:00:14
so Vikram o want to thank you for coming
00:00:17
and in particular for coming this week
00:00:19
and a particular for coming today no
00:00:21
less in that this has been the week that
00:00:23
was and today I think most people if
00:00:26
you've looked at the web you realize
00:00:27
that Congress has indeed apparently come
00:00:30
up with a deal they're walking over to
00:00:32
the White House I think as we speak to
00:00:33
talk that through so I'm going to begin
00:00:36
with a couple questions if you don't
00:00:37
mind about
00:00:39
the world of the last couple weeks
00:00:41
financial services and then we'll
00:00:43
probably get a bit more personal but to
00:00:46
use a kind of a metaphor here it's
00:00:48
probably felt like a perfect storm the
00:00:50
last couple weeks maybe the last several
00:00:52
months you've been at the eye of the
00:00:54
storm
00:00:55
what do you think speaking broadly here
00:00:58
what do you think went wrong and once we
00:01:00
get that work through what do you think
00:01:02
we're going to need to put in place to
00:01:04
ensure this scale of systemic risk is
00:01:08
not going to be looking at us in the
00:01:09
eyes as it has over the last maybe
00:01:12
better part of a year year and a half so
00:01:14
what happened what do we need to do how
00:01:17
much time do I have haha take the time
00:01:20
you need this is the big question that's
00:01:22
good well look first of all I appreciate
00:01:25
all of you being here it's great to see
00:01:28
so many bright young faces
00:01:31
your alumni have done great things for
00:01:34
us a city and and we hope many of you
00:01:37
would consider what they've done as
00:01:39
being something that you aspire to and
00:01:41
we hope to see many of you at city in
00:01:43
the future I also want to say that
00:01:47
exactly what
00:01:49
professors said here we've been through
00:01:51
a very interesting time I just want to
00:01:54
make sure you all know that you have
00:01:57
been great at picking exactly the right
00:01:59
time to be in school
00:02:02
this is a perfect time to be doing what
00:02:04
you're doing and I'm hoping by the time
00:02:06
you all get out we'll be on the other
00:02:07
side of this but there is there are many
00:02:11
different ways that coming at this and I
00:02:13
don't think there are any easy answers
00:02:15
in terms of what happened why we got
00:02:17
here and how we're going to think about
00:02:19
the architecture of the financial system
00:02:21
going forward you've got to put all this
00:02:23
in context if you really think about
00:02:25
where we are in the u.s. we have a lot
00:02:30
of imbalances many of those are not new
00:02:33
but some of them are and we think about
00:02:35
imbalances there's a housing imbalance
00:02:37
it's just too much housing compared to
00:02:40
the demand and it's not clear exactly
00:02:41
when and how the housing market clears
00:02:44
where the prices stop
00:02:46
there is a consumption saving imbalance
00:02:49
everybody thought they were saving
00:02:51
because their housing prices were going
00:02:52
up well they're no longer are and the
00:02:55
the US consumer has to start saving at
00:02:59
some point
00:03:01
when you look at the financial system
00:03:03
around the world they got over levered
00:03:05
over a period of time
00:03:07
they have to figure out how to deliver
00:03:11
themselves and the last point which i
00:03:13
think is also important why all this has
00:03:16
happening here there's a lot of growth
00:03:17
elsewhere in the world and the world's
00:03:19
trying to figure out how to grow without
00:03:21
causing inflation each of these four are
00:03:25
very important
00:03:28
rebalancing cycles that we're going to
00:03:30
have to get right as a country any one
00:03:33
of these would be incredibly difficult
00:03:34
to get through but to have all four
00:03:37
happen at the same time it's quite
00:03:40
important and quite interesting because
00:03:42
it's quite a challenge and how do these
00:03:45
things all rebounce you all are students
00:03:48
of finance and economics usually what
00:03:49
happens is the marketplace figures out
00:03:51
exactly how to make all of these things
00:03:53
rebalance so you get from here to there
00:03:55
and the reality is that with these four
00:03:59
things happening at the same time that's
00:04:01
a lot of stress on the markets you're
00:04:03
expecting the markets to clear a lot of
00:04:06
information which is very hard for it to
00:04:08
do and a result of that is kind of some
00:04:10
of the things you saw last week markets
00:04:13
breaking down not being able to from
00:04:15
here to there in some place now how'd
00:04:17
it's important because this is by the
00:04:20
way for all of you here it is a good
00:04:21
time to be in school because this is a
00:04:23
challenge it's going to take some wild
00:04:24
for us to get out of this and and and
00:04:27
I'm hoping we don't go through a couple
00:04:30
of weeks like we just went through its
00:04:33
while we don't mind working weekends
00:04:36
it's it's something to be working 18
00:04:39
days straight
00:04:41
so I'm hoping we don't go through the
00:04:43
same kind of events we saw but the fact
00:04:45
is there are a lot of challenges ahead
00:04:47
of us and we need to be very realistic
00:04:49
about it how do we get here how did all
00:04:51
of us get here how did the industry get
00:04:54
here you know that's difficult I'll tell
00:04:57
you
00:04:58
a couple different perspectives on this
00:05:02
the starting point was really post 9-11
00:05:06
it's important point in time because
00:05:09
that's the last time when we had some
00:05:11
concerns about the economy what was
00:05:12
going to happen and and the result of
00:05:15
that was a lot of monetary stimulus into
00:05:18
this market you all know what that means
00:05:20
the Federal Reserve Bank started
00:05:23
printing money and and the impact of all
00:05:26
of that was interest rates coming down
00:05:27
that was also a point in time when there
00:05:30
were a lot of foreign surpluses because
00:05:32
of exports and whether it was sovereign
00:05:35
wealth funds whether it was
00:05:37
foreign central banks there was a huge
00:05:39
demand for fixed income paper and you
00:05:42
could never get enough yield and
00:05:44
as a result of that the engineers on
00:05:48
Wall Street started figuring out what do
00:05:49
we do how do we satisfy this demand for
00:05:52
yield and what they did as a result of
00:05:54
that was they looked at all the paper
00:05:57
and assets that were around and figured
00:05:59
out you could actually take this we can
00:06:01
securitize it slice and dice them into
00:06:03
pieces sell them provide good yields to
00:06:06
the other side and work I was beautiful
00:06:09
and by the way that's exactly how
00:06:10
capital markets should work you all
00:06:12
understand is finance majors and and and
00:06:14
business school students arbitrage is
00:06:17
the key part of what gets markets going
00:06:18
that arbitrage was incredibly important
00:06:21
a lot of demand for high fixed income
00:06:24
yield and you securitize paper to
00:06:26
provide that healed that part was good
00:06:28
but Wall Street ran out of inventory of
00:06:30
paper so what happens let's go create
00:06:34
some new paper and that's when the
00:06:35
housing industry started taking off
00:06:37
because you needed to create new
00:06:39
mortgages so that you had enough
00:06:40
inventory to create securitizations to
00:06:43
sell the yield to the other side that
00:06:46
was the beginning of the housing price
00:06:48
cycled housing prices going up
00:06:52
so far so good now you see keep going
00:06:55
and say okay now what happened and how
00:06:57
far did it go we all know it went a very
00:06:59
long time there couple of things that
00:07:01
were really important though that got
00:07:03
everybody
00:07:05
sort of out of kilter usually when these
00:07:08
bubbles happen it's almost always
00:07:10
because of the fact that you missed the
00:07:12
forest for the trees and the way this
00:07:16
cycle people miss forest for the trees
00:07:18
they relied on the rating agencies the
00:07:20
paper coming up with triple-a
00:07:23
triple-a paper and think about that if
00:07:25
you are a risk manager you say this is a
00:07:27
triple a piece of paper and say to
00:07:29
stress it how bad can it be I'm not so
00:07:33
sure too many people would say it could
00:07:34
go to zero I
00:07:36
can understand it can go down but there
00:07:39
are not too many people in any risk
00:07:40
management area that's going to say it's
00:07:42
going to go down to zero so that was the
00:07:44
first thing the second thing that
00:07:46
everybody relied on is wild this
00:07:48
securitisation and this paper was made
00:07:51
to satisfy the fixed income demand out
00:07:53
there this paper was distributed widely
00:07:56
the risk was distributor so back a year
00:07:59
ago in July when all this started people
00:08:03
were pretty relaxed about it says you
00:08:05
know what this risk I know there's risk
00:08:07
but it's fully distributed
00:08:09
each one of us owns three dollars fifty
00:08:11
cents of this so what's the big deal
00:08:13
okay we can take the losses move the
00:08:15
other major surprise was that 15 to 20
00:08:18
large financial institutions owned
00:08:20
basically all the risk
00:08:22
now you know so the reason why we are
00:08:26
here today is in many ways the fact that
00:08:31
a large group of people missed the
00:08:34
forest for the trees it's not that they
00:08:36
weren't managing risk correctly they
00:08:39
were but how do you how do you think
00:08:41
about risking the trip lay bond it's
00:08:43
very hard to figure out what that is
00:08:45
it's not that they weren't thinking well
00:08:47
you know I want to make sure these
00:08:49
things are priced correctly they were
00:08:51
but they assumed everything was fully
00:08:53
distributed you'd make very different
00:08:55
assumptions if you thought 15 people
00:08:57
owned all the risk and the net result of
00:09:00
all of that is that through everything
00:09:02
that happened the real shock of the
00:09:04
financial system was that the banking
00:09:06
industry as a result did not have enough
00:09:09
capital to cover the losses that we're
00:09:11
coming through and the result of that is
00:09:14
what you're seeing in the markets today
00:09:16
and lack of lending by banks it is a
00:09:21
mad fervour to say if i am to over
00:09:24
levered as a bank how do i sell assets
00:09:26
to delever and in that cycle of what
00:09:29
happens is you get to the kind of
00:09:30
strains and stresses that occurred over
00:09:32
the last couple of weeks where people
00:09:34
say well hell you know if these
00:09:36
financial institutions have taken losses
00:09:38
and they have to deliver i am not so
00:09:40
sure I want to own their stock or their
00:09:43
bonds I don't know whether it's profilin
00:09:45
and it creates a little bit of panic so
00:09:47
that's what happened now it was
00:09:50
important for me to share that with you
00:09:52
I can do this in sound bites by the way
00:09:54
very well as well but you are all
00:09:57
students of Finance and I wanted you to
00:09:59
sort of understand sort of piece by
00:10:01
piece what came together I don't know if
00:10:04
you're ever going to stop this forest
00:10:06
for trees problem and I'm not so sure
00:10:09
that's an objective ever you know no
00:10:12
risk means no business so the reality is
00:10:15
that it's not about renewing the risk of
00:10:19
having these kind of things happen it's
00:10:21
about trying to find some balance and
00:10:24
optimizing and finding a financial
00:10:26
system architecture that can help you
00:10:29
deal with these things so you don't get
00:10:32
to the kind of stages we got to one
00:10:34
thing we all have to keep in mind is
00:10:37
that the architecture of the regulatory
00:10:40
architecture of the US was set in the
00:10:43
first 30 years of the last century and
00:10:47
there were changes to it but not enough
00:10:50
the regulatory architecture of the
00:10:52
country was said in the first 30 years
00:10:53
now the principles have change but the
00:10:56
technology has changed a lot and so a
00:10:59
big part of what we have to do is redo
00:11:03
the regulatory architecture of the US
00:11:06
financial market and when you think
00:11:09
about that it's going to have to be as
00:11:11
comprehensive as it was following the
00:11:14
20s of the last century and what
00:11:16
happened in the thirties the 33 act 34
00:11:19
act 35 act and on and on and on that's
00:11:23
where we're headed towards not now right
00:11:26
now we've got to deal with what's going
00:11:28
on today how we get out of it how we get
00:11:30
to the other side as I said we still
00:11:31
have a lot of challenges but there will
00:11:33
be enough people thinking about this
00:11:35
there will be enough dialogue on what is
00:11:38
that financial services architecture
00:11:40
that we want that's probably the best
00:11:42
answer to how we're going to make sure
00:11:44
that we have the ability to see the
00:11:48
forest for the trees because the
00:11:50
regulatory architecture and the
00:11:51
regulators have the best ability to do
00:11:53
that let me pick up a net and ask about
00:11:57
the next 12 months Congress looks like
00:12:00
it's going to act at the markets up
00:12:01
today
00:12:02
to paraphrase Winston Churchill is this
00:12:05
the end of the beginning or the
00:12:07
beginning of the end what do you see
00:12:09
coming up next 12 to 18 months
00:12:11
[Music]
00:12:14
the interesting thing about
00:12:19
what we talked about earlier all these
00:12:21
imbalances that are out there
00:12:24
we know the system has to deal with them
00:12:27
and get to the other side
00:12:29
the other side is by the way beautiful
00:12:31
place
00:12:33
it's gorgeous you know you've got growth
00:12:37
inflation balanced you got housing
00:12:39
stabilized everybody saves money there
00:12:41
plenty of jobs you know it's a wonderful
00:12:44
place and what economists can never tell
00:12:48
you is what is the path you're going to
00:12:50
take from here to there and we all know
00:12:52
that
00:12:54
what we're going through there probably
00:12:56
not too many good pets but there are a
00:12:58
lot of ok paths but there are some
00:13:00
they're really bad and we saw one of
00:13:02
those in the last couple of weeks and so
00:13:05
you know the the real question keeps
00:13:08
coming back how are we going to
00:13:09
rebalance this and let's you know let's
00:13:11
think about that for a second housing
00:13:13
needs to find a bottom well how is it
00:13:16
going to find a bottom if it turns out
00:13:18
the banks are not lending to people who
00:13:20
want to buy homes or mortgages it's an
00:13:23
important point the US consumer needs to
00:13:26
start saving well how's the US consumer
00:13:29
are going to do that when the housing
00:13:30
prices are going down and frankly we're
00:13:33
going through an unemployment cycle and
00:13:35
unfortunately I don't think we're done
00:13:37
on that banks need to deleverage well
00:13:41
how are they going to do that when they
00:13:43
are
00:13:44
levered about ten to twenty percent more
00:13:47
than they should be where is that going
00:13:49
to come from how is that going to happen
00:13:50
you know if you give them two years they
00:13:54
can earn enough to r into the leverage
00:13:56
but in the meantime not one loan gets me
00:13:59
so I mean you have a lot of issues that
00:14:02
are out there that you have to work
00:14:03
through now so when you think about all
00:14:07
of those I think that you have to think
00:14:09
about the markets in two different part
00:14:11
one is what's going to happen to the
00:14:12
real economy which is unemployment
00:14:15
gdp growth etc and what's going to
00:14:17
happen to the financial markets I would
00:14:21
think that most people who look at
00:14:24
what's going on would come to a
00:14:26
realization that the economic news is
00:14:28
likely to get worse
00:14:31
it's a real possibility and our best
00:14:34
guess is it's going to be something
00:14:37
that's challenging probably through at
00:14:39
least the middle of next year maybe all
00:14:41
the way through the end of next year and
00:14:42
we'll have to see exactly what that
00:14:44
means the other side of that is what
00:14:47
happens to the financial markets and
00:14:49
and
00:14:51
there is these are markets that are
00:14:54
going to be continually volatile again
00:14:57
because they understand we're putting a
00:14:59
lot of strain on the markets to clear
00:15:02
these imbalances and so you're going to
00:15:05
have a lot of volatility over the next
00:15:06
next few quarters
00:15:09
but suffice it to say that it is not an
00:15:13
issue that's gone unnoticed the best
00:15:15
thing I saw was last Thursday night you
00:15:17
had
00:15:19
the the leader the leadership of the
00:15:22
house leadership of the Senate you had
00:15:23
the SEC you had the Treasury secretary
00:15:26
you had Bernanke fed you had the
00:15:29
Republicans you had the Democrats you
00:15:31
had them all come together and saying
00:15:32
this is an issue that's a national issue
00:15:35
and we're not going to let the financial
00:15:37
system
00:15:38
get damaged along the way that's a
00:15:41
positive and so the answer to where
00:15:44
we're going to be in the next 12 to 18
00:15:46
months is
00:15:48
one where we have to recognize that
00:15:51
going to be economic challenges the
00:15:52
markets may be volatile but the real
00:15:55
answer to where we're going to be is
00:15:56
going to depend on policy responses that
00:15:59
you get out of Washington that's
00:16:00
probably a single biggest driver that's
00:16:02
going to tell you where we're going to
00:16:04
be in 12 to 18 Vikram let me bring the
00:16:07
the issues here closer to home city in
00:16:11
many on many metrics is the biggest bank
00:16:14
in the world
00:16:15
300,000 employees plus and in a sense
00:16:19
you've been through your own earthquake
00:16:22
if I can mix my metaphors here in that
00:16:24
fanny a new ownership Freddie new
00:16:27
ownership AIG in a sense new ownership
00:16:30
Lehman gone barragan
00:16:34
Merrill acquired just think about your
00:16:39
landscape at City now for a few minutes
00:16:40
as the world as your competitive
00:16:42
landscape has romantically changed
00:16:45
probably as big a set of changes as
00:16:46
you've ever experienced
00:16:48
what you're thinking what a city have to
00:16:50
do what's the restructuring you may be
00:16:52
thinking about you know
00:16:54
the first point I make is that if on
00:16:58
january first somebody told you these
00:17:00
are the things that are going to happen
00:17:01
how many people would have predicted
00:17:04
that in here like zero okay it tells you
00:17:07
what kind of volatile environment were
00:17:09
in and so this is a time of uncertainty
00:17:12
which is
00:17:14
which which in itself is something new
00:17:18
this is a once in a many generation
00:17:21
event so watch it learn from it it's
00:17:25
it's it's a lesson we're going to leave
00:17:26
for a future generation make sure they
00:17:29
understand exactly what can go wrong how
00:17:31
you deal with it and all of that and I'm
00:17:34
sure case studies and textbooks are we
00:17:36
were written on it here keep plenty of
00:17:39
our finest faculty busy for for a period
00:17:42
of time
00:17:44
now nobody could have predicted what
00:17:47
we've gone through nobody but it was
00:17:50
very clear to us at City when we looked
00:17:54
at it with a new management team end of
00:17:56
last year very end of last year as we
00:17:58
saw what we saw around the world and we
00:18:02
see a lot because we are in 109
00:18:04
countries we see a lot of data there's
00:18:07
no other institution that has as much
00:18:09
information as we do in terms of what's
00:18:11
going on in the world economies outside
00:18:14
of the capital markets maybe the US
00:18:15
government we probably have the largest
00:18:17
store of information we saw a lot of
00:18:20
this and it was very clear to us that
00:18:23
while early on we had our challenges and
00:18:27
people said look at City look at those
00:18:30
losses
00:18:31
we're almost completely convinced by the
00:18:34
time we're done nobody was going to be
00:18:36
spared so how do you get ready and it's
00:18:39
it's a question of how do you get ready
00:18:40
for a perfect storm now again we didn't
00:18:44
predict it but we had a high degree of
00:18:46
probability in our mind that something
00:18:48
was going to happen which was completely
00:18:50
unconventional to just standard thinking
00:18:53
the first thing we had to do coming in
00:18:56
was to say okay survival is the game
00:18:59
well what do you need to do and that's
00:19:01
what you do when you go into perfect
00:19:02
storm and so we raised as of now we
00:19:06
raised about 60 billion dollars of
00:19:08
capital
00:19:09
that's a lot of money
00:19:11
that's more money than most banks have
00:19:14
as capital in the world that
00:19:17
was step number one raised a lot of
00:19:19
capital make sure you're extremely well
00:19:22
capitalized because you cannot rely on
00:19:24
financial markets to provide your
00:19:26
funding at the time of need number one
00:19:29
number two make sure that when you look
00:19:32
at it by the way every bank you know
00:19:35
what does a bank to bank banks take
00:19:37
deposits and they put them to work
00:19:40
they take deposits put them to work they
00:19:42
can be mortgages etc etc make sure that
00:19:45
you are well funded you have not only
00:19:47
enough equity and cap but you have
00:19:50
enough long-term debt long-term funding
00:19:53
everything up and down and you put it to
00:19:54
work in the right way so we had the
00:19:57
financials down very very clearly and
00:20:00
that was really important
00:20:02
and by the way I mean that is of
00:20:06
enormous value when you look at where we
00:20:08
are today versus where we were about six
00:20:10
seven eight months ago believe it or not
00:20:13
through everything that happened in the
00:20:15
last couple of weeks we were definitely
00:20:16
a pillar of strength in the world
00:20:18
markets we had money coming in like the
00:20:20
quality versus a lot of the other
00:20:23
institutions on the street the other
00:20:26
thing we decided was it's not only
00:20:28
capital is there something wrong with
00:20:30
the business model what do we need to do
00:20:32
how do we need to look at it and it
00:20:35
became pretty clear to us the business
00:20:36
model is relatively straightforward
00:20:38
we're back we take deposits we put them
00:20:40
to work so the question is where do you
00:20:42
want to take deposits and where do you
00:20:43
want to put them to work now we know
00:20:46
that if you take deposits in Houston and
00:20:49
put them to work in houston real estate
00:20:50
that's not a great idea because we've
00:20:53
seen what's happening you so you got
00:20:54
your are too young to know this but but
00:20:56
but there are cycles that you have them
00:20:58
that said that is just not the right
00:21:00
thing to do the best model is you take
00:21:02
deposits in every form around the world
00:21:05
from all kinds of people retail
00:21:08
high-net-worth corporations and put them
00:21:11
to work everywhere anywhere around the
00:21:13
world that's the dominant model and so
00:21:16
what we said is well that model is very
00:21:18
clear that's a global universal bank and
00:21:20
frankly we were almost all there anyway
00:21:23
we had a few more hobbies in addition to
00:21:25
that so we said let's clean out all the
00:21:27
hobbies get rid of the hobbies focus on
00:21:29
the core that's the core and once you
00:21:32
think about it back that way you say
00:21:33
have a great treasury function have a
00:21:35
great risk management function make sure
00:21:37
you have diversified deposits and
00:21:39
diversified places where he put to work
00:21:40
that's the core of the bank very very
00:21:44
simple it was the dominant model and and
00:21:46
in in May
00:21:48
which was about five months after the
00:21:51
new management team got in we took a
00:21:53
group of people sell-side analysts
00:21:58
newspaper reporters
00:22:01
investors through that and said you know
00:22:04
our core strategy is simple we are a
00:22:06
bank but we happen to be unique because
00:22:09
we're the only global universal bank we
00:22:12
can raise money in 109 countries and put
00:22:13
them to put it to work in hundred nine
00:22:15
countries and that's an extremely
00:22:17
valuable strategy
00:22:19
well number of things were written on it
00:22:22
my most favorite statement was in a
00:22:25
magazine or say the main ninth event
00:22:28
where City talked about its strategy was
00:22:31
devoid of any Content that
00:22:34
was my most favorite word in terms of
00:22:36
what people talked about now this is
00:22:38
important because what has come true
00:22:40
over the last two weeks is that if you
00:22:44
want to be a financial services company
00:22:46
you cannot be a monoline as easily as
00:22:50
you were before you cannot be in the
00:22:52
risk-taking business and have funding in
00:22:55
the wholesale market it's very difficult
00:22:57
the last two just became a bank I'm
00:23:00
getting no more questions about the
00:23:02
model anymore from anybody which is
00:23:04
which I think there's anything to be
00:23:06
thankful for that's great but so we've
00:23:08
been executing against that model in a
00:23:10
very very steady weight that's our model
00:23:13
we're a global universal Bank
00:23:15
in 109 countries we take deposits from
00:23:18
corporations high net worth and retail
00:23:20
and we put them to work in cards in our
00:23:23
sales and trading business and
00:23:25
proprietary investments and we run that
00:23:27
as well as we can and and we I don't
00:23:31
know of any other company that has the
00:23:33
kind of model we do our challenges as I
00:23:36
said to all our people and all the
00:23:39
investors were never the strategic
00:23:41
aspects of the assets we owned we came
00:23:43
into this market not following the basic
00:23:46
principle of raised deposits everywhere
00:23:49
and put them to work in a diversified
00:23:50
way unfortunately we came in raising
00:23:53
deposits everywhere and putting it to
00:23:55
work mostly against us real estate the
00:24:00
other lesson you learn from all of these
00:24:02
things is anytime anything goes wrong
00:24:04
and you lose money there's almost always
00:24:07
because you have a concentrated position
00:24:09
in something
00:24:10
diversification is these is is really at
00:24:14
the heart art of any risk management
00:24:17
that you're talking about concentration
00:24:18
we came and concentrated into this
00:24:21
market concentrated in real estate
00:24:23
concentrated for that matter in against
00:24:26
the US consumer we had a large long US
00:24:30
consumer position which is why we had to
00:24:32
take and and we had to go through the
00:24:35
financial losses now unfortunately we're
00:24:38
not alone because the world is long the
00:24:40
US consumer however you look at it the
00:24:44
world is long the US consumer its crew
00:24:46
of the other banks we figured out Lehman
00:24:49
was long the US consumer okay I mean
00:24:52
they're all long the US consumer that
00:24:54
Chinese stock your bottles down fifty
00:24:55
percent well that's the US consumer okay
00:24:58
doesn't matter the world is along the US
00:25:00
consumer there's some risks you just
00:25:02
can't get rid of but i think you know
00:25:05
it's sort of interesting perspective to
00:25:07
say that when you run a bank you want to
00:25:09
be not concentrated and it's probably
00:25:12
the one lesson that everybody's going to
00:25:14
take away from this as well which is the
00:25:16
good old diversification mechanism of
00:25:19
managing risk is a wonderful way of
00:25:22
making sure you survive and you do well
00:25:24
through through through everything
00:25:26
that's happened so as far as city is
00:25:28
concerned
00:25:29
you know our strategy is set we have a
00:25:34
structure against the strategy I've
00:25:37
spent a lot of time making sure I have
00:25:39
the right leadership group that's
00:25:41
working with me for all of you who think
00:25:43
about management leadership by the way
00:25:45
leadership management is a team sport
00:25:47
and you have to have the right team
00:25:49
we've done that we have
00:25:53
against that a growth strategy that says
00:25:57
most of growth is outside of the US
00:25:58
thirty-five percent of cities and the
00:26:00
emerging markets which makes it the
00:26:02
single largest financial services
00:26:04
company in the emerging markets it's a
00:26:06
great place to be by the way we've been
00:26:08
there for more than a hundred years
00:26:09
we've been there when it wasn't cool to
00:26:12
be global or cool to be in the emerging
00:26:14
markets we've been there in Calcutta
00:26:16
since 1902 and Shanghai since 1902
00:26:18
Yokohama Mexico City Philippines doesn't
00:26:21
matter we've been there for more than a
00:26:23
hundred years and so we are going to
00:26:25
drive this global tea
00:26:28
the last part of the city strategy is
00:26:30
relatively simple and it is not new as a
00:26:33
matter of fact it's been the cornerstone
00:26:34
of the company for 200 years that we've
00:26:36
been around and every one of the leaders
00:26:39
of the company has talked about that
00:26:42
which is to say the core strategy of
00:26:45
city has always been to bring in the
00:26:48
most talented people and to develop them
00:26:51
train them give them opportunities to
00:26:53
grow so they can drive the company to
00:26:56
the next level and that goes back at
00:26:58
City for 200 years and when you look at
00:27:02
the street and look at people everybody
00:27:04
talks about these things by the way
00:27:05
nowadays but you go back we were ahead
00:27:07
of the curve at least 50 years in terms
00:27:09
of thinking about what our core
00:27:11
competitive advantage was the core
00:27:13
competitive advantage was the people and
00:27:15
how we selected them how we brought them
00:27:17
in and what they did for the company so
00:27:20
that's city through all that's going to
00:27:23
happen here over the next few months etc
00:27:26
you know I want to assure all of you
00:27:29
that we are on campus in the same way we
00:27:32
always have been on campus we need you
00:27:34
okay we need what you can bring to us if
00:27:38
we need your talents and we need it in
00:27:39
109 countries
00:27:41
speaking of talent let me begin to make
00:27:44
this a bit more personal we're going to
00:27:46
open this up in about 10 minutes
00:27:48
PhD out of Columbia you were investment
00:27:52
banking at Morgan Stanley you run a
00:27:54
hedge fund private equity and now you
00:27:57
run an enormous enterprise only a two
00:28:00
part question here what's the common
00:28:03
thread as you have led whether private
00:28:05
equity hedge fund investment banking and
00:28:08
now an enormous universal bank what are
00:28:11
some of the common capacities if you
00:28:13
will that it really cut across all those
00:28:15
areas that have helped you do what you
00:28:17
do second side of that though is how is
00:28:20
it different at City from leading a
00:28:22
hedge fund private equity fund and
00:28:24
investment banking back at Morgan
00:28:26
Stanley I
00:28:27
guess the common thread is I haven't
00:28:30
been able to keep a job
00:28:34
just keep moving just keep moving
00:28:39
you know it's a
00:28:42
there is it's always hard to look back
00:28:46
and figure out exactly what happened and
00:28:48
why it happened and what was the cause
00:28:50
all of that it's almost fruitless to
00:28:53
think about that
00:28:55
the
00:28:57
basic basic concept of doing well to me
00:29:01
is you've got to go with something you
00:29:03
like to do you have to do that it's it's
00:29:06
all find your passion and go after it
00:29:08
and if you don't know what it is find a
00:29:10
place that'll help you find your passion
00:29:12
so that's the first thing and and
00:29:16
you know having spent all those years
00:29:18
getting degrees granted from a lesser
00:29:21
institution than this
00:29:23
don't tell anybody about that
00:29:26
lumpy is a great school yeah but
00:29:29
you know it is absolutely clear I love
00:29:32
finance I do love economics and was very
00:29:35
clear to do that the other thing that's
00:29:37
very clear is is that when you think
00:29:41
about what group you want to join what
00:29:44
company you want to join where you want
00:29:45
to go
00:29:46
it almost always comes down to two
00:29:50
things one do you like the people and
00:29:52
two is this an environment where you can
00:29:55
learn and invest in yourself so the
00:29:57
second common thread is keep learning
00:30:00
this is by the way not the end of your
00:30:04
learning it's just the beginning I
00:30:06
guarantee you that once you leave here
00:30:09
that's when you're learning truly starts
00:30:11
i'm not saying you're not learning great
00:30:12
things i'm just saying that this is when
00:30:15
you get prepared to to or get the skills
00:30:20
to know how to learn so that's the
00:30:23
second threat which is that you know if
00:30:25
you really want to enjoy what you're
00:30:28
doing you had to keep investing in
00:30:29
yourself and learning and find a company
00:30:32
where you like the people and where the
00:30:34
company allows you to invest in yourself
00:30:36
and then that's it don't worry about
00:30:40
your career what you're doing if you do
00:30:42
that correctly it's going to lead you to
00:30:44
the right spot over time and that's the
00:30:47
chaos here by the way of careers but it
00:30:51
work but there's something there that
00:30:53
works I keep telling our people the
00:30:56
younger ones saying that you know you're
00:30:58
here because we want you to learn we
00:31:03
want you to invest in yourself
00:31:05
half our profits today come from areas
00:31:08
we were not in five years ago how do you
00:31:12
teach somebody that how do you train
00:31:14
somebody for saying you're an expert in
00:31:16
this business in financial markets more
00:31:20
than anywhere else if you really are
00:31:22
good at this and figure out how to make
00:31:24
money it gets arbitrage de way they're
00:31:27
very fast-moving markets so how do you
00:31:30
teach yourself how do you train somebody
00:31:32
you know how do you learn how do you
00:31:34
invest in yourself for knowing that
00:31:36
whatever I'm doing today
00:31:38
may not exist in five years and
00:31:42
and how do you teach yourself to saying
00:31:44
that I'm going to make sure I go from
00:31:46
here to the next and the next or find
00:31:48
the next etc
00:31:50
that's one of the beauties of the
00:31:52
financial services industry some of the
00:31:53
beauties of Wall Street that you have
00:31:55
that many institutions with that culture
00:31:57
that allow you to think about things
00:31:59
that way and
00:32:02
and I you know despite all the changes
00:32:04
that are occurring that will still
00:32:06
remain the common theme which is as I
00:32:09
tell my people you're here you're doing
00:32:12
things that's great but fundamental time
00:32:14
you're doing when you're younger is
00:32:16
you're investing yourself you're
00:32:18
learning and we're paying you we're
00:32:20
paying you to educate yourself what a
00:32:22
wonderful like
00:32:23
excellent good I've got one final what
00:32:27
amounts to a very personal question I
00:32:30
actually have done in one of your
00:32:33
predecessors offices and I don't know if
00:32:37
you're in the same office that Sandy
00:32:39
Weill had but it was a wonderful time I
00:32:42
can't afford his office ok there is it
00:32:44
different it was a quite an office one
00:32:46
but you're probably overlooking park ave
00:32:48
they're just a couple words for us all
00:32:50
what does it feel like to get off the
00:32:52
elevator 2nd floor is that where you are
00:32:54
third floor third floor third floor
00:32:56
elevator there you are these days
00:32:58
probably early in the morning what to
00:33:00
like to walk into the office what gives
00:33:02
you a high during the day and what's the
00:33:05
tougher part of a typical day and maybe
00:33:08
we got to go back before the last couple
00:33:09
weeks so take it before the crisis and
00:33:12
maybe just add a word if you wouldn't
00:33:13
mind about what life has been like in
00:33:15
the office very personally over the last
00:33:17
two weeks like
00:33:19
well in a lot of questions in there let
00:33:22
me see
00:33:26
you know again the life to me is is
00:33:30
relatively straightforward if you don't
00:33:33
enjoy waking up in the morning and say I
00:33:35
really want to go to work you shouldn't
00:33:36
be doing what you're doing and
00:33:38
a lot of us over time will earn the
00:33:41
right to say stop enough I don't enjoy
00:33:45
that well that's not where I am so the
00:33:48
bottom line is when you get into that
00:33:51
door you have to go in saying i'm
00:33:53
looking forward to everything that i'm
00:33:55
going to do today and and that's what I
00:33:57
think about when I go in and that makes
00:33:59
a lot of sense because I feel privileged
00:34:02
to be part of an organization that's 200
00:34:05
years old part of an organization that
00:34:08
have saved many countries around the
00:34:11
world by providing and funding and
00:34:12
advice to the right time
00:34:14
I'll come back to a story about that
00:34:16
just three weeks ago
00:34:18
privileged in the sense we have 350,000
00:34:21
very talented people around the world
00:34:24
who are serving our clients and
00:34:26
privilege to say that I can be part of
00:34:30
any
00:34:31
policy
00:34:33
mechanism or any agenda that has to do
00:34:36
with making sure the financial markets
00:34:38
work well all of those things are great
00:34:41
and you've got a with those kind of
00:34:45
attributes you have to walk in feeling
00:34:47
very privileged in what you're doing but
00:34:50
you also walk in with a great sense of
00:34:51
responsibility and burden when you do
00:34:54
that because you have to add to the
00:34:56
legacy of people who brought you here
00:34:58
and created this company and brought it
00:35:03
to what it is today so
00:35:05
I cannot tell you there is any typical
00:35:08
day there isn't for me the one thing
00:35:11
that is X laclere is no way I could do
00:35:15
what I'm doing without the team that is
00:35:18
around me and it's the broader scale
00:35:21
350,000 people but it's a smaller group
00:35:24
than that that works with me constantly
00:35:27
day in day out and a lot of the fun and
00:35:31
excitement is about interacting with
00:35:33
them interacting with the people that we
00:35:35
have in the last couple of weeks haven't
00:35:38
been different and hasn't been they
00:35:40
haven't been different because
00:35:42
again you know you walk in not knowing
00:35:44
what's going on and it was pretty clear
00:35:46
in the last couple of weeks but also
00:35:49
almost the entire 18 days was spent with
00:35:54
a group of people constantly talking to
00:35:57
each other constantly dealing with the
00:35:59
central banks around the world
00:36:01
regulators around the world finance
00:36:03
ministries around the world government
00:36:05
officials around the world try to get a
00:36:07
handle of what is happening where around
00:36:10
the world trying to know exactly what is
00:36:13
the information flow telling you trying
00:36:15
to know exactly what advice can you give
00:36:17
to the central bankers to say this is
00:36:20
what you need to do for this to happen
00:36:22
and what value and thought leadership
00:36:25
can you provide as one thing so
00:36:28
everything is going on
00:36:30
to Wall Street to Washington say let's
00:36:34
look at these things this way because
00:36:36
this is better for the financial system
00:36:39
no part of what we went through has been
00:36:41
exciting necessarily it has been
00:36:44
challenging but I've got to say that
00:36:47
there is occasionally a thrill of
00:36:50
acceleration when you come up with an
00:36:51
idea that says this is what we should do
00:36:53
and it was great to do to have had the
00:36:57
ability to be part of that discussion
00:36:59
let me end with one thing it's really
00:37:00
interesting we have a great operation in
00:37:02
Kenya we've been there for number of
00:37:04
years
00:37:07
about this is about four or five weeks
00:37:09
back something happened where it turned
00:37:13
out that for whatever reason the banking
00:37:16
system was overloaded and the central
00:37:17
bank could have handled the overlord so
00:37:20
we stepped in literally acted
00:37:22
essentially like the central bank for
00:37:24
eight whole days
00:37:26
it's a fascinating story because it
00:37:29
tells you the power of city around the
00:37:31
world many of the countries were in
00:37:33
where the backend of many central banks
00:37:36
were the backend of many financial
00:37:37
systems we see flows like nobody else
00:37:40
last week every day we traded six
00:37:44
trillion dollars of flows through City
00:37:47
just imagine trading six trillion
00:37:49
dollars of flows without errors
00:37:53
making sure everything goes to the right
00:37:55
place and there are many times it could
00:37:58
have stopped and we were there to make
00:38:01
sure that every bank new and in every
00:38:04
central bank around the world knew where
00:38:07
the pressure points are and what needed
00:38:09
to get done
00:38:10
it was an exciting couple of weeks what
00:38:15
can I say
00:38:18
for more information please visit
00:38:20
knowledge wharton upenn dot edu
00:38:23
[Music]
