Senior writer Tim Reason sat down with Thomson in mid-September to discuss just how much Citigroup has changed, and what that might mean for its customers.
You had a record $4.3 billion in income from continuing operations in the second quarter. Given the turmoil of the past 18 months, you must be very pleased.
Yes, I think these are tremendous results. It’s a testament to the dedication of the management team. To not be distracted by newspaper stories, but to stay focused on customers and on building a growing business was a terrific challenge. It’s also a testament to the franchises we have here. We’ve got a credit-card business, a consumer-finance business, our corporate investment bank—those are all the biggest and the best-run in the industry. That allowed us to continue in a very difficult economic environment globally and deliver terrific financial results.
Last year was a terrible one for your stock price. Now your stock is back up.
Well you know, as CFO you’re never satisfied with where the stock is. We’re not getting nearly the premium we deserve. But I think it will come.
Is the premium low because of the economy, or is it the result of a lingering aftertaste of Enron, WorldCom, and all those other distractions?
I think it has less to do with some of those issues and more to do with the fact that the company really is only about five years old. It was created by combining CitiCorp and Traveler’s at the end of 1998. If you look back over the past 10 years, earnings per share have grown more than 20 percent a year. But it takes a while for investors to get comfortable that going forward, the new company will deliver the same kind of performance.
Also, as the world has changed, there has been concern about big, complicated, global companies, and we are one of the biggest and most complicated. Over time, people will get comfortable that a company this size can be managed very well for growth, and that we can continue to deliver quarter-on-quarter.
And we’re hopeful that the geopolitical situation will settle down a bit. I think that will be helpful to the stock as well.
You think the geopolitical situation is hurting Citigroup’s stock?
I think those are bigger overhangs than the specific issues from last year.
Citigroup sponsors major conduits for issuing asset-based commercial paper. What affect did FIN 46 [FASB's ruling on consolidation of variable interest entities] have on the special-purpose entities [SPEs] that serve as those conduits? You did not ultimately have to consolidate them onto your balance sheet.
Right. The Financial Accounting Standards Board scoped out qualifying SPEs, so things like our securitization vehicles for credit cards were [not changed by] FIN 46. I don’t think there are abuses in those. [Qualified SPEs] help the U.S. capital markets operate more efficiently, and securitization of credit cards has been a very valuable part of the development of the capital markets.