Citigroup CEO Jane Fraser joins Yahoo Finance's All Markets Summit 2021

Citigroup CEO Jane Fraser's full interview with Yahoo Finance Editor-in-Chief Andy Serwer, where she discusses supply chain disruptions, inflation, as well as the current state of the U.S. economy during the COVID-19 pandemic.

Video transcript

ANDY SERWER: Jane Fraser is Citi's CEO. She's the first female chief executive in the bank's history and joined city in 2004 in the corporate and investment banking division. Fraser manages one of the world's most global banks, serving millions of consumers, businesses, and institutions across 160 countries Hello, everyone. I'm here with Jane Fraser, Citi CEO. Jane, so nice to see you--

JANE FRASER: Oh, wonderful to see you, Andy-- thank you so much for inviting me.

ANDY SERWER: Of course. So Citi just announced strong earnings, with profits up about 48% year over year, driven in part by big returns in equity trading revenue and M&A. So much of a difference, though, during COVID when you're doing business-- and there are some tailwinds that you have, actually. And I'm wondering how sustainable those numbers are as we're coming out of the pandemic.

JANE FRASER: Look, I've had the advantage, as we come out of the pandemic, of getting on the road a lot recently. I've been in all sorts of places-- Mexico, London, Germany, Kenya-- all over-- and getting a lot of color from the clients on the ground, because there's nothing like engaging with them as well as with our investors. And what I'm hearing is a lot of confidence from the clients.

They have a lot of liquidity on their balance sheets. They get it. They're feeling good about the health of their-- financial health. And therefore, they're using this liquidity to drive capex. They're using it to drive M&A. They're using it to drive growth. Couple of geographies-- we're seeing some deleveraging, not surprisingly in China being one of them.

But I think it's that together with the consumer savings, particularly in the States, being so high that you have these engines of growth. But despite some common concerns that we're hearing around supply chains, and inflation, and labor markets-- which I'm sure we'll touch on-- but despite that, I think these are going to be important engines.

So from our point of view, robust pipelines heading into the end of the year into next year-- and also, for us, as a very global bank, a lot of work on strengthening supply chains for our clients around the world and-- both strategically as well as tactically. And that's also quite an important growth driver for us. So I'm feeling cautiously optimistic, Andy.

ANDY SERWER: Debt ceiling negotiations-- what's concerned you the most? And maybe we could talk about inflation, because that concerns a lot of people.

JANE FRASER: Yeah. I think we've stopped hearing people seeing transition or transitory, because it's feeling a tad longer than that. However, if we look at the causes of it, they are ones that the world economy will work through. We did have an extraordinary dislocation in COVID, and I think-- pat on the back to the world economy about how incredibly it was responded to, both in terms of the regulators from the support given to the markets down to our clients around the world, and indeed, our people.

But it's going to take some time adjusting, and we don't go back to the way it was. We're going to a new normal as well. And I think the strength of the recovery in the first half of the year everywhere around the world was better than anyone expected. But the result of that is demand was very, very strong-- strong from consumers, strong from corporates. And our supply chains therefore had-- has had some pretty severe dislocations, from logistics all the way through consumer hoarding all the way through higher consumer demand to other dislocations in the-- both demand and supply of materials.

This too shall pass. It's going to pass probably in 2022, and we're probably in for a bit of a brutal winter, particularly in the energy markets, where there's also some challenges there. But it's not long-term structural stuff that we won't adjust to. I'm certainly more concern that it could become more sustainable, because inflation is sustained. It is unquestionable.

I think the word someone used the other day-- that we've certainly having episodic inflation, unquestionably. The question is therefore, does this become something more sustained? We won't know until next year. I don't think it will become a big issue, but it certainly is something that's going to be choppy for the next while. And it won't be helped if the US debt ceiling situation doesn't get resolved on a more timely basis before December.

ANDY SERWER: I want to ask you about employment, and specifically-- and workers and working specifically at Citi. Two-part question, Jane-- one, back to work-- how is that going? Two days a week, vaccines, and all that-- number one. And then, number two, are you having a hard time simply hiring people?

JANE FRASER: Look, it certainly depends all around the world. So every market is a little bit different, depending on vaccines, depending on what's happening in terms of health in the local geographies. So one size doesn't fit all in the equation we're looking at. But what we are seeing is, from the workforce, people don't want to go back to where they were.

There's a feeling of-- they've changed. I've changed, and I want things to be a little bit differently. And we've shown some more flexibility does indeed work. We do want people back. We do think there is tremendous value in being together. It's important for apprenticeship. We can see it with our kids.

Anyone who's been doing home schooling-- the kids learn more in school than they do in the home environment. They learn other things-- important things-- at home, but it's just easier. I think it's the same way for-- in the work environment. We learn a lot from each other-- helps for coaching. It helps for collaboration. It helps for others.

But flexibility is also very important to our people, and so for us, it's a balance of the two that we want to give folk. Come back together, but we're going to give you more flexibility than it was before. And I would say that that seems to be working. It worked for me when I was a working mother. I needed that type of flexibility myself, and I didn't feel that it needed to interfere with my effectiveness as a professional.

So I think that that's how we're looking at it. I would say that's been successful for us in being a magnet and somewhere attractive for people to work. That said, right now, the labor supply's incredibly tight, and so when we're looking at our-- look at people who are working in an operations center, they've had-- haven't had to commute. They haven't had the cost of that.

They don't necessarily want to come in every single day, and they've got the setup for a call center right at home. And we can see whether they're being productive or not or need to come in for more efficiency. So I think, again, by mid next year, some of the supply-- some of the labor supply will have worked its way through.

But it's a very, very tight market at the moment, and it is one topic we talk about. When I jump on the phone with our CEO clients, which we do all the time, we're no longer talking return to office. We're talking tight supply chain. And I think it will be the first topic for a while longer.

ANDY SERWER: Retaining those employees--

JANE FRASER: Yes.

ANDY SERWER: --first beating them, then after, that trying to hire.

JANE FRASER: Yeah.

ANDY SERWER: Shifting gears a little bit, Jane, I want to ask you about another huge topic, and that is crypto and--

JANE FRASER: Yes.

ANDY SERWER: --decentralized finance. As a CEO, I can ask you the big strategic question. How do you view this nascent, incipient world that is obviously affecting your bank and your business? And how do you plan and move forward?

JANE FRASER: A topic we spend a lot of time discussing with many of our partners and clients as well-- so I think you start off with the premise. It's clear that digital assets will be a part of the financial services and financial markets-- the future of them. We already see clients very active in the space.

Real-time payments, both growth in the sense of their frictionless-- they'll become more global. They'll become ubiquitous. Real-time payments will be here in the near term, and digital currencies may be part of that future. We see benefits from the digital asset space-- instant processing, fractionalization, programmability, and transparency-- very geeky words.

Geek like me-- I love them. But those are very tangible benefits that come from it. I would say we're proceeding thoughtfully, and with appropriate caution here. Why is that? There's still a lot of questions about how the space evolves around regulatory clarity, around some of the scalability, around resiliency, certainly around some transparency, and making sure that there are the appropriate guardrails in the system, particularly for our retail clients.

We don't want them participating in areas that they're not necessarily as well-equipped to understand the risks of. So for me, as a CEO, I'm working to connect our clients to wallets. We're enabling our businesses to-- and our corporate clients to accept consumer payments. We're building the infrastructure for real-time payments, but we're doing so cautiously, because the space is moving so quickly, and not all the guardrails that you would like to see are yet in place.

And as a banking CEO, I do believe guardrails are important and necessary for the safety and soundness of the financial system. And so I like them there for resiliency.

ANDY SERWER: That's-- provides a nice segue to my next question, which is the regulatory environment and the relationship of Citi to Washington, and the banking sector writ large to Washington. What would you like to see out of Washington DC that would be most helpful, Jane?

JANE FRASER: I think it's what we're talking about. We're seeing this world move-- unbundling from the old financial architecture-- and that's from currencies all the way down to deposits-- and it's moving to new digital architectures. They're largely born digital. So outside of trading and some of the more institutional spaces, there's a real disconnect from one architecture to the other. It's not an evolution.

And therefore, we've got to transfer the wisdom, the knowledge, how to make that system work well, and safely, and soundly from one architecture to a new one. And I think it's one in which our regulators are clearly very focused on this. Washington is very focused around this from-- the central banks around the world are.

And I think it's that we continue a constructive and active dialogue between public and private, between the fintech and the banking world to make sure that we have a system that will capture the benefits of these new technologies, but also one that will work in the way that's in every-- in the best interest for everybody, and doesn't have recklessness in there. And so far, a very constructive dialogue-- I think we all need to be highly engaged and listening to everybody on this front.

ANDY SERWER: A couple of questions about ESG, Jane-- first of all, you guys announced $1 billion in strategic initiatives in the aftermath of the murder of George Floyd last year to help close the racial wealth gap. Can you talk about that-- number one. And then, number two, you guys have committed to phase out financing for coal power by 2030-- although not with oil and gas. That's a lot of stuff there, but can you take--

JANE FRASER: Yes.

ANDY SERWER: --from one of those please?

JANE FRASER: Yeah. Quickly on the racial equity, so in the US, we announced $1.25 billion really to support the closing of the racial equity and wealth gap. We've done some important work that showed in our research departments that, if that gap was closed, the US economy would be $5 billion bigger. That's a benefit that lifts everybody up, so this is a win-win for everyone of work on this.

We put a three-year commitment in. We're about a year and a half through, and we've almost completed it, so we will be reupping the number before long. And it's focused on areas such as affordable housing, supporting black entrepreneurs that haven't had the access to capital, working with our MDI and CDFI partners-- so this is minority-owned banks-- in accessing some of the communities that we don't have a presence in, and providing access to credit in ways where we're also partnering-- so just very important pieces that we've been working on, that lifts everyone up.

I think, similarly, when we look at our commitments around climate, I-- when I look at what we need to do, it's very clear that we need to help the economy shift onto new technologies and onto greener technologies. That said, I'm very mindful that we also have an energy policy that's important in the play here. And getting that balance of making sure that we shift onto and help prove out new technologies, we develop them, we get the cost of these to come down-- we've seen wind and solar come down dramatically over the last few years-- these are all very important dialogues that we're having with our clients.

So we don't want to jeopardize energy policy, particularly in emerging markets or the developed world, but at the same time, we want to help our clients shift onto these new technologies and onto cleaner technologies, and help them responsibly retire the other assets. So we separate out coal from gas, from oil, and we've made the commitment on coal. I've made the commitment for our firm of net zero by 2050.

And we're working very actively on all the fronts-- on disclosures, on understanding climate risk, on understanding energy policy and the needs of the world, and looking at how we can make this shift happened in a responsible manner, but make it happen. It's not an easy balance, but we think it's an important one.

ANDY SERWER: Jane Fraser, Citi CEO, thank you so much for your time.

JANE FRASER: Thank you, Andy, for having me.