Is it faith, trust, pixie dust, or just the rarefied air at Davos? Citigroup Inc. (C) CEO Vikram Pandit and Bank of America Corp. (BAC) CEO Brian Moynihan each defended their respective institutions in interviews that are sure to set the stage for what looks like an ongoing battle between Wall Street and Washington D.C.
Let’s start with Mr. Pandit. In an interview with CNBC, Pandit cited credit worries in the short term, but contended that profitability is not a concern on any long-term basis.
Stating that “we really have worked hard to put our capital position in very good order,” Pandit offered the following as support for his statement:
•$200 billion of liquidity on their balance sheet
• $36 billion of reserves on their balance sheet
The statement was undoubtedly a move to sooth shareholder concerns. Shares of the financial institution have been under intense pressure since the government’s took a 36 percent equity stake in the company by converting 25 billion in emergency aid into common shares.
Citigroup paid back the TARP fund late in 2009, but the government still holds the shares although according to Pandit, “…the government said they want to be out of the stock sometime over the next year or so, so they’re inclined to sell the stock over time and we’re going to help them as much as we can.”
The financial giant has shed nearly $100 billion in assets in the last 12 months. This was supported by Pandit who said that the company was 20 percent smaller in size. However analysts contend there is much work to be done. At the end of the third quarter, the company still held $182 billion in so-called troubled assets.
Meanwhile, in a separate interview at the World Economic Forum, Bank of America Corporation CEO Brian Moynihan contended that B of A along with other Wall Street banks does not need to be broken up to protect the global economy from another financial crisis.
“Bank of America is not too big,” said Moynihan. “Big by definition is not the question, it’s a question of how you conduct your activities, how you manage your activities and how you manage risk.”
President Obama has outlined plans to discourage, if not outright curb, risk in the financial sector. One suggestion would be to break up large banks to separate their traditional banking operations from their riskier units, such as proprietary trading.
Although agreeing that government had a role to play in ensuring stability, Moynihan stopped short of agreeing with the President’s plans.
“I think the idea of not having $250 billion of capital there for our clients across the board is actually an idea which wouldn’t have solved the last problem and won’t solve the next,” said Moynihan.
In fact, Moynihan went as far as to say that credit default swaps and other “esoteric” financial instruments were not, by themselves, the problem. His contention was that firms used them to excess, and started to store this risk rather than transmitting it out to the market.
