Citigroup Chair John Dugan is overseeing the management of the nation’s third-largest bank at a critical moment in its history. CEO Jane Fraser is implementing a major restructuring to simplify Citi while ensuring it remains a go-to for international clients. MM sat down with Dugan to talk through Citi’s challenges in China, Russia and Ukraine, as well as the outlook for artificial intelligence and the economy. Dugan is a familiar face in Washington, having served as a top bank regulator, a Treasury Department official and a Senate Banking staffer. What follows are highlights from the chat, edited for length and clarity. On AI’s potential risks to financial markets and the government’s response There is going to be a governmental regulatory component to it, and I think the financial world will feel it first just because we're a more regulated industry. I don't think it'll be like Europe, however, which has leaned in really heavily with rules first, and business second. I think it will be the other way around in the United States, and appropriately so, by the way. On the extent Citi’s hearing from regulators on AI They're asking a ton of questions. We really have to explain to them what we're doing kind of every step of the way to get them comfortable with it. They are very much in the exploratory stages themselves. They're even farther behind in understanding what this means and how it will work. [Citi is exploring how it can use AI for coding and drafting text.] The outlook for the economy Institutionally, we think that the whole world slows down a little bit, but not a lot. Not as much as we were worried it was going to slow down. Institutionally, we believe that the U.S. will actually go into a mild recession. Speaking non-institutionally, I'm a little more skeptical about that. Things look pretty resilient to me. The risks It’s the geopolitical risks that I think we all worry about a lot. We do business in China. We're committed to China. We believe it's an important place to do business, mindful that tensions have stepped up, and we have to be very aware of that. If that were to escalate in significant ways, that would be something that would really change the whole economic climate. So we certainly hope that that does not happen. On Citi opening up a new investment banking arm in China We’ve had an application there for two years. It’s just finally coming to fruition. That would be consistent with the kind of normal business operations that we do. It allows us to do business, particularly for our multinational clients that do business there. We are not unmindful of what happens when tensions start to escalate. We have to take steps to be prepared for that and to limit our risks. And actually, we're very good at that. When we have problems in places like Russia, where we had very significant operations, or Ukraine, for that matter, we're very mindful about how to downsize those risks quickly and how to deal with it. Who we are to our clients is the bank that can be counted on to be in different places to handle different issues as they come up for cross-border things. And so being in China is a logical place for us, even now. On navigating challenges in China It is challenging, but you also have to layer on to it how much business we do in Hong Kong. And Hong Kong now is increasingly becoming part of China. We have limited our risk. For example, in Taiwan, we no longer have a consumer business. Getting out of all those consumer businesses in Asia was important generally speaking but in my view in Taiwan even more so. It begins to limit the risk that you have in a country like that, which is on the edge of the point of the spear in terms of potential conflict and the like. We have to be mindful of how all those things work with respect to data protection and potential eavesdropping and the like, and we are. On Citi’s concerns about legislative proposals to restrict investment in China via prohibitions and reporting It's more that we have concerns that it's likely to affect our clients, and therefore affect the level of business that's going on there. On the idea that the U.S. benefits from having Americans on the boards of Chinese companies to exert power, per Financial Services Chair Patrick McHenry The point I think he's trying to make is, historically, when you've had a lot of business ties, it has moderated the willingness of governments to escalate conflict. And I think that's generally true. But there also can come a time when things get very difficult, and it becomes harder to do that. Generally speaking, there's still a lot of sense in that. As long as there's economic interdependencies, it makes the possibility of conflict lower than it otherwise would be. On whether Citi has any appetite to return to Russia Not at this time. We've had to completely liquidate our operations there, which was not optimal. There's a certain amount we have to maintain in the custodial business. But the prospects for that restarting anytime soon are nil. The world can change, but that's where we are now. On Citi’s operations in Ukraine and assistance with its recovery [Citi is on the ground in Ukraine and has] been advising the Ukrainian government for quite some time on different aspects of this. The real financing of this [Ukraine’s recovery] is going to have to come from governments, I believe. The private sector can certainly play a very substantial role, but the core of it has to have some kind of meaningful commitment. The sort of unwritten agreement between the United States and Europe is that the United States does the military side and Europe does the financing. We're still waiting to see how that plays out. But whatever happens, we will be very much involved I would suspect in the role that private sector financial institutions play because of our historic role there. It’s Thursday — Send tips to zwarmbrodt@politico.com.
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