Citicorp CEO says megabanks herald worldwide prosperity

John Reed, chairman and CEO of Citicorp and Citibank, speaks to MBA students in Professor Maureen O'Hara's "Financial Markets and Institutions" class Oct. 1 in the Sage Hall Amphitheater. Later that afternoon Reed delivered the Hatfield Address in Schwartz Auditorium of Rockefeller Hall. Robert Barker/University Photography

By Linda Myers

"Global financial services in the new millennium is an optimistic topic," said John S. Reed, "because it suggests that we will get there."

The chairman and CEO of Citicorp and Citibank is confident that we'll reach the millennium but concerned that many banks won't be able to provide the world with the high-quality financial services it will need.

"The industry is fragmented; it's run on a product-by-product basis, and consumer satisfaction is poor," he observed.

Reed's criticism was informed by 34 years of experience in the banking industry with Citicorp and Citibank.

Earlier this year he presided over the negotiations for his company's "transforming merger" with the Travelers Group, headed by
Cornellian Sanford I. Weill. Approved by the Securities and Exchange Commission in September, the merger will create Citigroup, one of the world's largest banking services firms.

The two business leaders with distinctly different personalities will share leadership responsibility. They have given each other veto power on decisions, but Reed said he hopes they will both step down and select a successor once the merged company is functioning smoothly.

Reed addressed a Cornell audience in Rockefeller Hall Oct. 1 as the Robert S. Hatfield Fellow in Economic Education. He was introduced by President Hunter Rawlings, who observed that the fellowship is the highest honor the university bestows on a business leader.

Speaking only from notes and projecting a confident command of the relevant facts, Reed outlined trends he sees affecting financial services in the years ahead.

Addressing the crisis in the Far East first, he praised Asia for producing good products at low cost but faulted the region for the poor return it offers investors.

He predicted that the lack of growing markets would result in a period of restructuring similar to the downsizing and dislocations that characterized the early 1990s in the United States. The rigidity of Asian societies, with their lack of mobility, might aggravate the situation further, Reed suggested. However, he said he sees eventual growth as inevitable.

"Economic growth is on the agenda of the entire world," he said. It's important to the billion people living in highly developed wealthy societies, particularly those in aging populations, who want to ensure that they'll have enough financial resources when they retire. And it's important to the 5 billion people living in less prosperous societies."

The role of technology in the banking industry is influencing economic growth. "Information moves instantly around the world," affecting how, when and where people invest their money and profoundly altering financial markets, he said.

The appropriate and much-needed role of financial services firms in that highly volatile world of increasing needs and expectations is to lend stability and act as the intermediary, "the person who helps others achieve their aspirations," he said. "People who need healthy retirement incomes can't get them without us. Countries that wish to grow economically can't grow without us."

Reed predicted that megabanks like Citigroup will be able to offer consumers a vast array of financial products and services because of the range of resources at their fingertips. And that will be good for everyone, he said.

"In the next 200 years, we'll see an entire world that enjoys the same high standard of living we enjoy in America today," Reed said.

But the large banking conglomerates will need to "mine the data on a global scale to match customer needs with products," he said, and hire staff who not only have the right skills and knowledge but also the right values and character. Reed urged management educators to put a greater emphasis on "the human dimension," because decisions by people, whether they are judicious or wrongheaded, can affect world financial markets.

Reed chatted informally with the audience after his talk. Rafael Borbón, an MBA student from Mexico, who spoke with him in Spanish (Reed is fluent in the language), commented: "I liked his world perspective on the future of banking and also how he approached the merger and co-leadership -- not an easy thing to do."

The Hatfield event is funded by the Continental Group Foundation, which seeks to foster the exchange of ideas between the corporate and academic communities.