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How Citi is coping in a trying time

October 24, 2011, 1:00 PM UTC

CEO Vikram Pandit discusses potential in emerging markets, the dark days of 2009 — and his willingness to talk with Occupy Wall Street.

FORTUNE — Next year, Citigroup will reach a historic milestone: its 200th birthday. That makes it one of the oldest banks in the country and, fittingly for an enterprise established two days before Congress declared war against the British in 1812, one that has survived many a crisis. In Citi’s case, more than one has been at least partially self-inflicted, including the events that resulted in $45 billion worth of federal bailouts during the financial meltdown. Since then the company has been paring debt and slowly picking itself off the mat with seven profitable quarters in a row. But like other bank stocks, Citi (C) shares have suffered, losing 30% in the past three months. In an interview with Fortune managing editor Andy Serwer, Citi CEO Vikram Pandit sees slow growth but predicts Citi will benefit from emerging economies. Edited excerpts:

Q. Citi has come a long way since the low points of 2009. Give us an overview.

A. I think overall the bank’s doing well. This is a fundamentally different company than it was three years ago. We’ve de-risked the bank. We have one of the smallest mortgage portfolios of any large bank in this country. We’ve built up enormous financial strength. Today 25% of our balance sheet is in cash or government securities or liquid securities. For a balance sheet our size, that’s a lot of cash. The most important thing is we’re back to the basics of banking. We feel very good about our strategy and our financial position.

Is your business slowing down?

Our business is directly tied to GDP and GDP growth. If you’re talking about a slower-growth world and a lower-interest-rate world, that’s going to affect profitability for all banks. What we’ve got, though, is a little bit different from everybody else. Let me tell you where the growth is. It’s coming from the emerging-market consumer, who is going to be the new driver of global economic growth. Citi is in 100-plus countries, and we’ve been in many of them for over 100 years. There’s no other bank that’s got the footprint we do. So we’re in exactly the right places, and we’re looking forward to that being a big driver of our future.

You have a Ph.D. in economics. Are we heading into a recession?

There’s no question that the challenges of paying down debt are foremost in the minds of the market. The market wants to see a credible plan as to how we’re going to attack that, and unless and until they see a credible plan, whether it’s here or in Europe, it’s going to fret a lot. I would say I don’t expect the U.S. to go into a recession. I really don’t. It may not grow as much as we’d like it to, but I don’t see it slipping back.

Not long after you became CEO in December 2007, Citi was bailed out not once, but twice. How grueling was that, and what was the lowest point?

It was very challenging for our people who had to deal with clients every day in the midst of all this. We really owe where we are today to our people who believed in the plan we put in place. And obviously we owe the American people a debt of gratitude for the help that we received. But there was a day when Citi stock hit $1 a share.

What was that like for you?

It was clear to us that the markets were not understanding the progress we were making. You can’t feel good about that. So we started very aggressively communicating about the progress we’ve made, the profitability picture, all of that. And that started turning the market, and we started building momentum. But certainly you can imagine 260,000 people sitting around the world doing the right thing, helping their clients, watching the stock dip down to $1 a share. That was not a good day.

The Occupy Wall Street folks have been making a tour of the homes of Wall Street CEOs. If they came up to you, what would you say to them?

Well, I’d say that their sentiments are completely understandable. The economic recovery is not what we all want it to be. I would also corroborate that trust has been broken between financial institutions and the citizens of the U.S., and that it’s Wall Street’s job to reach out to Main Street and rebuild that trust. I’d talk to them about what we’re doing at Citi, talking about not only everything we’re doing to increase small-business lending substantially, to admitting that we can’t reach everybody who needs money or loans, and we’re working through community organizations to reach them, to saying that we’ve got to make sure that we deal with our customer transparently, fairly. And more important, I’d talk about the fact that they should hold Citi and the financial institutions accountable for practicing responsible finance.

To me, practicing responsible finance is about making sure you’re acting in the interests of your clients and the system, and that what you’re doing is not just moving money around, but actually creating some economic value, that you actually are supporting growth in the economy as well. Hopefully they take all of that to heart and keep asking us how we’re doing. And I’d be happy to talk to them anytime they wanted to come by.

This article is from the November 7, 2011 issue of Fortune.

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