By Tom Missel
The news this fall that Citigroup Inc. recorded profits for a seventh straight quarter isn’t nearly enough to erase Gene McQuade’s painful memories of the economic collapse of 2008, when he was president of Merrill Lynch’s U.S. Bank.
“I don’t think I’ve had a worse feeling in 40 years of business,” said McQuade, Citibank CEO since July 2009 and a member of St. Bonaventure's class of 1971. “It was truly gut wrenching.”
Once the largest bank in the world, Citibank is now just the third-largest bank in the United States, with a workforce trimmed by nearly 25 percent in the last three years. McQuade reflects on that turbulent time of bailouts, bank failures, and market crashes, and looks at the future of the U.S. economy.
Q: Did you have any sense a collapse like that might be coming?
A: If we saw it coming, we would have avoided it. It was in no one’s interest to let it get to the precipice. The system was there (to avoid it), it just failed in all regards.
Q: What was the primary cause of the collapse?
A: The industry took risks that it shouldn’t have taken, but it was systemic failure. Consumers took risks that they shouldn’t have taken. Government took risks. People lived over their means, in terms of credit cards or buying homes they shouldn’t have bought. Banks lent to them in an inappropriate way, and regulators not only didn’t stop the banks from doing that, but legislators actually passed rules that forced banks to undertake that kind of behavior.
Q: Any sense what fueled this overinflated period of excess that ultimately burst?
A: I had lunch recently with Congressman Steny Hoyer (D-Md.) and he talked about two decades of America deciding they weren’t going to pay for anything — every part of America: corporate America, consumer America, government America. That’s where we went off course. We all looked across the street and said, ‘Boy, they’re living pretty well. Why can they do that and we can’t?’ Consumerism was a major cause of the crisis. People in business and people in government are supposed to provide a balance. As a country, we decided 25 years ago to live beyond our means and now we’re dealing with the adjustment back.
Q: When will consumers get back to living within their means?
A: In large part, they have. They are paying down debt, not spending the way they did, housing prices are down, banks are getting back into line, (but) I think it will take many years. I see a very slow growth period for the U.S. economy, but it has to be that way. Unfortunately, it will cause us to miss opportunities in China and India that others will be able to take advantage of, but we have to adjust. We as a society can’t live over our means forever. Adjustment is good for the country long term. As consumers strengthen, we then will have to deal with government spending — to keep our economy balanced.
Q: Is what “the government did,” our skyrocketing deficit, legitimate cause for concern?
A: The good news is that this is still a very manageable issue. If we allow it to go on for another five or 10 years, then it’s potentially catastrophic. We have the resources to fix it, but it will have to come from all sectors — taxes will have to be raised, entitlements and government spending have to be lowered, all of which will stir better growth.
Q: What’s your take on the Occupy Wall Street movement?
A: The cause is anger, and dissatisfaction with the overall financial and political systems. As leaders of business and leaders in politics, we need to make sure people understand why we are where we are, and we need to be inclusive. The thing that worries me most is an unemployment rate of 9.5 percent. That’s not good for the country. We need to get people back to work generating manufacturing and providing the intellectual capital to grow our economy.
Q: Once the largest bank in the world, Citibank is now just the 20th largest. Is being leaner better?
A: We’re very focused on trying to get to a size that’s manageable and balanced, trying to right size our bank with a focus on businesses that we think we can manage profitably over the long term.
Q: How much do you think the 24/7 news cycle and constant warfare in TV talk has fueled the institutional distrust that’s rampant — not just financial, but government and media?
A: Unquestionably, that’s the largest contributing factor to the distrust. When I started in business, there were three networks, and the people who ran those networks were all extraordinarily responsible. Today, anyone can say anything and it gets published (or aired) immediately, and in many cases, there’s no truth, no foundation to what’s being said. We’re in a society that doesn’t allow us to challenge many of those inaccurate statements. It doesn’t confound me why people are upset because they get a tremendous amount of information — and misinformation.
Q: How concerned do Americans need to be with the European financial crisis?
A: Europe is a terrible concern. It has the possibility, if not handled well, to put Europe into a depression, to put the U.S. into a recession, and to slow down the growth in Asia pretty significantly. It would be a significant adjustment to the world economies if Europe collapsed.
Q: Any advice to people in these uncertain times?
A: We often hear the word sacrifice, but quite honestly, whether we pay a little more in taxes or give up a little in entitlements, that’s not a sacrifice. As I travel around the globe, I realize that we live such a wonderful quality of life in the United States. It’s a small adjustment. We should all participate in making these adjustments to get the country back in a growth mode so we can get more of our friends back to work.
(Tom Missel is director of marketing and media relations at St. Bonaventure University.)