Citigroup’s CEO Sees the Weaponization of Finance

On a recent trip to Poland, Jane Fraser met with the masses of women whose husbands were off to fight a war. Citigroup’s staff across the region had opened their homes to refugees, while Russian troops were striking close to their own borders.

The Citigroup CEO runs the most global of U.S. banks in the midst of global tumult, and she sees a disruption of the financial world order as sanctions proliferate against Russia.

“We’re separating a G-20 country from the financial markets, and we’re separating them from the supply chain,” she told me and Bloomberg’s Scarlet Fu in an exclusive television interview this week. She said the weaponization of finance is bound to have ramifications.

Why weaponization? Fraser said nations around the world are now concerned that some future geopolitical crisis could bring a repeat of the current sanctions and other fallout. “And they’re concerned about therefore putting all their eggs in the Western financial-order basket,” she said. “They’re going to look at diversification, and this will drive the development of alternative financial systems and venues.”

Fraser, speaking from the Milken Institute Global Conference in Beverly Hills, California, said she’s in active talks to sell Citigroup’s consumer and commercial banking business in Russia and still is looking to exit retail banking in markets including China and Poland. In the meantime, her presence there looms large.

In terms of China, she said it would take five to 10 years for global corporations to shift their supply chains. For now, imports from China to the U.S. are stable, and in some cases, rising. “Globalization -- certainly there are areas it is retreating,” she said. “It isn’t dead, it’s just changing.”

Recession Watch

You see the worries building in the stock market. And the main question that underpinned the conversation between private equity titans and bankers at the Milken conference was: How bad can it get? For Apollo co-President Scott Kleinman, the market is warning that a recession could be coming in early or mid-2023.

That’s when investors expect the end of a rate-hiking cycle. And the fallout will probably be more prolonged than the Covid-driven downturn of 2020, when the Fed stepped in to lift the economy, Kleinman said. This time around, the downturn itself would be created by the Fed. Kleinman’s conversation on Monday was prior to the Fed’s announcement of the largest rate increase in more than two decades. He said he believed the Fed would rather induce a mild recession than have consumer behaviors permanently altered due to elevated inflation.

Investors are starting to weigh the probability of distressed outcomes for companies. SVPGlobal’s Victor Khosla said in the event of a recession, it would take six to 12 months for markets to rebound. And if there’s simply a slowdown, there’s such a steady torrent of difficult news that, as Warren Buffett is fond of saying, “You figure out when the tide goes out who’s swimming naked,” Khosla said. “You’ll see that in the next two years.”

Rising interest rates will create the need for many restructurings, he added.

More on Wall Street

• Elon Musk finds new investors take equity risk in a Twitter buyout. Here‘s a little bit about them .
• Tiger Global’s plunge is one of the worst stumbles in hedge fund history. “The cavalry isn’t coming this time either,” Mike Novogratz said on Twitter, adding that restructurings are probably ahead.
• The unemployment rate held stable in April, but labor-force participation dropped in a bad sign for the job market. “That’s going to be a continuing constraint on growth,” former Fed Governor Randy Kroszner told Bloomberg Television.
• Funds keep raising more money from wealthy clients. Blue Owl started one with $2 billion including leverage to expand its push with high-net-worth clients.
• Aryeh Bourkoff is expanding LionTree’s merchant-banking push by hiring a private equity executive. Andrew Olinick joins after about 15 years at 3i Group.
• Ex-Merrill Lynch colleagues can’t remember him, but Jared Birchall has for years been quietly tending the fortune of the world’s richest man. Here is a profile of Elon Musk’s key banker by Bloomberg’s Sophie Alexander and Liana Baker.
• Two Sigma’s Carter Lyons told me this week that 90% of the firm’s employees are already investing in digital assets, while the firm is starting to find ways to invest in crypto. Wellington executive Stephen Klar also said his firm is exploring ways to invest in tokens in the future. Here is their conversation from the Milken conference.

More to come. Next week, expect a dispatch from Bloomberg’s “Power Players” event in Miami, where the Formula 1 event is drawing a huge crowd. I’ll be in conversation with Barry Sternlicht and Keith Rabois, while my colleagues will be speaking to Alex Rodriguez and the city’s mayor, Francis Suarez.

Have a great weekend. Tips and opinions are welcome in the meantime at [email protected] .