While acknowledging difficult months ahead for the U.S. economy and the global marketplace in general, the CFO of Citigroup also predicted that in the long run – and absent new terrorist attacks – the economy has a good chance at recovery.

“In my own view, this economy is so strong and so flexible that we will learn to adapt to the eventualities of continued vigilance against terrorist threats,” Todd S. Thomson, whose title is also executive vice president for finance and investments, told the second annual Wharton Finance Conference in early October.

Thomson has the experience to back up his observations. Before coming to Citigroup, he led emerging market investments for the Barents Group and helped set up some of the first privatizations in countries like Kazakhstan and Uzbekistan. At Citigroup, he has been involved in projects in both Pakistan and Afghanistan.

And while he feels the prospects for financial improvements in these countries are good long-range, he is just as certain that the events of September 11 will reverberate for a long time. “This has changed the world, whether you think of it in geopolitical [terms] or in economic ones,” stated Thomson. “That said, we could end up with a much better world, if things break correctly.”

He predicted that new alliances set up by the Bush Administration could help America’s global initiatives. He considers the overtures to Russian leader Vladimir Putin particularly important, and foresees the possibility of some Arab countries, particularly Syria and Algeria, coming back into the global economic fold. “But we still have to face the idea of a bi-polar world. We have to face the depth of resentment in the Islamic world against the United States,” he said.

What this means for the financial markets in the short run is a continuation of what Thomson described as a recession. He pointed to a number of factors that have rocketed Wall Street since September 11, some of which were already in place before that. Bankruptcies, for example, were already up 21% this year before the attacks and will now likely escalate. Consumer confidence is slipping rapidly and retail sales are soft. He expects unemployment to be above 6% by the end of the year and noted that all significant initial public offerings were cancelled for October. “It is going to be a very, very tough next couple of quarters,” he said.

Yet he also told of how the major financial institutions in New York rallied after the September 11 disaster: “We are in competition, fierce competition, all the time. But the investment banking community came together in New York. Citigroup rented floors to Lehman. We found ways to make deals to keep everyone liquid. This is what American finance is all about.”

He recalled the “rickety” days right after the September 11 attack and before the markets opened a week later, but noted that the Federal Reserve Bank kept liquidity going. Whenever Citigroup needed to make a deal during that time, he said, the Federal Reserve was ready to make it happen.

Thomson also said he finds it possible that a long-term crisis could develop. “There will certainly be some follow-up events. You see it already with the Anthrax scares,” he said, adding, however, that he doesn’t see anthrax as a major threat at this point. What he does see as more likely is the type of ongoing tension that exists between London (and the rest of England) and the Irish Republican Army, or between Spain and the Basque separatist groups. “We must stop being lazy and understand that [terrorism] has to be guarded against,” he said. “In economic terms, that means the financial markets will learn to adapt to these realities … We will have to reassess priorities in the face of continued minor terrorism.”

After a spate of hard times, though, Thomson sees the financial situation in the United States coming back quickly in mid-2002. One of the big reasons, he said, is that there will be increased government stimulus, either in the form of tax cuts or government spending. “This is unprecedented, at least in its speed,” he said, pointing to the $50 billion already approved in various payments by the Bush administration and the possibility that there will be $150 billion more pumped into the economy.

“I think there is a sense of patriotism in the federal government – at the White House, in Congress, at the Federal Reserve – that will not let a recession go on for long,” said Thomson. “They will do all they can to prevent it. In six to nine months, I see a sharp recovery.” He acknowledged a concern that government spending could over-stimulate the economy and that interest rates may have to be raised six or nine months out. “But that would be a good thing, since it would mean the economy is back.”

In general, Thomson said, no panic is warranted, just care. “As Yogi Berra once said, ‘The future isn’t what it used to be.’ There will be a lot of consolidation in the financial services industry. There will be a little pain. But we live in a country with a robust economy otherwise and it will adapt. It always has.”