×

First on CNBC Interview: Incoming Executive Chairman of Barclays, John McFarlane

Following is the unofficial transcript of an interview with John McFarlane, Incoming Executive Chairman of Barclays by Steve Segdwick of CNBC.

Steve Sedgwick (SS): First obvious question is why Antony Jenkins left Barclays?

John McFarlane (JM): We have been on a journey for the last six years after the global financial crisis for recovery of the bank and to stabilise the situation. Of course in between we had the management crisis as you know. That's been a very important period for the company and as far as we are concerned Antony's done a brilliant job to stabilise the organisation and to take us where we are now. The problem is, is that going forward has another agenda now. We just had a strategy meeting of the board where we endorsed the way forward and what was clear was that the execution of that strategy bringing forward the return for shareholders was the absolute priority and therefore we wanted to bring it forward.

SS: What did Antony do wrong?

JM: No, he hasn't done anything wrong. He is just the right guy for that time, he is not the right person to take us forward.

SS: But I am sure you said on the investment call this morning that actually it would be the same strategy pretty much in the short and medium term as you had under Antony. Is he just not good at execution?

JM: Yes the question is execution. You know... I have been here a couple of months and I have been on the board slightly longer, it's been perfectly obvious to me that number. there's a number of issues here. One is that it is a very clunky type of organisation, it is not fast moving, it is not lean or agile. It is with customers but it isn't in term of execution. You know our efficiency levels are low and capital has been used in the wrong way, you know we really need to just deal with that very quickly I believe.

SS: So Antony had the right idea, it was the right idea to go back to basics rather that as Bob Diamond had as an investment bank-focused institution but he just wasn't good at executing it, is that the key?

JM: No he was good at execution, what we asked him to do at that time. What we are asking him to do now is different and the board believes the probability of my executing is higher.

SS: But the cost to income ratio, 70%, way too high, your capital levels are a concern about that, we can address that as well. But it is basicallythat he didn't cut cost aggressively enough. Is that one of the major criticism that you are going to be better at?

JM: No I think it is a... what we need to do is to grow RoE and grow earnings. And throw off cash to increase the dividend. Now that's a complex story, it's not just about cost you know we have, it's a great brand that we have got a great opportunity to grow revenues. Yesterday I chaired an executive committee and told them to go on with it. We found, we identified some ways we can grow revenue and we will talk about that later on.

SS: Has Barclays lost its identity? It's not the only bank that is struggling to reinvent itself post the crash, post Lehman's, but has it lost it's identity and that's part of the mantra going forward?

JM: No the brand is truly superb. In my day in London, this was the preeminent financial institution and it still is right and we haven't lost that. Of course we lost our way a little bit after the global financial crisis and therefore we need to stabilise and recover the bank and that is nearly over and of course we've had headwinds and we have been dealing with those. What we could do is take it to a new position and get the rightful position that the bank has always enjoyed.

SS: What role does the investment bank play within that as well? The return on equity, the return on capital, the investment bank is really really poor and morale I am told is pretty poor on both sides of the Atlantic, what can you do to turn around the investment bank?

JM: The first thing I did this morning was to go into the investment bank and I can assure you morale is not poor there, I was in there.

SS: I had a quote from one of the former employees saying they were cutting MDs left right and center without any rationale behind it, morale is not what is should be.

JM: Well former employees are never excited about the organisation so... you know you have to be careful with that. So the investment bank's got an important role to play but we have been very careful to say that we want the proportionate investment bank to be a smaller part of the organisation than has been a strategically under Bob Diamond. And that will continue but it is a meaningful part and remember, the investment bank, who is global you know, where we are successful and where we are good at. We are very successful in Europe and we are very successful in North America and that's the guts of it although we have touch points elsewhere.

SS: Was that one of Antony's big failings to where he actually turned around the investment bank?

JM: I think no, I think... Remember the investment bank is doing as well as the industry and you know the industry is not doing brilliantly at the moment but we had a good quarter and the investment bank has been performing very well. So we are not out of sorts with the industry - investment bank is doing OK. I think the relationship was a little strained with investment banking and I think you know the fact that I have run an investment bank and improved it.

SS: The fact that you went straight to talk to the investment bank this morning proves that he did not have a good relationship with them, that's perhaps something the independent directors picked up on and that Mike Rake and others looked at?

JM: Yes certainly that was part of it but I think it is something to do with style and of course the nature of the task ahead you know... So I think that's a big part of it. But I don't think... I just feel it's a natural place for me, I have run the markets division you know and so forth, so I went to see the markets guys first and of course I love that area.

SS: Is Tushar Morzaria going to be the next CEO of Barclays?

JM: Oh no we're not going to speculate about who's going to do that, I'm going to play that long. What I've got to do is to re-engineer the outcomes we want first.

SS: But you've already said that he's the man you're going to work with, so…

JM: Ah yes…I'm going to…Because he's a brilliant CFO.

SS: Is he going to be a brilliant CEO?

JM: That time will tell.

SS: How long is the timescale that you're thinking about before you do get a new CEO?

JM: Oh these things take time, you know this is well trod ground, lots of people will be looking for CEO's, we don't want to go through over the same ground, no, because if it's the same ground it's the people who didn't get the job, so we don't want to go there. But there's one thing in our favour, that is, if you're offered the CEO of Barclays, that is a really interesting thing to do. Lots to do here… you know… it's not as if you've got to go in as an easy job. This is a very tough job and it's only the best that can do that.

SS: You didn't feel left out of what's going on at Deutsche Bank, what's going on at Credit Suisse, and others, did you?

JM: No of course not, I mean…

SS: It needed reinvigorating though didn't it?

JM: Yeah, yeah, well it does now, and of course… you know… you just have to look at what I've done before.

SS: Tell me about your capital position as well, I know it was something that was addressed on the call this morning as well, but do you feel you have enough strength in capital that now is a good time, with a new man at the top, and with you taking over as executive chairman in the short term, is it time to raise capital to strengthen your capital position, with your price to book and other metrics not as good as some peers?

JM: No, well look, it will be very expensive for us to raise equity, and we don't think that's something that we want to do, and we think there's plenty of self-help around here. We're quite comfortable that we'll get to our capital ratios, but what we need to do is get there quickly, and then release some funds, either through dividends or through investments in the businesses.

SS: Was there any pressure from shareholders to change from Antony Jenkins at the top?

JM: There was some pressure from shareholders, it wasn't overwhelming, but some shareholders like the stability of it, but I've always wondered if we had the right person for the future.

SS: Is that because they've basically seen no gains for the last year and a half, possibly even slightly longer in the share price, after the initial uptick, first before Antony joined and then after his arrival?

JM: No, I think Antony, you've got to credit him with some success in getting the share price moving here… you know… because it went down after Bob left. But if you take a six year view, the stock price is exactly where it was, six years after the global financial crisis, our dividend yield is 2.7, you know, it's on the low end of things, the stock price has been flat over a long period of time. We need to re-energize that.

SS: Where are the biggest challenges? Is it coming from the regulators? What do you see the biggest challenge as for you going forward?

JM: That's been an issue, you know because we've had to ring fence the UK, we've got to have an intermediate holding company in the US, we've got to do all of that. That's been a big part of the agenda. That's not the major problem going forward, and we'll continue with that, we'll put that to bed. But the big part is getting the results on the table.

SS: And finally from me, what about the relationship with regulators in lieu of the mis-selling scandals, the problems with LIBOR, the problems with forex. How much of that do you think you've got over, how much of that is still to come?

JM: Well fortunately we've broken the back of a big chunk of it, my first board meeting we wrote off two and a half billion US, you know, I said, this is great and I trust that it gets better from here. And so yes, there may be some to come, but as long as it paces through the system in a measured way, we can deal with it.

SS: And finally Sir, you're gaining a bit of a reputation aren't you? First time I met you was when you got rid of Andrew Moss over at Aviva as well… you've got a bit of a reputation there, how do you feel about that?

JM: Well it's not me that did it, I mean there's the board; the board feels that this is the right thing, I agree with them, and therefore I'm happy to serve.