Following are excerpts from a CNBC interview on Squawk Box Europe, with CEO of Barclays, Jes Staley.
Geoff Cutmore: Jes, How do you think the street should read these figures?
Jes Staley: We feel great about the second quarter. Our core business of the transatlantic consumer corporate and investment bank generated a return on tangible equity of 11 percent. That's one of the best returns I think of any bank in the world. So our core business did quite well. The second part of our strategy for this year is to accelerate the closure of non-core so that we go into 2017 and we will begin to have clean air to prosecute the strategy of Barclays which we feel very, very good about.
GC: What about the increase here in the credit impairment charge? As I look down these numbers there are there is a lot to be pleased about but obviously our job is to pick out some of the challenges -- credit impairment charges up 10 percent here. When is the credit situation going to start improving?
JS: I think the credit situation overall is actually quite stable. The credit impairment that you see there principally is focused on the energy sector in the US, which you know, obviously had a difficult go in the first part of this year. There were some changes to a couple of our models related to the credit card side, but overall credit is holding up quite well -- particularly consumer credit in the U.S. and consumer credit in the U.K. So we don't see any real credit issue, there was a slight uptick tied to oil and gas, but you know given the recovery in the oil prices we're pretty comfortable where we are.
GC: Market conditions as we know have been challenging. I read the line market income decreased 6 percent to 2.69 billion here. You've been in these markets for a very long time – is this the toughest you've seen?
JS: No, no, I think the toughest we saw was in the financial crisis of 2008 and 2009. You know, we need to remember right now -- one of the cornerstones of our strategy is to be large and diversified. To be diversified by client, be diversified by product, be diversified by geography and currency. One thing that can't be missed is right now the United States economy is actually doing quite well and is accelerating. For instance, if you take our investment bank 60 percent of our investment bank is dollar based out of the US, our credit card business: we have one of the fastest growing credit card businesses in the U.S. In the U.K., going into the BREXIT vote was actually doing quite well as well. So you know the markets are challenging, the capital markets are going through a fairly significant restructuring and banks are going through a significant restructuring using more capital, being more liquid which is all making the financial system much safer, does put a challenge in terms of profitability. But at 11 percent return on tangible equity we think Barclays is in a very good place right now.
Karen Tso: Jes I want to ask you about cost: the line coming through from Barclays today is that costs remain firmly under control but yet that doesn't gel with the underlying cost to income ratio which has risen to 61 percent from the first half, from 59 percent. Is this a one off, what's the direction from here?
JS: You know the main challenge we have in cost is in our non-core. So these are, as you sort of noted, this is our retail presence across Europe: Spain, Portugal, Italy, France. This is our wealth management business in Asia, this is our our businesses in Africa. There, to accelerate the closure, we've had to take expenses up front. So that's one of the reasons why we're giving today guidance as to non-core expense next year. This year the analysts have our non-core expense at roughly 1.6 billion pounds, what we're telling the street is next year that will be all the way down to somewhere between 400 and 500 million pounds i.e. we will reduce cost in non-core next year by over a billion pounds. That's the, you know, that's the effort that we're giving to accelerate non-core in 2016, to give us clean air in 2017. Costs in the core business- we set a target early in the year at twelve point eight billion pounds for the overall core cost numbers and we're going to hit that.
KT: Jes I'm curious about some of the turnaround endeavors which include selling non-core assets that you call them. In particular there's a statement today that you've gotten an exclusive discussion in place with AnaCap financial partners. This is a private equity firm around the retail banking assets, I believe in France. Can you give us a sense of the price tag here and just when this asset will be sold?
JS: Well we're still in negotiations with AnaCap. But in our financial statements we took a loss of about 300 million pounds related to that negotiation and so it's of that order.
GC: "Divi" cut, Jes, what's the thinking behind that? That will not play well with the crowd this morning.
JS: You know, our view is that retail banking which is a terrific business for us, Barclays U.K. generated a, a profit level of over 18 percent. But our view is that retail banking doesn't really do well crossing national borders. We've got a formidable retail bank in the U.K. We love the position we have here. I just think taking that consumer business or that retail bricks and mortar retail business outside of the U.K. to the continent of Europe etc etc really is not a business model that we want to pursue and therefore we've taken the actions that you guys have noted.
KT: Jes, let me just pick up a little bit more on the further sale of assets because you've mentioned the hit on the sale of this asset in France but what about South Africa because there's been a piecemeal sale of your stake in that country. Investors are saying, well would you be interested in selling to private equity, yet there seem to be regulated challenges by selling to private equity in that country so what is the playbook for getting rid of the rest of the assets in South Africa?
JS: In the second quarter we sold a 12 percent stake of Barclays Africa, it went very well, it was three and a half times oversubscribed, a lot of institutional interest in South Africa and in the US and in Europe. So a very good initial sale. We've given ourselves two to three years to sell down to a non-controlling position in South Africa. Given the expressions of interest that we've had both from the institutional market and from some strategic players we're very confident that within that time frame we will get down below 15 percent in our investment in Barclays Africa.
GC: Jes, can I ask you, we're very focused on the stress tests this morning as well and the outlook here for Monte dei Paschi- are you interested in participating in a Monte dei Paschi refunding exercise?
JS: You know we're very focused on getting Barclays in the strongest position that it can be and we feel good about the progress that we've made. Obviously the European banking sector is challenged. If you look at the top 12 banks across Europe, on average they're trading at about a 50 percent discount to book value. That's not healthy for the financial system, that's not healthy for the European economy. You know, the banks need to get into a better position of profitability. I think a lot of progress has been made around capital levels and liquidity. But we need a healthier banking system across Europe if we're going to get the economic growth that we're all looking for.
GC: Just to be clear, that's a no, you're not interested.
JS: You know we're focused on Barclays right now.