WHEN: Today, Monday, September 12th
WHERE: CNBC's "Squawk on the Street"
Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Barclays CEO Jes Staley and CNBC's Kayla Tausche on "Squawk on the Street" (M-F, 9AM-11AM ET) today, Monday, September 12th. Following is a link to the interview on CNBC.com: http://video.cnbc.com/gallery/?video=3000550366.
All references must be sourced to CNBC.
CARL QUINTANILLA: BUT FIRST, LET'S GET OVER TO OUR KAYLA TAUSCHE STANDING BY WITH A VERY SPECIAL GUEST. GOOD MORNING AGAIN, KAYLA.
KAYLA TAUSCHE: GOOD MORNING, CARL. WE ARE HERE IN MIDTOWN MANHATTAN WITH JES STALEY WHO IS THE CEO OF BARCLAYS. JES, THANK YOU FOR MAKING TIME TODAY.
JES STALEY: THANKS, KAYLA.
TAUSCHE: THE LAST TIME WE SPOKE TO YOU YOU WERE ANNOUNCING A MAJOR OVERHAUL OF THE COMPANY, SLASH THE DIVIDEND AND THEN BREXIT HAPPENED. HOW MANY OF THE DEALS THAT YOU HAD LAID OUT THEN ARE STILL HAPPENING, AND HOW CLOSE ARE THEY TO GETTING DONE?
STALEY: OBVIOUSLY THE BREXIT VOTE WAS QUITE A HIT TO THE MARKET FROM THE DAY THAT WE ANNOUNCED THAT NEW STRATEGY ON MARCH 1st TO THE NIGHT OF THE BREXIT VOTE BARCLAYS WAS THE NUMBER ONE PERFORMING BANK STOCK OF THE GLOBAL BANKS. THEN WE LOST A THIRD OF OUR MARKET CAP. BUT IN TERMS OF EXECUTING THE BANK STRATEGY, IT'S UNCHANGED. ALL THE BUSINESSES THAT WE HAD DECIDED TO SELL OR GET OUT OF, FROM OUR ITALIAN RETAIL BANKING SYSTEM TO OUR IBERIA CREDIT CARD TO THE ASIAN WEALTH MANAGEMENT BUSINESSES, NONE OF THOSE WILL BE IMPACTED BY BREXIT. IN FACT, WE ANNOUNCED TWO MAJOR CLOSURES TWO WEEKS AGO THE INDEX BUSINESS TO BLOOMBERG AND ITALIAN RETAIL BANK. SO WE'RE ALL ON TRACK. WE LOOK FORWARD TO CLOSING NON-CORE IN A VERY SHORT PERIOD OF TIME.
TAUSCHE: IN THE MEANTIME YOU'VE HAD TO HAVE MANY SOUL SEARCHING DISCUSSIONS WITH YOUR BOARD AND WITH REGULATORS ABOUT EXACTLY WHAT BREXIT DOES TO YOUR COMPANY'S FOOTPRINT AND HOW IT WILL ACTUALLY PROGRESS. WHAT HAVE BEEN THE CONCLUSIONS FROM THOSE CONVERSATIONS?
STALEY: BREXIT IS A REALITY. AND WE'RE GOING TO EMBRACE THAT REALITY. WE ACTUALLY HAD AN EXECUTIVE COMMITTEE SESSION ON THAT FOLLOWING SUNDAY FOR ABOUT FOUR AND A HALF HOURS THINKING ABOUT WHAT OUR RESPONSE WOULD BE AND HOW WE'LL MAP OURSELVES GOING FORWARD. I WOULD SAY, YOU KNOW, ON JULY 1st OF THIS YEAR WE HAD TO SET UP AN ENTIRELY NEW HOLDING COMPANY TO OPERATE IN THE UNITED STATES AS PER U.S. REGULATION. IT'S OWN BOARD OF DIRECTORS, JOE McGRATH IS THE CEO OF IT, IT'S OWN ORGANIZATIONAL CHART. THAT WAS A BIG HEAVY LIFT TO RUN OUR BANK WITH A NEW LEGAL STRUCTURE HERE IN THE U.S. IN THE UK WE ARE COMPLYING WITH THE RING FENCING RULES BY JANUARY 1st, 2019, WE'LL CREATE BARCLAYS UK, AN ENTIRELY STAND ALONE COMMERCIAL BANK FROM BARCLAYS INTERNATIONAL. ON ONE LEVEL WE'RE GETTING A LOT OF PRACTICE AT RESPONDING TO REGULATORY CHANGES, HOW WE SET OURSELVES UP AS A LEGAL AND ORGANIZATIONAL MATTER TO CONTINUE TO DO THE EXACT SAME BUSINESS TOMORROW THAT WE'RE DOING YESTERDAY. SO BREXIT WILL BE A LIFT, BUT I THINK NOT -- BUT NOT ANYWHERE NEAR AS SERIOUSLY AS WHAT WE'VE HAD TO DO IN THE U.S. AND WHAT WE'RE CURRENTLY DOING IN THE UNITED KINGDOM.
TAUSCHE: A LIFT ON THE REGULATORY SIDE, BUT WHAT ABOUT ON THE ECONOMIC SIDE? JUST TODAY WE SAW THE BRITISH CHAMBER OF COMMERCE DOWNGRADE THE GROWTH FORECAST FOR THE NEXT THREE YEARS FOR THE UK. THERE'S AN EXPECTATION THAT YOU'D START SEEING MORE LOAN LOSSES, CREDIT WOULD DETERIORATE, ARE YOU SEEING THAT?
STALEY: NO, WE'RE NOT. YOU KNOW, BREXIT WAS A POLITICAL SHOCK, WHICH HAD A VERY QUICK IMPACT ON CONSUMER CONFIDENCE. IN SOME CASE INDUSTRIAL CONFIDENCE. BUT GENERALLY AN ECONOMIC CONTRACTION OF SIZE HAPPENS BECAUSE THERE'S A CURTAILMENT IN THE SUPPLY OF CREDIT. CREDIT MARKETS ARE WIDE OPEN. THE BRITISH BANKING SYSTEM WENT INTO THE BREXIT VOTE VERY LIQUID, VERY STRONG. I THINK THE BANK OF ENGLAND UNDER GOVERNOR KEARNY HAS REACTED SWIFTLY AND CORRECTLY IN OUR JUDGMENT. AND WHAT WE'RE SEEING, YOU KNOW, 50% OF ALL THE PAYMENTS THROUGH CREDIT CARDS AND DEBIT CARDS GOES THROUGH BARCLAYS IN THE UNITED KINGDOM. WHAT WE SAW IN JULY WAS AN UPTICK YEAR OVER YEAR OF 2.6%. IN AUGUST WE SAW AN INCREASE OF 4.2%. SO, YOU KNOW, WE THINK CONSUMER CONFIDENCE MAY IN FACT RECOVER FAIRLY QUICKLY IN THE UNITED KINGDOM. THE ECONOMY WAS DOING WELL GOING INTO THE BREXIT –
TAUSCHE: BUT RECOVER TO WHAT LEVEL? BECAUSE JUNE TO JULY IT WAS THE BIGGEST CONTRACTION IN CONFIDENCE THERE IN A QUARTER OF A CENTURY.
STALEY: FOR THE CONSUMER CREDIT, AND OBVIOUSLY WE HAVE A LARGE MORTGAGE PORTFOLIO, WE HAVE A LARGE CREDIT CARD PORTFOLIO, WHAT'S VERY KEY FOR US IS UNEMPLOYMENT. THE UNEMPLOYMENT RATE GOING INTO THE BREXIT VOTE WAS ABOUT 4.9%. A LOT OF THE ANALYSTS NOW BELIEVE THAT WILL GO TO 5.5%. LET'S SEE. THE TRUTH IS WE ALL DON'T KNOW. WHAT I DO WANT TO SAY IS BARCLAYS IS WELL OPEN FOR BUSINESS. WE ARE EXTENDING MORTGAGES. WE'RE MAKING LOANS TO SMALL BUSINESSES. AND WHAT WE'RE SEEING RIGHT NOW IN THE CONSUMER BEHAVIOR IS SORT OF LESS PROBLEMATIC THAN WHAT THOSE NUMBERS MIGHT IMPLY.
TAUSCHE: YOU GAVE THE BANK OF ENGLAND HIGH MARKS JUST A MOMENT AGO. HOW WILL THIS CORPORATE BOND BUYING PROGRAM UNFOLD WHEN WE GET DETAILS THIS MONTH? AND HOW MUCH ELIGIBLE DEBT IS THERE ACTUALLY FOR THE BANK OF ENGLAND TO BUY?
STALEY: WELL, FOR US TO ME ONE OF THE VERY IMPORTANT STATEMENTS BY GOVERNOR CARNY, FIRST WE MOVE THE BASE RATE FROM 50 BASIS POINTS TO 25 BASIS POINTS, BUT HE'S VERY CLEAR HE DOES NOT WANT TO GO TO ZERO AND HE DOES NOT WANT TO GO INTO NEGATIVE TERRITORY. WE THINK THAT'S A VERY POSITIVE AND CORRECT STATEMENT BY THE BANK OF ENGLAND TO MAKE. AND THEN HE DID A COUPLE THINGS, ONE, THIS FUNDING FOR EXTENSION OF CREDIT TO CORPORATES IN THE UK, BUT ALSO CHANGING THE CALCULATION OF THE LEVERAGE RATIO EXCLUDING UK TREASURIES FROM OUR LEVERAGE RATIO. THESE ARE EFFORTS TO SUSTAIN THE PROFITABILITY OF THE UK BANKING SECTOR, WHICH I THINK IS A VERY SMART THING TO DO. IT'S NOT JUST ABOUT CAPITAL. IT'S ALSO ABOUT THE PROFITABILITY OF YOUR UNDERLYING BANKING SECTOR. SO I THINK THE BASE RATE MOVE WAS CORRECT. WE TRANSMITTED THAT BASE RATE MOVE TO OUR ENTIRE MORTGAGE PORTFOLIO THAT NIGHT AND WAS THE FIRST BRITISH BANK TO DO THAT. SO WE THINK THE POLICY IS GOOD. AND, AGAIN, I THINK THAT'S ONE OF THE REASONS WHY WE'RE REASONABLY CONSTRUCTIVE OF WHAT THE UK ECONOMY MAY DO FOR THE NEXT YEAR.
TAUSCHE: BUT YOU SERVICE SO MANY MULTINATIONAL COMPANIES, AND RIGHT NOW A THIRD OF EUROZONE CORPORATE DEBT IS TRADING WITH NEGATIVE YIELDS. THAT CAN'T HELP.
STALEY: NO. YOU KNOW, FOR OUR SIDE, WE ARE AN ORIGINATOR. WE DID THE FIRST EURO BOND POST THE BREXIT VOTE FOR THE GERMAN RAILROAD COMPANY. OUR VOLUMES ARE ACTUALLY REASONABLY HIGH AND DOING WELL. BUT NEGATIVE INTEREST RATES ARE NOT HELPFUL. AND I THINK ONE OF THE QUESTIONS WE ALL NEED TO ASK OURSELVES IS HAS ACCOMMODATIVE MONETARY POLICY GOING TOWARDS ZERO AND NEGATIVE INTEREST RATES – HAS THAT RUN ITS COURSE? IS IT HAVING THE BENEFIT THAT ONE WOULD EXPECT BY DROPPING INTEREST RATES? AND I THINK IT'S A FAIR QUESTION THAT ALL CENTRAL BANKERS AND BANKERS NEED TO BE ASKING THEMSELVES TODAY.
TAUSCHE: WELL, COMPANIES ARE CERTAINLY TAKING ADVANTAGE OF IT. JUST LAST WEEK WE SAW THE FIRST COMPANIES ACTUALLY SELL DEBT FOR THE FIRST TIME AT NEGATIVE INTEREST RATES. WHY WOULD YOU UNDERWRITE SOMETHING LIKE THAT? AND HOW DO YOU MARKET THAT TO INVESTORS KNOWING THAT THEY'LL GET LESS BACK THAN THE COMPANY'S BORROWING?
STALEY: SO, A COUPLE THINGS. ONE, THE MARKET IS LOOKING AT ASSET VALUATIONS, NOT SO MUCH YIELD IN THE BOND MARKET. THAT IS A COMPLETELY NEW PHENOMENA. SO OBVIOUSLY, THEY'RE BUYING THAT BOND WITH A NEGATIVE YIELD BECAUSE THEY THINK IT'S GOING TO APPRECIATE IN ITS ASSET VALUE. THAT'S A NEW WORLD FOR THE DEBT CAPITAL MARKETS TO THIS EXTREME. AND I THINK IT'S GOING TO BE INTERESTING TO SEE HOW IT UNWINDS. BUT I WOULD GO EVEN FURTHER THAN THAT. WHAT DOES IT MEAN THAT THE BANK OF JAPAN IS BUYING EQUITIES IN JAPANESE PUBLIC COMPANIES?
TAUSCHE: I PUT THAT TO YOU. WHAT DOES IT MEAN? FOR SOMEONE RUNNING A COMPANY LIKE BARCLAYS?
STALEY: WELL, ONE OF THE CHALLENGES – AND I THINK WE SEE IT IN THE MARKET'S REACTION IN THE LAST COUPLE DAY – IS IN THE U.S., WE HAVE A FEDERAL RESERVE THAT'S ON THE CUSP OF RAISING RATES AGAIN. VERSUS THE POLICY OUT OF THE ECB AND THE BANK OF JAPAN. AND ARE WE SEEING A DIVERGENCE OF MONETARY POLICY FROM THE MAJOR DEVELOPED MARKET CENTRAL BANKS? AND WHAT DOES THAT MEAN FOR MARKET VOLATILITY? I THINK EVERYONE NEEDS TO HAVE THEIR EYES WIDE OPEN AND RECOGNIZE THAT THERE'S A GOOD CHANCE WITH THIS DIVERSION IN CENTRAL BANK POLICY, IT WILL INCREASE MARKET'S VOLATILITY. AND ULTIMATELY, WE WILL HAVE TO COME OUT OF THE NEGATIVE AND ZERO INTEREST RATE ENVIRONMENT. AND HOW WE ALL DEAL WITH THAT IS SOMETHING THAT WE THINK A LOT ABOUT. BUT WE THINK THE MARKET NEEDS TO GIVE A LOT OF CONSIDERATION AS WELL.
TAUSCHE: THIS MORNING ON "SQUAWK BOX," DONALD TRUMP SAID WHEN INTEREST RATES ARE EVENTUALLY RISEN, THE STOCK MARKET WILL PLUMMET. IS HE RIGHT?
STALEY: YOU KNOW, I THINK THE FED HAS SHOWN THE RIGHT LEVEL OF CAUTION. THEY ARE DATA DEPENDENT. I THINK WHAT THEY SEE IN THE LABOR MARKETS AND WHAT THEY SEE IN THE UNDERLYING ECONOMY, THAT'S WHAT'S DRIVING THIS MOVE UP IN INTEREST RATES. SO, AND THE STOCK MARKET SHOULD RESPOND TO UNDERLYING ECONOMIC ACTIVITY. SO, IF THERE IS A CORRELATION BETWEEN WHERE INTEREST RATES GO, ECONOMIC GROWTH, THE LABOR MARKET, THAT SHOULD TRANSLATE ALSO INTO PRETTY GOOD ENVIRONMENT FOR CORPORATIONS. SO, I'M NOT QUITE SURE I'D MAKE THAT CONNECTION THAT RISING INTEREST RATES WILL HURT THE EQUITY MARKETS. I THINK ACTUALLY IT COULD BE JUST THE OPPOSITE.
TAUSCHE: SO ELABORATE ON THAT. BECAUSE YOU SAID THAT YOU EXPECT VOLATILITY, BUT YOU DON'T THINK THAT THE MARKET WOULD IMMEDIATELY FALL IF AND WHEN INTEREST RATES GO UP. SO WHERE WILL THE DISLOCATION HAPPEN?
STALEY: THE UNCERTAINTY. THE UNCERTAINTY OF THE CURRENT MONETARY POLICY THAT WE HAVE IN TERMS OF HOW NOVEL IT IS. I MEAN, THIS IS A MASSIVE EXPERIMENT ON A GLOBAL SCALE. AND SO THERE WILL BE UNCERTAINTY AS THAT POLICY GETS SHIFTED AND AS YOU HAVE THIS SORT OF SEPARATION FROM WHAT THE U.S. IS DOING VERSUS WHAT YOU'RE SEEING IN OTHER MAJOR CENTRAL BANKS. SO THAT I DO BELIEVE. WHAT I DON'T NECESSARILY BELIEVE IS THAT YOU'LL SEE RISING INTEREST RATES WITH A DECLINING ECONOMY. AND I THINK IT WILL BE PRETTY HARD TO HAVE A SIGNIFICANT DECLINE IN THE VALUATIONS OF U.S. CORPORATIONS IF THE ECONOMY ACTUALLY IS DOING REASONABLY WELL. AND IT IS THE HEALTH OF THE ECONOMY THAT WILL GIVE THE LATITUDE TO THE FED TO RAISE RATES. SO, I THINK WE'LL HAVE VOLATILITY, BUT I'M NOT THAT CONCERNED ABOUT THE ULTIMATE DIRECTION WHERE THE U.S. EQUITY MARKET'S GOING.
TAUSCHE: ON THE U.S. AND THE GLOBAL ECONOMY, BREXIT IS SEEN AS A RECLUSIVE DECISION. THE RHETORIC HERE IN THE U.S. HAS BEEN AGAINST THE FREE FLOW OF CAPITAL AND GOODS. THERE'S A LOT OF ANTI-TRADE RHETORIC THAT'S HAPPENING RIGHT NOW. WHAT HAPPENS TO THE BANKING BUSINESS? WHAT HAPPENS TO THE OUTLOOK FOR GLOBAL TRADE IF THIS RHETORIC ACTUALLY TAKES HOLD AND CONTINUES IN THE LONG RUN?
STALEY: YOU KNOW, I THOUGHT THERE WAS A GREAT OP-ED PIECE BY HENRY KISSINGER THAT TALKED ABOUT THE IMPORTANCE OF HAVING A VISION FOR THE FUTURE WHICH EMBRACES GLOBALIZATION AS A PATHWAY TO GEOPOLITICAL STABILITY THAT EVERYONE IS WILLING TO SACRIFICE FOR. AND THE BREXIT VOTE, I THINK, PULLED BACK FROM THAT VISION, WHICH IS A BIG CHALLENGE FOR ALL OF US. BUT ONE THING THAT I TAKE ENCOURAGEMENT FROM IS THE G20, WHICH MET A WEEKEND AGO, WHEN THEY FIRST MET POST THE FINANCIAL CRISIS, THEY SAID TWO THINGS. THEY SAID, ONE, WE NEED TO COMPLETELY CHANGE THE REGULATORY ENVIRONMENT FOR THE LARGEST BANKS AROUND THE WORLD, WHICH THEY'VE DONE. BUT SECONDLY, THEY MADE A COMMITMENT TO DO THAT RE-REGULATION WITH A COMMITMENT NOT TO PUT UP PROTECTIONIST BARRIERS FOR THE FREE FLOW OF CAPITAL. I'VE TALKED WITH A NUMBER OF PEOPLE IN EUROPE POST THE BREXIT VOTE. I THINK EVERYBODY WANTS CAPITAL TO BE ABLE TO FLOW, TO BE EFFICIENTLY DEPLOYED, TO GENERATE ECONOMIC GROWTH. SO, PUTTING UP BARRIERS – I DON'T, AT THE END OF THE DAY, IT'S NOT BENEFICIAL FOR ANYBODY. SO, I THINK THERE WILL BE MODERATION ON THE DIALOGUE AROUND BREXIT AND ITS IMPLICATIONS. BUT I THINK REGULATORS ARE COMMITTED TO THE FREE FLOW OF CAPITAL AND WILL STAY THAT WAY.
TAUSCHE: INTERESTINGLY, AND FINALLY OVER THE WEEKEND, THE INTERNATIONAL TRADE SECRETARY FOR THE UK, LIAM FOX, SAID THAT BRITISH BUSINESS OWNERS DON'T CARE ABOUT EXPORTING ANYMORE. THEY'VE BECOME TOO LAZY AND TOO FAT, TO USE HIS TERM, AND ALL THEY WANT TO DO IS GOLF. HOW WOULD YOU RESPOND?
STALEY: I THINK THE UK HAS GOT GREAT COMPANIES, GREAT ENTREPRENEURS, GREAT INDUSTRIALISTS, SOME GOOD BANKS AND I THINK WE'LL DO OUR PART TO KEEP THE UNITED KINGDOM GROWING.
TAUSCHE: WELL, WE APPRECIATE YOUR TIME, JES, AS ALWAYS. THANK YOU SO MUCH FOR JOINING US.
STALEY: THANKS.
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