CNBC News Releases

Interview with Jes Staley, CEO of Barclays, from the World Economic Forum 2017

Following are excerpts from a CNBC interview with Jes Staley, CEO of Barclays from the World Economic Forum 2017 with Geoff Cutmore and Steve Sedgwick

SS: So, as Geoff's exclusive interview with John Cryan, a lot of similar issues throughout Europe, of course. Mr. Cryan is facing issues over capital, issues over profitability, and as we saw there, how to deal with US regulators. One European bank that is yet to reach a settlement with the DoJ over the sale of toxic mortgage backed securities ahead of the financial crisis is Barclays. The bank says the US authorities' claims are quote 'disconnected from the facts'. I'm delighted to welcome on set here Jes Staley, who is the CEO of Barclays. Jes, really good to see you, thank you very much indeed.

JS: It's great to be here.

SS: Well, look, let's take on that topic straight away, as well. Other banks, Credit Suisse, John Cryan there we saw, with Deutstche Bank, they've just seen it's an easier life to just get on with it, put that behind them, but you're fighting the DoJ. Just tell us where you stand on this one, and why you just don't want it to go away quickly by just saying, 'Yes, we'll take the fine.'

JS: You know, we believe that the banks need to atone for the mistakes and transgressions made going into the financial crisis, and Barclays is prepared to pay that price, but in our view, the price has to be fair, and we all have seen the settlements that the US banks reached with the Department of Justice, and I think the line for us was we want to be treated fairly and consistently with the other banks, and we just couldn't get there with the Department of Justice.

SS: Is there a feeling though, from shareholders, again, you can't move on with the rest of the business, you can't concentrate fully on the massive transformation that you're enacting over at Barclays while this is still hanging over you. You're looking backwards at the same time as you're looking forward, Jes.

JS: Well, I think, you know, Barclays is almost done with the restructuring of the bank. In 2017 we will finish that restructuring. We are definitely looking forward, we think we had a productive 2016, and we'll deal with the Department of Justice and this issue over time, and we'll be fine.

SS: The regulators, have they gone over the line, then? The DoJ, we can look at other regulators.

Have they just pushed this too far, trying to make the banks pay for past indiscretions?

JS: You know, what level is fair or not fair, I think, is for others to decide. Except for being treated fairly with the other banks. And the settlements that they reached with the US banks are very clear, and transparent to everybody, and if we can get a settlement which is aligned with how the US banks were treated, Barclays is here to talk.

GC : Well, you understand price. What is the right price? I mean, what is the right number for you to pay?

JS: There are a lot of conditions that go around a settlement with the Department of Justice, it's not actually just about price, but let's see how that plays out over the next coming years.

GC: But it will be for the shareholders, who want to know what the impact will be on earnings going forward, and capital levels.

JS: You know, the irony of this thing is I think the shareholders have done a lot of work understanding the settlements that the US banks negotiated with the Department of Justice, and they have imputed that settlements into Barclays, and our stock is doing quite well, thank you, so-,

GC: Jes, one of things that came out of the interview with John Cryan was the uncertainty he feels about the regulatory outlook, obviously with Basel 4 still in negotiation, and of course the prospect that there could be further litigation down the road. Do you feel that same level of uncertainty, or are you a little bolder and a little more confident over at Barclays?

JS: We take comfort in the comments of the Governor of the Bank of England, you know, Governor Carney has been very clear, you know, 'There's not a Basel 4,' the banks are sufficiently capitalized, we passed the Bank of England stress test. We think the adjustment to bank balance sheets, to Barclays' balance sheet, is very much close to where it needs to be, to meet all the financial requirements that we have, so we're looking forward to Barclays running in a more normal environment, and delivering to our customers and our clients the services and products that they expect from us.

SS: You mention you're a long way down the road on the transformation of Barclays. Tell us, first of all, before I ask my next question, what you think you've got to do still, to get you where you need to be.

JS: Well, interestingly, in our non-core business, which is our-, are the assets and the businesses that we wanted to sell and dispose of, we have now signed a sale agreement with every asset and entity inside non-core. So it's a matter of quarters and months, it's not a matter of years. So as we said last year, we will close non-core and just be a normal operating bank during 2017, and we are on track to do that.

SS: Which leads me to the question of what extra transformation will you need if you get a bad Brexit, we get a hard Brexit. Mrs. May has gone pretty much for a hardline in negotiations at the moment. Whether that transpires as a problem for financial services or not remains to be seen. How much could that scupper your transformation?

JS: You know, Barclays, in adjusting to the regulatory response, has done a number of things. We are creating an entirely new ring-fenced bank in the United Kingdom to house our retail bank, to separate retail deposits from our corporate investment banking activities. The United States government has asked us to create an entirely new bank holding company in the US to conduct our US business, with its own capital requirements, its own stress test, so we have done that. We're going to have to make an adjustment to the Brexit move, but it's going to be an adjustment that will be manageable for Barclays, and will not threaten, I think, the center of London-, or London as a centre of finance for Europe, and will not threaten the activities of Barclays in London. And remember, we are a British bank, we are committed to the United Kingdom, so we'll be fine.

GC: Jes, all of these additional structural decisions you have to make come with a cost. What's the impact going to be on bonuses this year?

JS: You know, we pay compensation relative to performance. We had a pretty good year, you know. Look, we announce our year end in about a month, but for the first three quarters of 2016, we did well. Our core business generated a return on tangible equity north of 10%, which is our target. Our investment bank was gaining market share, I think the people in our investment bank did well with our clients. So we felt very good about how 2016 rolled out, we'll see how the fourth quarter closes, but we'll pay commensurate with the performance of our people.

SS: Yes, IB was up 29%, I think, in the third quarter, as well, so great performance there. Is anything happening on the regulatory front in the US that's been promised that's going to get you reinvigorating the prop desks, and get you trading for yourselves as a counterparty to your clients, as well? Because that's what a lot of people seem to be aiming for.

JS: I think the Volcker Rule is very clear, they want to move Wall Street from managing proprietary and trading desks to being agents and broker dealers for the broader capital markets. Barclays has gotten there very quickly, we are not in the proprietary trading business in our investment bank, we like the broker dealer model, we like the consistency of our revenues, we like the revenues versus risk that we have, which I think is where the regulators want us to be. You know, I think Dodd-Frank is going to stay, I think Volcker is going to stay, and I think the banks need to operate on this-,

SS: Do you think your peers in the US feel the same as you? Because I get the feeling they want that extra avenue to be able to legitimately trade for their own entities again.

JS: You know, I won't speak for what the other banks are saying. Let's see how this new administration-, you know, I think the bigger impact will be on monetary policy, in terms of where interest rates will go, and I think that is what you're seeing in the performance of bank stocks, but I don't think anyone wants to go back to the regulatory environment we had pre-crisis. That would not be a good thing.

GC: The kicker to US bank earnings has been terrific, from the expectation that NIMs are going to improve from here. It's a different story for the European banks at the moment, but do you think 2017 brings strong trading revenue? What kind of year do you think we're going to have?

JS: Well as you mentioned, I think Barclays, if you look at our trading revenues, as an agent for our capital markets clients, did very well in 2016. We picked up market share, volumes were up, I think we managed risk very well, but one of the things-, you know, an advantage of being a British bank right now is I think you'll see rising interest rates in the United States, that improves the net interest margin, but in the UK, as Governor Carney mentioned the other day, there's a very good chance, given inflationary pressures and given what's going on in the UK government, you will see interest rates rise. We've all talked about how banks, you know, just three months ago we were talking about how banks are suffering because we may be at zero bound interest rates. Now we may be, you know, 200 basis points, you know, it's quite a change.

GC: That sounds-, that's a little rose tinted spectacles, I listened to Mr. Carney and to me it sounded like they could go up or they could go down from here, even though inflation, obviously, clearly is picking up, but it seems the Bank of England is willing to run the economy a little hotter, to get confirmation that growth is really there.

JS: I think you saw Janet Yellen speak the other day, if I had to guess which way it'll break, I think you'll see interest rates in the developed markets, particularly the US and the UK, move up as opposed to move down.

SS: Jes, just the strength of the UK itself, as well, it's been amazing, and the economists have got it wrong in a big way. I don't know if you know who Michael Fish was, but I think Andy Haldane said, 'Yes, we had our Michael Fish moment,' i.e. we got it very, very wrong, as well. In terms of the strength of the UK and the UK retail business, how do you feel of the place that you're in at the moment, and how do you think your customers feel?

JS: So as I said shortly after the Brexit vote, a political crisis doesn't necessarily translate quickly into an economic crisis. What we have been seeing is that consumer spending has held up very strongly post the Brexit vote. The use of consumer credit has gone up. One of the things that did work, and you need to give the Bank of England credit for this, is they rolled back the countercyclical buffer, they made a couple of changes to our leverage ratios so we could keep the channels of credit open to the UK consumer, whether it was a mortgage, or whether it was borrowing off a credit card, and we did that. There is a sign, however, which is somewhat concerning, which is you are seeing consumer credit grow, consumer spending grow, but consumer confidence is beg inning to weaken, and if you have consumer confidence weakening while consumer spending and credit is growing, that could portend a concern that I think the Governor is thinking about.

GC : And just-, I can't get the issue of bonuses out of my head here. I know you won't give us a number, but what was-, again, talking to John Cryan, clearly they are desperate to retain top talent, but they do have a bonus problem. Are you interested in going fishing for top talent at Deutsche, or elsewhere, where other banks in Europe are unable to pay a high level of compensation?

JS: You know, I-, no. I think that's no. I don't think using money as an instrument to attract talent is a very good-, you clearly will not get the culture that you want. We need to generate a fair return for our shareholders, and we need to compensate our people for performance. You know, if we go back to the days of using money to attract talent, I think that's very bad for the culture of the company.

GC : Yes, I hate money. I really hate money, don't you?

SS: Is that why you became a journalist? It's certainly why I left banking, anyway.

GC: I know what you mean.

SS: Jes Staley, thank you very much indeed, for joining us, a real pleasure, and that was a great interview covering a lot of subjects. Jes Staley, CEO of Barclays.