Following is the full transcript of CNBC's exclusive interview with John McFarlane, Chairman of Barclays. This interview broadcasted in Asia on Friday, 15 September at the 2017 Singapore Summit.
All references must be sourced to a "CNBC Interview".
Interviewed by Nancy Hungerford, Anchor/Correspondent, CNBC.
Nancy Hungerford (NH): Let me bring in my next guest, John McFarlane is chairman of Barclays. John, it's a pleasure speaking to you today and many of our investors in Asia are waking up to the news surrounding North Korea. Looking at the market response though, rather muted you might say, considering the expression we're getting from North Korea. Do you think there's a risk that investors, and perhaps business leaders, are being too complacent at this stage?
John McFarlane: You're absolutely correct that political uncertainty leads to economic uncertainty and these things are interdependent. The markets so far have taken the posturing in its stride. My sense is that be some noise in the markets in the short run but I think they…unless missed the substance of the threat increases, I think the markets will take it in its stride.
NH: And when it comes to seeking certainty, many are looking for the response from the political leadership. How do you think political leaders including U.S. President Donald Trump have handled the situation so far?
John McFarlane: Well, they've managed to contain it, in avoiding action. But of course, the sanctions, etc. are such a natural way to go about this - to try to put political pressure on, to try to get more realistic outcomes. You've seen South Korea talking about a nuclear-free zone in South Korea to try and encourage that in the North. Again, I think these forces will continue for some time. I don't think we're going to get any resolution of this.
NH: And when we talk about the role that U.S. President and his team are playing in this area, there's also discussion going on here in the Singapore Summit about what the U.S. leadership has meant for the region. When you meet with regional business leaders here, do you think there is a concern that the "America First" policy could translate to America alone?
John McFarlane: Yes, it's interesting. I mean, I've seen in various countries, I've seen business people go into politics. It's always very difficult for them in the early stages. I mean, I've run lots of enterprises but I've never run the country. And I think if they give me one, I'd find that really quite difficult. So those seasoned politicians know how to get things done. I think Donald Trump's economically rational and therefore, he's looking for the economic outcomes and therefore, trying to get more activity in the U.S.. It's sensible in that context. However, I don't think there's a real threat to globalization here. You know, economic activity will flow to where the competitive advantage is and where the costs are lower.
NH: And how would you rate his actions so far, when it comes to the economic reforms? Because of course, markets are really hoping for that tax reform prospect. What do you think?
John McFarlane: Yeah, I think that the issue he's got is firstly enacting the policy. I mean it's very easy to say what your plans are but then you've got to get it through the various houses and I think that's where he's been struggling. So he's obviously trying to see if he can get an alliance with the Democrats to see whether he can make progress on these policies.
NH: What do you make of the current market levels we've been seeing? Because some voices say there are many risks out on the horizon, yet we continue to get new highs - especially in the U.S.
John McFarlane: The world economy is nudging slightly below its long run average at the moment and the general consensus is that we'll continue a soft rally and global economy. But there's two parts to that. One is the traditional strong, developed markets are normally a bigger chunk of economic growth than they are today. Because you get you've got very soft numbers, you know. At best, you get a two in front of the economic growth numbers. And although India or China are still very strong, the emerging markets have yet to recover. And so I think there's quite a lot of economic uncertainty in world economic growth at the moment.
NH: And central banks of course have played a big role in trying to offset some of this uncertainty. A bit of a surprise coming from the Bank of England Governor Mark Carney, sounding more hawkish than many expected. Would a rate hike sooner than expected be welcome from your industry?
John McFarlane: Well, it would be welcome for our industry. I mean, banks don't like rising interest rates but they do like higher interest rates and so that's the issue. And the thing you have to remember is, we're still in the developed economies (not the U.S. so much) but Europe and the U.K. (are) still recovering from the global economic crisis. And in that respect, with interest rates being held artificially low and at some point in time, they need to rise. I mean U.S. interest rates are about a percent above U.K. rates, which is incredibly unusual. So we knew at some point in time, subject to economics (and) the growth rates coming, that rates have to rise. And the thing about central banks, is that they need to do that without the massive dislocation to the bond markets. And therefore, they need to ease into it earlier than you otherwise would so that you don't get that dislocation. And of course, that's what you're seeing here: is an expectation in the Bank of England that rates have to rise. Inflation is signaling that the growth is softer and you're still getting this debate inside the policy committee that says, "well, not now."
NH: And part of debate surrounds the Brexit risks, of course as well. Still a lot of uncertainty around this one. How do you rate the UK government's response so far, on Brexit?
John McFarlane: Well, politically they're not in full control of it. They have their own role here but the EU has decided that the process is "Let's agree the exit first and the terms of exit. And then we'll talk about the future relationship." Now from a business standpoint, that's back to front, you know. But if we're going to talk about investment which is how we exit the EU, you want to know what the benefits are at the same time, and that's the deal. And so this is causing the maximum amount of uncertainty, particularly for London as a financial center. Because we don't know what that relationship is going to be. We've essentially asked for two things. We've asked for sensible market access, recognising some things will have to move.
But nevertheless, activities are in London or the rest of the UK because it has had a comparative advantage over decades and centuries. And therefore, there's a rational economic argument that certain things should remain there, particularly wholesale markets, wholesale settlement activity, wholesale insurance, wholesale banking. You know, where the big dealing rooms are. Because those things are very difficult to replicate and can't be replicated over very short periods of time.
Now the issue for us, is that some of that stuff, we would rather it didn't move and we'd need a confirmation that it will move but we won't know until the second period of the negotiation. And therefore, we are all planning for the worst but hoping for better. We've asked for an implementation period because this is a very difficult area and two years is not all that long.
NH: Has the government reached out to you to secure your opinion?
John McFarlane: Of course. I mean, I'm also the head of the financial sector bodies in the U.K. And we've given good advice to government on what is sensible to move, what's sensible to retain and what of the foreign activities in London is sensible to retain and how that should be gone about. Now, the issue is is that they agree with that but they just got together negotiating.
NH: How many jobs ultimately are we talking about? Barclays having to move out of London?
John McFarlane: Oh, I'd say it's a hundred. It's not very many but we don't know. In that, the EU is about 10 percent of our total bank and therefore, if we were moving all of it, then we would have to move the balance sheet. However, if wholesale activities can remain in London, we don't have to move the balance sheet and therefore, we don't have to move too many people. And so the truth of the matter is, we don't know. But it's not a big number.
NH: Talking a bit more about Barclays specifically… CEO Jes Staley sounded very confident in the latest earnings report that the restructuring was done, the winding down of the non-core unit was complete and that now you can focus on returns. Do you have full confidence in Jes Staley to get this job done?
John McFarlane: The restructuring of Barclays is one of the most difficult jobs in the world. Remember, with our B.S. in 2007 and 2008 Barclays was the largest bank in the world by assets. And of course, that was way overdone. You know, we ballooned the balance sheet at that point then and we've had to restructure that. That restructuring has been very difficult. At this point, we've half the size of the organization. And that's largely been done in the period that Jes has been the CEO. And that's then involved getting rid of a very large non-core division, which cost us several billion pounds to move out. At the same time, we've still got some legacy items from the past that need to roll out. Within the face of structural reform, we've got to create a bank in the UK that doesn't exist and we've had to create one holding company in the US. We've got Brexit, we have to move activities from London [inaudible]. This is a very big job and he's tackled that incredibly well. Of course, the getting the runs on the board is a little bit more tricky and therefore, that's a medium term thing and we're focused on 19 and 18. We're not really focused this year at this point in time and I'm pretty confident we'll get there.
NH: So Jes Daley, does he have your full confidence to make Barclays the bank you want it to be?
John McFarlane: He does. He has this issue regarding whistleblowing that is under investigation. We need to get to the end of that but he's done a fantastic job stabilizing the organization, bringing it to core and giving the underpinning for the future. And that's exactly what a good CEO should do.
NH: On the whistle blowing situation, I know when Jes Staley was made CEO, you yourself talked about his enormous integrity. So when this situation took place, did you feel personally let down?
John McFarlane: He's made a mistake here. And the question is how serious is that mistake. You know, we do expect leaders not to make these kind of mistakes and of course, we were very surprised that it happened. But we had to we hit it hard. He's been subject to criticism by the board and we've dealt with that. And of course, his remunerations is going to suffer as a consequence. And so we've dealt with it pretty firmly but there's some uncertainty about the investigation. We need to get that over with. And so, yes we were surprised but that hasn't stopped him doing what he needs to do. He's very resilient and he's come back strongly.
NH: John, thank you very much for your time. We really appreciate you joining CNBC live here from the Singapore Summit.