Following are excerpts from a CNBC interview with Jes Staley, Barclays CEO and CNBC's Steve Sedgwick and Geoff Cutmore from the World Economic Forum 2018.
GC: Well, let's see if we can round out that conversation about the changes in US tax law. Jes Staley has joined us, Jes, of course, is the CEO of Barclays. Good morning, Jes. Welcome.
JS: Good morning, Geoff.
GC: So, let's just get you to throw your tuppence in on this. Are we heading in the right direction, now, on tax policy?
JS: You know, I think the tax policy means a lot of things for a lot of different people, but on one level, it has clearly changed, or will change the dialogue, around how countries are coordinating globally, both in terms of how to deal with business, as a function of regulation and tax. You know, Barclays, about 45% of our business is in the United States, as a transatlantic bank, and right now, 45% of our business is in one of the lowest tax jurisdictions in the world. What does that mean for Europe? What does that mean for the UK? You know, rather than the G20 steering towards equivalency around the world, the USS [sic] the USA has clearly embarked on a strategy to be very business friendly, as a regulatory matter, and now as a tax matter, and the question is, how will the rest of the world respond to what the US is doing? But for Barclays, it's a very big deal.
GC: Do you think the response, so far, from continental Europe, has been inadequate?
JS: I-, you know, it's going to be a very interesting dynamic. You know, in many ways, we went in to a-, or we walked in to a financial crisis because of the lack of regulation, and there was an appropriate regulatory response, globally, and the G20, sort of, held the regulatory regime, equivalent around the world, as it was reregulated. So, this is a dramatic break from-, from what we've done since the financial crisis, and how regulators deal with, you know, stability and security, versus competitiveness, is a big deal. You know, government fiscal policy, you know, how aggressive do you want to be? And do you have to take in to account now that the-, you know, the largest economy in the world has just embarked on having some of the lowest corporate taxations in the world?
SS: So, huge responsibility on the US, well, perhaps on that front, as well, but on the UK, as well, look, Jes, I'm going to say it how it is. I've spoken to one or two big, big CEOs, like yourself, in the UK, who are appalled by the performance of the British government, appalled at them not looking after key British industries, including the city and the financial sector. Mark Wilson, and you, and others, were at a meeting with the Prime Minister quite recently. Mark told us he was actually quite encouraged by the government finally getting it, and he almost implicitly said, it's only now that they're finally getting the importance of the financial sector. Are you as encouraged, or not?
JS: I would take a very different take than some of the people talking to you, Steve. I-, you know, the level of engagement we've had with the British government since the Brexit vote has been very high-,
JS: I've met, a number of times, with the Prime Minister, and with-, and with the Chancellor. This is obviously a very complicated issue, it's going to take a long time to get negotiated. I believe Barclays, in our view, has been heard by the British government. There are a lot of encouraging signs we've gotten from the Bank of England. A long way to go, but no, I don't believe the British government has been blind to the importance of London, and to the importance of a bank like Barclays.
SS: You're quoted saying that there is such burdensome regulation, perhaps, that needs to be sorted out in the United Kingdom. Where exactly do you mean? Because, previously, you've spoken to us about not unrolling a lot of the regulation stateside, we talked about Dodd-Frank and everything. So, where, in the UK, do you not like the regulation?
JS: Yeah, no, you know, what I was saying before is-, is, I think that the United Kingdom should negotiate a regulatory regime which is roughly equivalent to Europe, to keep us having access to that single market. But now that the United States has basically said, 'We're going to take a different regulatory tack,' maintaining the regulatory flexibility in the United Kingdom, to keep London competitive with New York, is another dimension to this debate. And so it's complicated, I think, the Brexit negotiations, but our dialogue with the Bank of England, with the regulators, with Her Majesty's Treasury, has been very constructive, and-, and we think there's a keen interest by the British government to keep London competitive, and to keep Barclays competitive.
GC: Apparently, there is a Treasury position paper on how they see the financial services sector unfolding. As yet, we, the public, haven't seen it. Have you seen it?
JS: No. But, you know-,
GC: Wouldn't that be helpful, if you saw it? Given that you're a major employer in the UK, and one of the biggest banks?
JS: Well, I'm not a politician, so how the political bodies negotiate this between-, you know, between Europe and the UK, is something I'll leave to people far more experienced in that. What I think is important is that we are listened to, and that we have a voice in the discussions with the Chancellor, and with the Prime Minister, and we have that. So-, so, let's see what happens over the next year.
GC: Let's move you on here. We feel nothing but unbounded enthusiasm about the direction of markets and economies here at this World Economic Forum, and very few voices that are actually saying, 'Hang on a second.' You know, 'When it's this good, you need to be worried about the other side of the story.' How do you feel about where we are on market levels, and the melt up we've experienced?
JS: So, I said the other day, you know, this feels a little bit like 2006. I mean, there are lots of reasons to be very optimistic. Global economic growth, sort of, across-, across the board, is doing great, at roughly 4%. Unemployment rates, in the UK, and in the US, are at almost record lows. All that feels great. Balance it with the monetary policy right now, which has been incredibly accommodating, in order to try to take the economy out of the financial crisis, we're at real interest rates today which would argue that we're almost still in a recession. So, the balance between where global economic growth is, where monetary policy is right now, there is a-, you know, that has to be rebalanced. And, all of a sudden, with the largest economy, we've put an incredibly simulative fiscal package on the table. So, that's got to be built in to everybody's equation. What gave me a little bit of cause for concern the other day is, asset values, such the stock market, are-, are at all-time highs. Every major industry around the world last year grew by more than 20%, volatility is at an historic low. And-, and almost even more concerning than that, a lot of what is driving that low in volatility is people are selling short volatility. So, if you've got a lot of short positions, at an all-time low level, and something snaps, the velocity of recovery could be-, could be quite something to watch. Given the level of debt levels across the world, you know, the emerging markets, its dollar debt has grown dramatically since the financial market. If interest rates were to move quickly, if volatility was to move quickly, it could be an-, interesting financial markets for the next couple of years.
SS: But that's amazing, because, being a former options trader, myself, it depends where that volatility is. If it's on the upside, that's fine, it will just disappear. If it's on the downside, it's going to exacerbate the long position, and maybe create a snowball. But, add to that the fact that you're, I think, pretty much saying Mark Carney needs to be, maybe, slightly more aggressive, maybe the Bank of England needs to be more aggressive, given the fact we're not in recession-like circumstances, you've got enormous tension here, haven't we?
JS: Yes. I think it's a fascinating issue that-,
SS: So Carney needs to move more aggressively?
JS: I'm not saying that, but I'm saying, I think that the central banks are going to be in a particularly challenging position over the next year or so, if the economies continue to accelerate as much as they are, and-, and let alone, if we start seeing real inflation, like the inflation rate recently in the United Kingdom, pass 3%, if that starts to-, to have legs to it, and we see inflation here, and wage pressure, in-, in-, in the US, given economic growth, monetary policy, if inflation starts to move, it's going to be a challenge for the central banks.
SS: But just one more on that, though, I mean, if the central banks do move more aggressively on rates-, is this a plea for greater NIMs from you, though? You-, because your NIMs are okay anyway, if I remember correctly. I mean, they're still pretty-,
JS: Absolutely. 360 Basel points.
SS: Exactly. And I remember a 345 figure a while back now, 360, as well. There's nothing wrong with your NIMs, despite the low rates.
JS: No, I mean, to me, what this underscores, which has been the strategy we laid out for Barclays, since March of 2016, is we want to be diversified. We're a transcontinental bank, we have a wholesale business, which we like a lot. We have a consumer business which we like a lot. We don't want to be overly concentrated in unsecured credit in the UK. We don't want to be overly concentrated in the markets business in investment banking. So, we have a good balance, because if we are-, are going to go in to a period of greater volatility and less financial certainty, you want to have a diversified business model to go in to that.
GC: Is there any evidence that we're going to see a pickup in some of the-, the trading activity this year? I mean, we've watched the US banks report, and the European banks begin reporting, and it's quite obvious that this is having an impact on the investment banking business, and the markets business.
JS: I-, I think that we will, yes. We're not betting on it, but I think the low levels of volatility, as I've said before, are just not sustainable, and as those volatilities change, and-, and-, and the large capital markets have to begin to rebalance their portfolios, that'll be very-, very constructive for our-, for our-, our business model. But, as you've said, right now, our net interest margins are great, we very much like our-, our underwriting standards, in terms of our credit extension to the UK consumer, and to the US consumer. Our impairment numbers are very encouraging. So, it is, sort of, all calm right now, on the front, but I just want to make sure the bank is prepared and diversified to take whatever comes our way.
SS: So, this isn't great TV for the viewers, but I can show you your-, your shares over the last 12 months. The viewers are going to get that, as well, I'm sure. Why is Barclays there, when the market is there? I.e. you talked about 20% plus on it-, what is the missing ingredient in your share price at the moment? I mean, Tiger like it, for a start-,
JS: Uh, and we very much appreciate Chase's vote of confidence in Barclays, and also, I think he's done quite well. You know, we completed, last year, a massive restructuring. We reduced the headcount of Barclays, over the last two years, by 60,000 people. If you view the complexity of a bank as-, as its individuals, we reduced the complexity of Barclays by 40% in under two years. So, we closed non-core, in doing that, we reduced the balance sheet by over a third. We have absorbed the costs, and taken the hit, so that, at the end of 2017, we had the highest level of absolute capital in the history of this bank. We have the highest amount of capital relative to risks in the modern history of-, of Barclays. What we have disappointed on is profitability-,
JS: But now that we've got the capital issue behind ourselves, we can focus on generating excess capital, and returning those excesses to our-, to our shareholders. We're going to talk about our dividend policy at the yearend results. We've got to generate excess capital, return it to our shareholders, and improve profitability, and that'll get the stock to where it needs to be.
GC: I mean, part of your strategy seems to be, very much, to focus on the-, the UK as a consumer banking operation here, but we, as you pointed out, have consumers who have taken on a lot of credit since the financial crisis. Plus, we're not quite sure whether we're getting inflation, or we're not getting inflation, the latest print suggests maybe-,
GC: That a stronger pound is starting to abate some of the inflationary influences. But, do you think that the UK can actually outperform expectations this year? Because there are a lot of people with red pens who are writing down growth forecasts.
JS: We certainly hope so. We are keeping our eye on the unsecured consumer credit market in the UK. We're one of the largest participants. We have tightened our underwriting standards over the last year, so we're one of the largest participants. We have tightened our underwriting standards over the last year, so we've been anticipating this. Our current impairment numbers are-, you know, show no real sign of-, of stress. Small businesses seem quite healthy, corporate lending seems to be quite good. You know, I think the Bank of England has done quite a good job of navigating, thus far, post-Brexit, but there is a new competitive environment out there, and we've got Brexit coming up, so, the UK has got challenges, it's gone from the fastest growing G7 economy to the slowest growing, but we believe in the UK, and believe in the ultimate prospects of Great Britain.
GC: Jes, it's been a pleasure, thanks so much for coming and joining us. Jes Staley-,
JS: Thanks, Geoff.
GC: The CEO of Barclays.