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Below is the transcript of a CNBC Exclusive interview with Gerry Grimstone, Chairman, Barclays Bank PLC. The interview was first broadcast on CNBC's Squawk Box Asia on 9 October 2018.
All references must be sourced to a "CNBC Interview'.
Interviewed by CNBC's Nancy Hungerford
Nancy Hungerford (Nancy): I'm pleased to say I'm now joined by Barclays Bank PLC chairman that is Sir Gerry Grimstone. Thank you for taking the time to speak to CNBC. I know you spend quite a bit of time doing business in China, a lot of concerns out there. Let's start first with the tensions between the U.S. and China, the two big economic superpowers here. There doesn't seem yet to be a break in the dialogue, how concerned are you?
Gerry Grimstone(Gerry): Well, the tensions are real tensions. We should remember that China-U.S. trade accounts for 40 percent of all global trade. That's a big picture. But I think you're seeing something very long term playing out. China is focused on 2049. That seems a long way away but they're the one country in the world which plans for those sorts of horizons. And by 2049, the hundredth anniversary of the founding of the Chinese state, they're hoping to regain their position as the world's top nation. China sees the last 200 years as an aberration. They want to get back there and that means a bit of jostling with the U.S.
Nancy: So this isn't something we can expect a new NAFTA type solution, they're just going to agree to a new deal and move on. You're saying this is the long game here. So as a business leader how do you prepare for that long term horizon?
Gerry: Well, being British is probably a help in relation to that. You need long term plans in China. I try to go there once a month. I think it's a complex country. It's like one of those children video games, there is always one level beyond the level of your own. So getting to understand it is a job of work but it's a very rewarding place to do business if you understand it.
Nancy: You suggested that being British may be an advantage in this environment. Do you think that U.S. companies, U.S. banks that are Barclays competitors will find themselves at a disadvantage here? Are we going to be looking at reduced market access, for instance, as one of the tools that China employs?
Gerry: I hate to say so but I think it's right. I was speaking at a forum earlier this year and they put the Goldman Sachs chairman in a hotel as far as possible away from the conference location. So in different ways like that China makes their displeasure known.
Nancy: And this is a time where asset managers globally are trying to expand in the country. Do you think that they too are going to find themselves facing some trouble?
Gerry: I think just a margin; I think it is going to be very subtle. China is a subtle nation but Chinese portfolios are massively undiversified internationally. It is the big asset management prize in the world going forward.
Nancy: And since you have been doing business there for quite some time, what is your view to the way in which China has opened up? Some I speak to say, in some ways, President Trump was right to push them, to force the situation when it comes to more market access, comes to changing the way they do business.
Gerry: I think every company looks at this differently. My other company, Standard Life Aberdeen, we have branches in over 80 cities throughout China. Frankly we've expanded wherever we've wanted to, whenever we've wanted to. So there's company differences. But of course, China looks after themselves as many other countries do.
Nancy: Let's talk a little bit more about the geopolitical tensions in your home market back in the U.K., Brexit being the big one that has kept investors on their toes. It does seem as though we're getting closer to a deal on this front. What is your view here? Is it time to celebrate? Or are you still remaining cautious, given that the threat of a no deal is still hanging out there.
Gerry: I'm afraid the best way to describe it is a mess. This is a very complex matter. The British are trying to solve a very difficult equation. How can you both be inside the customs union and outside the customs union simultaneously? That isn't an easy thing to achieve. There could be a breakthrough in the next 10 days or there easily could not be a breakthrough. I'm afraid it's one of those situations which almost changes day by day which is not satisfactory for something which is as complicated as that.
Nancy: It's quite complicated and how do you think the government has handled the situation? I know you've spoken to Prime Minister Theresa May herself, other members of the government, what is your assessment?
Gerry: I think they're doing as good a job as they can in a difficult situation. They weren't well prepared. But I think also more importantly the British public weren't well prepared. The arguments that are on the table now never really featured in the referendum. Nobody really thought about the customs union, the Northern Irish border. So we've lurched into something which is massively complicated, rewriting 40 years of law and there's a lot to do before it happens.
Nancy: Do you think Boris Johnson stands a chance as the leader of the conservative party? A good chance I should say.
Gerry: Well I know him well I mean with some people I mean he's very popular. He's a great character, very charismatic individual. But I think people are going to look very hard at him before they say he's got quite the fibre to be the prime minister.
Nancy: And part of the concern you might say is what a contest between him and Jeremy Corbyn will look like. When you're back in the UK, what is the feeling there among the business community about the prospect of Jeremy Corbyn being a leader? What would that mean?
Gerry: Well, we got a strange kind of combination coming. We got potentially a conservative party looking at a hard Brexit and Jeremy Corbyn leading a Marxist government, looking to join the single market. These are choices people haven't had to face for a long time. So, whether that choice is ever going to be put to the public, who knows. But these are very strange times at the moment.
Nancy: Very strange times indeed adding some uncertainty for business leaders such as yourself. Let's talk a little bit more about what is going on at Barclays specifically. Have you yourself engaged with the activist investors in terms of the demands they're seeking, can you give us an update on where those talks are.
Gerry: I haven't engaged with them personally but he's doing what activists do. He's stirring the pot. But at heart, I'm an activist. All boards should be activists. Frankly I've not heard him say anything we haven't thought of. The banks are doing very well at the moment. I finally feel that we're escaping from the trauma of the global financial crisis and we're pretty pleased with where we are at the moment.
Nancy: And even given that progress, are you frustrated though by the stock performance? Would you like to see some of that progress you just talked about better reflected in the share price?
Gerry: Of course, but I'm afraid we have a Brexit discount hanging over us and we're much more than just a British bank. Remember we've got a very major presence in the U.S, we are the world's largest European investment bank, the sixth largest investment bank in the world. But the combination of Brexit and also shareholders, investors nowadays did not take anything on trust with the bank. You have to deliver before you are rewarded.
Nancy: How significant is that Brexit discount? If we get an agreement in the next few weeks, as some hope on the Brexit front, if they avoid a no deal, do you think we'll see significant upside on the share price?
Gerry: I think not just for us but for many other companies as well.
Nancy: Very interesting. When it comes to the investment bank, you've been a supporter in your role of improving the investment bank, building it up at a time where some of your rivals have had the opposite strategy. Do you think the strategy is paying off? And what are you expecting now that we're really seeing volatility return to the markets?
Gerry: Well, we like volatility. Any investment bank likes volatility and the markets have been abnormal for banks and the very low levels of volatility. But we're a cautious bank and I think the reason why we've done well is that we don't take big risks, we are very carefully controlled and I think that's a great advantage in present times. And we have this fantastic retail bank in the U.K. to act as a counterweight. So we're pretty pleased with our mix of businesses at the moment.
Nancy: Is it your expectation that market volatility will pick up from here? Given what we're seeing now, which is a real economic divergence story, if you will, globally.
Gerry: It should pick up but the amount of liquidity in the world tends to dampen that volatility. This is a patient who has been on drugs for many years and you can stare at this patient quite hard to know whether it's a healthy patient or not. We will learn over the next few years.
Nancy: Is that the biggest fear that you have at the moment though, is the changing liquidity environment?
Gerry: Not just a change of the liquidity environment, I think the whole change in the global balance of power. We are going back to a time when we're going to see more conflict between nation states, less multilateralism. These are very big changes, not the world in which I grew up in.
Nancy: Sir Gerry, I am afraid we have run out of time. I would hate to leave it on that note but thank you very much.
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