Following are excerpts from a CNBC interview with Jes Staley, CEO of Barclays, and CNBC's Geoff Cutmore and Steve Sedgwick.
GC: We're very pleased to have with us, Jes Staley, who is the CEO of Barclays, good morning, Jes, nice to see you-,
JS: Morning, Geoff. How you doing?
GC: Well, it didn't quite spell out the story there, in that lead in, so let's-, let's just build on that, and let's just deal with it, for a moment here. You do have an activist shareholder, who's got, what, nearly 6% of the stock, who is continuing to insist that you should be divesting the investment bank. How are you going to deal with this chap?
GC: Mr Bramson.
JS: [Laughs]. Mr Bramson. So, we've had a-, you know, a reasonable engagement with Bramson, over the last year, we'll see him again in-, in March. He really hasn't laid out his strategy to us, you know, we-, we read the press, and see what they say. We want to engage with all of our shareholders, and we do, but we had a great year last year, you know, we more than doubled our profitability, through the first nine months of 2018, from, sort of, 7% RoTE in '17 to over 11, uh, in '18. We more than tripled the amount of capital that we returned to our stakeholders last year, so we are very comfortable with the trajectory of the bank, we think we've got, you know, the-, the support of our shareholders, and we'll engage with-, with Bramson, when he wants to, and-, and exchange ideas, but for now, the bank, I think, is in a pretty good place, and the shareholders are-, are pushing us forward.
GC: You-, you always give a-, a very good and reasoned read on what is going on with capital markets. Timing is difficult here, isn't it? Because he's suggesting that you step away from these markets, at a time when, actually, these markets look troubled, by concerns about growth, and the possibility of recession. Are you worried about the volatility this year, for markets generally, and what that might mean for trading and investment banking business?
JS: No, I think-, I think vol-, you know, actually, lack of volatility is what puts pressure, I think, on those that are intermediaries in the-, in the capital markets. What you want is you want volatility, and you want liquidity, and you want activity by-, by the buy side. I think, this year, we will see a return to more normal levels of volatility, you know, 2017 was the lowest level of volatility in the history of the financial markets, 2018 had a couple of pops, very much towards the end of the year. I think we're going to have a more normalised level of volatility, in fact that's a positive thing for the intermediaries of the world's capital markets.
SS: Let's go back to, not so much the Bramson point, but your share price performance, because I-, I look at the stock, and I've got it in front of me now, and in 2017, £ 2.40, 2019, we got down to, at a low just below £1.50, as well. I take what you're saying about the RoTE, I take what you're saying about a whole host of measures, where Barclays looks good, and I-, I will give one of my own, I think your net interest margin, above 3%, is-,
JS: That's right.
SS: Wipes the floor with the likes of Royal Bank of Scotland. Why does the market think your company is only worth 0.6, 0.7 price to book?
JS: I mean, you know, one of our challenges is we are a European bank, uh, and in fact, if you look at how the sector has traded, whether it's a bank in Switzerland, or France, or-, or the UK, there has been a trade-off against the European banking sector of extraordinary proportions over the last 12 months. And we are not immune to that. What we have to focus on, as a management team, is what we can control. The capital level of the bank, the profitability of the bank, the strategy of the bank, and the prospects of the bank, and I feel comfortable where we are. You know, we can't fight the tape, when the tape is as strong as it is. I think the question, for all of us, is why is the market so negative on the banking industry, and particularly so negative on the banking industry across Europe, and that's the question that I think we all need to face.
SS: Can I give you an answer? Because-,
SS: They see the levels of debt building up globally, we had Tim Adams from the IIF in recently, uh, let me pick a number, non-financial corporate debt has gone up from, uh, $27 trillion less, ten years ago, than it is now, $72 trillion, and-, which equals 92% of global GDP. That's why, because people are worried about the underlying business.
JS: I-, and I think those risks are very relevant, are very real, and the issue is, how is a bank like Barclays positioned to take on this sort of risk? We have had a very conservative credit profile on our balance sheet, post the referendum vote over two years ago. We are very comfortable that we are positioned for that sort of movement in the overall credit markets, if it comes. We are an intermediary. We are-, you know, it's not like in 2007, where we would take these lever loan positions and leave them on the bank's balance sheets. They're not on our balance sheets, they are placed with the capital markets, and what we want to be is a provider of liquidity, when you have the disruptions, because there are some stress levels in the overall levels of debt, in Triple-B, that sort of space that you've talked about, but we're very comfortable that Barclays is positioned for this [inaudible]. And in one sense, you know, to-, to ultimately prove the strategy of the bank that we started in March of 2016, you know, a recession might actually give the underlying evidence for why this is the right-, to have a diversified model, where we're diversified by client, by geography, by business, that's what you want to be, if-, if, in fact, we are going in to tough waters.
GC: Can I offer you an alternative suggestion, and one I think that, you know, may rankle a little bit, but let's put it out there, it's a trust deficit. You know, we're ten years on from the financial crisis, you have some legal issues, personally, and with the bank, that are ongoing, at this point, Deutsche Bank has some legal issues, that are ongoing, and relevant to what happens to Deutsche Bank, at this point. The punter looks at this sector, and says, 'I just don't know where the next bat to the forehead comes from-,'
GC: 'For these businesses.' You know. Peter Altmaier, I couldn't get him to tell me whether he believed that a cross-border merger would be the appropriate way for Deutsche Bank to go, at this point, but it's a mess. It's Germany's, you know, most prominent-,
JS: Yeah, but-,
GC: Public bank, and it's a mess-,
JS: Yeah, Geoff-,
GC: And-, and that's-, that's my problem-,
JS: Yeah, so-,
GC: You know, for the audience watching, they'll be like, 'Yes, we've still got a trust deficit.'
JS: In this time last year, when you and I were talking, we were being prosecuted by the Department of Justice, in the United States. We were being criminally prosecuted, the bank, by the British government, and-, and the CEO was under investigation. We fast forward to today-,
JS: And we've got to regain credibility, I have no doubt about that, but we've settled with the Department of Justice, the best settlement of any European or American bank, around mortgage-backed securities. We had two judges dismiss the British case against the bank, we have no more liability in the Qatari case, at all, and the investigation is done. And so-, and-, and-, and we're here. So I'd actually say, now is a time, given that we have clean air in front of us, we don't have litigation, there's no more LIBOR issue-,
JS: Foreign exchange issue, now-, and now that we have a profitable bank, that's well-capitalised, now is the time that we need to incrementally gain trust, and that is gonna be-, take time, and we are methodically gonna regain that trust.
GC: Just-, just give us a line on Deutsche. What should happen to this bank?
JS: You know, ah-, you know, I know Christian, I-, I think he's doing the right things, I think he's a very talented executive, I think they've recapitalised the bank, they are moving the bank towards-, towards profitability, and-, and-, and as Christian has said, you know, let's get Deutsche organised, and in the right place, and then let's think about what other options there might be.
SS: Completely different question, two of my local Barclays have closed, there's a big change going on, it's a-, a big cost savings exercise, in many ways, customers aren't using the branches anymore. Why are fintech players still making such ground, when you have such low-hanging fruit on the costs, to-, to-, to still go forward, i.e. you-, Santander have been cutting branches, Barclays, everyone has, as well. This should be great for profitability. Why do I still have this nagging feeling that fintech is still making the ground on attracting new customers, and actually really pushing ahead with the products people want in the 21st Century?
JS: There is no institution that has moved more of its client base to banking on a mobile device than Barclays. We have more people banking on Barclays mobile app than all the fintech companies in the UK combined. So we're-, so-,
SS: But there's things I can do with fintech that I can't do at HSBC, Santander, Barclays, Lloyds. Why is that? Why have you guys not spotted their business model and say, 'We can do that. We've got scale'?
JS: One of the challenges is-, is-, is we have an obligation, given our size, to make sure that our systems, and our-, and our digital offering, is safe, secure, protects our clients against fraud, doesn't crash, etc., and we work collaboratively, with the British government, with the FCA, to do as well as we can, to make sure it's a safe technology evolution for our customers and clients. Fintech doesn't have to, so I can give you the latest whistle, and not worry about its stability, not worry about how it might be used by fraud. It's a very different game, that they are playing in, than that the major banks are, but ultimately I think, to secure the trust of our clients, we need to have a safe, reliant, stable technology platform for our clients to engage in, and we're gonna stay that course.
GC: You've been here, what, the week, I guess, and you've been talking to your contacts globally. How many times is Brexit coming up in the conversation-,
GC: As an-, as an issue that-,
SS: Once this morning, it sounds like.
GC: As an issue that they're worried about, and how are you answering, given that we still seem to be in this purdah, waiting for Parliament to come up with some rational direction of travel?
JS: Well, you know, Brexit is a topic almost-, almost everywhere, as we've said before, you know, on the weekend after the referendum vote, at Barclays, we got the whole management team together, and said, 'We need to be prepared for whatever happens, including a hard Brexit,' and-, and we have done that. You've got a very difficult political challenge in the UK, where you have roughly a third, I think, of parliament that wants to, you know, roll back Brexit, a third that wants to have, sort of, a soft landing, and a third that wants to keep all of the optionality open to-, open to the British government. We'll leave it to the political body, to figure this out-,
JS: We have always said-, the nature of politics is, this will not be resolved until the very end.
JS: Nothing is agreed until everything is agreed, and that means we're going to the 28th or-, or the 29th, and we have to deal with that uncertainty, we're dealing it with-,
JS: Uh-, uh, with our stock price, but our obligation is to be committed to the UK, and to do everything we can to help our customers and clients, irrespective of what the outcome is.
SS: Jes, real pleasure seeing you, all I can say is, I was out last night, I saw two cabinet ministers, and a leading Brexiteer, and they looked very relaxed.
SS: I can say no more.
GC: Were they-,
SS: Jes Staley-,
JS: Thanks, Steve. Yeah.
SS: Were they?
GC: Were they-, were they chemically assisted, in that, um, sense of-,
SS: Jes Staley, thank you very much-,
GC; Sense of peace?
SS: Indeed for that-,
JS: [Laughs] I'll leave that one.
SS: CEO of Barclays.