Below is the transcript of a CNBC Exclusive interview with Bill Winters, Group CEO, Standard Chartered. If you choose to use anything, please attribute to CNBC, Nancy Hungerford and Tanvir Gill.
Nancy Hungerford (NH): I'm delighted to say we are joined by another Singapore Summit attendee that is Bill Winters, the Group CEO at Standard Chartered, who joins us, virtually, in fact, from Seoul as part of the virtual conferences here. Bill, great to have you on the program. Thanks so much for taking the time to speak to us this morning. And what we heard from Jamie Dimon, we've heard from several business leaders, which is even if you don't like some of the impacts of Fed policy, they did what they had to do. There really was no other choice. But I do wonder when you're listening to the Fed who says they're not even thinking about thinking about raising rates, how difficult does this make your job when it comes to trying to boost profitability?
Bill Winters (BW): First of all, Nancy and Tanvir, thanks for having me. Yes, it makes it hard. Zero interest rates or very low interest rates are difficult for bank profitability. And we estimated that the impact on us this year will be something around 800 million dollars on an annualized basis of our income, which means this as we look forward and as the Fed has indicated, this is going to be with us for least a couple of years and then obviously some are thinking it could be a bit longer, that makes it a little bit bigger hill that we have to climb in order to hit the profitability targets that we set. But we can do that.
NH: Would you agree with Jamie Dimon then no, perhaps enough is enough and it's time for the Fed to just let nature take its course?
BW: Well, I think from the Fed perspective, they're doing a massive amount already and I think central banks around the world between the zero interest rates or negative interest rates, in some cases, did the massive buying, they sort of forced the flattening of the yield curve and they effectively forced compression of credit spreads, which are all ongoing programs. There's a lot of ongoing heavy lifting that's being done by central banks. What we can hope, obviously, is that on the back of that, you see the back end of this pandemic, that we get the real economy kicking in so that the Fed and other central banks can at least back off a little bit on the easing and let markets function a little bit more normally themselves, but it doesn't feel like we're there just yet.
Tanvir Gill (TG): Good morning. Tanvir joining this conversation. In your second quarterly earnings call that is, you said that no employees of Standard Chartered will miss a paycheck in 2020. And I wonder how are you feeling about the business environment currently, given profit pressures as well as impairment costs rising for 2021? Can you make such a commitment? Do you have that visibility on just your business environment as well as the headcount overall?
BW: The statement that we made, which we are 100% honoring, is that we would have no COVID-related redundancies during 2020, but that we would, at the appropriate time, resume the transformation efforts that we've been undergoing for the past several years, and that will probably go for a few years more. We are honoring that commitment, we have no COVID-related redundancies, and anybody that is let go as a result of the ongoing transformation work will not miss a paycheck this year. And that means extending severance pay or payments otherwise made. At least, that one little bit of financial peace of mind is there for people who are displaced. That said, what we've been very successful doing is retraining our existing staff for new roles. We have hundreds of jobs that we're looking to fill and at the same time, we have some roles that we'll be looking to transform. So we have a pretty massive effort underway, both on the part of the bank, but also on the part of our employees, to tap into the learning resources that the bank has made available in order to give everybody the greatest possible chance of getting a job inside Standard Chartered. So hopefully, we don't have to let anybody go. It will never be that straightforward. But that's the ambition.
TG: Yes but going into 2021, given what you've done, with your financial performance thus far and the rise in impairment costs that you've seen, which has been a six fold jump, are you worried about the rising risk of default into 2021?
BW: Yes, of course. And what we did in the first half of the year was we had some, I called it credit losses and then we had some model driven losses. So just recognizing that the environment is less certain, that the economy has slowed down, that there are stresses and strains for all the obvious reasons, the model was throwing out a material increase in impairments. And then what we did was to effectively double that, again, to take a significant increase above what the models were suggesting that we needed to. Why did we do that? Because we see that we're in a very uncertain and an unusual time and the models probably don't capture all that uncertainty. So as we go into 2021, we feel very well preserved, very well provided and we also feel very well preserved. But we really have to see how companies recover. Now, what are we seeing so far? We're seeing China pretty close to that V-shaped recovery that they'll hopefully that we haven't seen very much elsewhere. We've seen Hong Kong and Singapore coming back pretty strong. We see delinquency rates that are drifting back down towards the pre-pandemic level. But of course, there are still some big question marks as well. There's a number of our markets have payment holidays or debt of one version or the other, but some of those are coming off. And some of the early signs, for our clients ability and willingness to catch up on their payments is encouraging but it's too early to call that. And then we have other markets that I can pull out, in particular, South Asia and parts of Africa, now they really are still in the throes of this pandemic, infections are still rising. There's different versions of lockdown. We're hopeful that the precedence that we're seeing elsewhere will extend through to very big markets for us, like India, but it's too early to call that.
NH: Bill, so are you comfortable with the level of credit impairment charges as they sit today? Does this mean you don't intend to increase them going forward? And to that extent, do you think the worst of the COVID-19 related hit is behind you?
BW: It's too early to say. We will look at our third quarter levels and as we always do, objectively and rigorously. But what I will say is that our attention in the first quarter and for the half year was to take provisions that we thought were appropriate for the level of economic impact we saw and the level of uncertainty that we were saying. But if we see something that's developing in a different way, of course, that could lead to more provisions. We also know that at the end of the day, what you provide and then what you actually lose, can be very different. And it only takes one or two meaningful losses to make you look like you're not providing quite as well as you have been. But if we can avoid those as we did for four years or so, prior to the pandemic hitting, I think our credit underwriting standards, we have significantly improved those, we have significantly reduced the concentration in our portfolio. We have a higher quality credit book in terms of the percentage that's investment grade. We have a short maturity book. So all these things, I would say bode well for a tapering of the provision levels, but we'll have to see in Q3 as we assess and we'll look at the end of the year again, how the economy is doing and how our clients are doing.
NH: Bill, what you're speaking to is not just a difficult time for Standard Chartered but for the industry as a whole and it's raised some questions as to perhaps consolidation, especially for some European banks, is one way out of these difficult times. You would have seen the reports around UBS and Credit Suisse, reports of potentially looking at a merger that have not been confirmed. And I just wonder whether you think this could unleash a wage of merger activity or consolidation for European banks?
BW: We are technically a European Bank, because we're headquartered in the U.K. but obviously, the bulk of our businesses is in Asia, Middle East and Africa. So we probably don't have quite the same read on the European banking sector but certainly, as a very keen observer, I would note that the sector, the segment in Europe is overbanked, that there are many, many banks who are subscale in one form or other and there are some good strong banks who are likely to want to increase their scale through acquisition. So I think the big impediment so far has been regulation. We'll see whether the regulators are happy to allow some of this consolidation to take place. I think it would be a good thing.
NH: Is it a path that you would actively consider for Standard Chartered, something that you consider today perhaps, either being part of some deal activity or an acquire yourself?
BW: From our perspective, we are very much on track to execute our strategic objectives. You know we had good strong growth last year which carry through to the first part of this year. We indicated that it will be tougher in the second part of this year for the obvious reason, the economic impact and the interest rates but when we look at the underlying trends at Standard Chartered, these things that we have called for about four or five years now, growing our network, growing our retail business with our clients, penetrating digital markets around the world, we've been very, very successful in each case. With income going up, costs staying flat for five years, capital being very much contained, return on equity steadily increasing not yet to our targets but on the right trajectory, all of which says to us, we can complete this first part of our mission independently. We don't need a partner, we certainly don't need to sell. We are very strong from a capital position, very strong from a liquidity perspective and of course, our stock price is quite low so I doubt we will be acquiring anytime soon. But we are always looking for opportunities, we do have a ton of capital and we are investing quite heavily. We haven't cut back on our investments at all in this environment and I don't intend to next year either. And if there's inorganic investments that could complement the organic investments we are making, of course, we would look at that.
TG: Glad that you clarified that, Bill. I have to talk about your presence in Asia, in Greater China in specific. What are you making of rising U.S. - China tensions in the region and the impact those tensions can have on your business?
BW: It is troubling. You can imagine it's a tremendous preoccupation for us, both the impact on trade flows, the impact on capital flows, on investment, impact on confidence, economic activity. And then of course, the specific issues around Hong Kong and the challenges Hong Kong has faced vis-à-vis the U.S. and possibly some others. But these are all perspective concerns. As we look at the environment right now, there's been no material impact on either the economy or on our business. I think we'd be naive to think that there could be no impact. And of course, at the same time, we know that things could get worse, there could be a ratcheting up of tensions and the like but the fact is, Hong Kong is sitting here today as the gateway to China, for capital, into China and out of China. That's only become more clear. We've seen it through the series of listings of large Chinese companies that are either listing for the first time in Hong Kong or that are leaving a U.S. listing and coming to Hong Kong. This has led to a massive capital inflow into Hong Kong, it's supported the Hong Kong dollar, reserves are very strong. The economy is under pressure for all the reasons that we understand but Hong Kong as a global financial center feels very, very safe to me. Now, could that change with escalating tensions or sanctions? Yes, of course it could. But Standard Chartered is prepared for that. And we dealt with sanction regimes in many markets before, successfully. We are very well recognized by the U.S., the U.K. and other governments for the good work that we do and if these tensions continue to escalate, we will continue to be prepared.
TG: But how do you reconcile your view on Hong Kong, especially Standard Chartered support for the national security law where the view of some of your investors who've been agonized by your stance such as Aviva Investors?
BW: But first of all, the statement we made was very clear. We said that we were hopeful that the national security law could bring economic and social stability to Hong Kong. And we made it clear that that was conditional on the "one country, two systems" framework being protected so that was our statement. That's the only statement we made and I'm repeating it here. I know that some investors have, maybe one investor, has made a public comment and I'll leave that comment to them, they can elaborate themselves.
TG: Right, just a follow up there. And Noel Quinn from HSBC just recently said that HSBC's mission in the region is to just be a bridge between China and the international trading community. And I wonder how would you describe Standard Chartered's role, given your significant presence in the region in doing business?
BW: I think Noel did sum up pretty well, at least that one part of our business that overlaps. We are the leading bank and certainly, the leading foreign bank for cross border payments, we're the leading bank bringing international investors into the Chinese bond market. We are a leading bank in the Belt and Road and contracting capabilities to Asia, Middle East and Africa, which are our home markets. Now, these are important positions for us in an environment where we expect China to continue to be a very, very, very strong regional player. The tensions between the U.S. and China are concerning but it has not held back at all, the growth in the trading and capital relationships between China and its partners and its partners pretty far flung as far as certainly parts of Europe and Africa and the Middle East. So that's a key role that we played for much of our 160 years of history, and that will continue to play.
NH: Bill, when you said that Standard Chartered came out in support of the National Security Law on the premise that you were hopeful about what the law would bring, that support came very early on, and we've learned more about the law, we've seen a wave of arrests and learn more about the application of the law since then. So sitting here today, do you still feel confident that Hong Kong is better off with the National Security Law?
BW: You know, what we won't get into and haven't gotten into is the politics of this. We're going to comment about the economic and social stability. We're clear that the "one country, two systems" framework is critical. I'm very encouraged that all commercial matters, including legal commercial matters under the "one country, two systems" framework seem to be wholly supported. I think that has reassured the Hong Kong business community, we've seen Hong Kong markets react In a favorable way. So the hope around economic stability seems to have been well founded and is playing out but beyond that, it's really not our place to comment.
NH: Okay. And Bill, as this is a key part of some of the tensions we're seeing between the US and China that you've already highlighted, I just wanted to ask you with the upcoming election in the United States, are you in the camp that post the election, some of these tensions could ease? That perhaps a change in the Oval Office could bring about an easing of these tensions?
BW: No, I expected the underlying tension between the U.S. and China will endure in either outcome to the election. And I would be hopeful though, in either case, that there would be a reengagement. We know that as elections are in full swing, as this one is right now, that people say and do things that perhaps are prepared to back away from a little bit, in the interest of reengaging and hopefully making some underlying progress. So I would hope that whoever wins in the upcoming election, that there's an element of reengagement that allows the U.S. China relationship while continuing to be tense, and we do think that's going to be the case for the foreseeable future, but nevertheless, allow some progress to be made and a little bit of de-escalation of tension that would appear to be helpful for either side.
TG: Bill - you're coming to us live from Seoul and there's a lot of curiosity around your one month stay in the city. Why Korea and why now? I think that's the answer that people are seeking out of you.
BW: Korea is a very important market for Standard Chartered and it's also a role model within the bank for a country that was at a pretty big hole if we went back four or five, six years, and has steadily recovered both the absolute profitability so it's a profitable and accredited country for Standard Chartered in our group right now, but also relatively, close the gap significantly to the best of our local competitors. I want to understand that, I want to understand how the team has done that, of course, I have a pretty good idea, having been here for five years now. But to spend a month here and then get a chance to meet with clients, with regulators, with colleagues, and then we meet them again and again and have a conversation rather than these drop in, drop out, I find it quite nice. But I'll follow this up with a block of time in Hong Kong, probably six weeks in Hong Kong and probably another six weeks in Singapore. So I'm on an extended business trip in Asia, which of course makes sense given the nature of our business. And you know, when it comes to working remotely, I spent five months in remotely in London. And I can pretty much do everything that I could do in London, from Seoul or from Hong Kong or from Singapore from hotel room, or from a bathroom closet if need be.
TG: Well, it's great to see you in this part of the world. Finally, Bill, keeping it with Korea, I think the focus there for you is also on the burgeoning FinTech sector there and that ecosystem developing quite strongly. How would you differentiate what's happening in Korea with the rest of the region?
BW: Now, Korea is a fascinating market. We have dozens of FinTech investments in Korea, of one description or other. We are partnered with Toss, in the establishment of a fully digital bank, which we hope to roll out sometime next year. Obviously leveraging a little bit of what we've learned in Hong Kong, we rolled out our virtual bank in Hong Kong last week. It's been a great success so far. Obviously, we'll wait until the rollout is complete before we declare any kind of victory but that we had tens of thousands of people who pre-registered and we're working through those pre-registrations now. It's super exciting. And of course, we would hope for and expect similar success in Korea, when our partnership with Toss comes to complete fruition. But technology in Korea is the lifeblood and some of our most interesting and important applications are built in Korea, rolled out in Korea, are tested and then rolled out to the rest of the world. Our global banking app that we use in all of our conventional banking centers, it was developed and first rolled out in Korea to fantastic reviews, a leading mobile banking phone based app. And we're now using it and it will eventually be rolled out in all 26 countries where we have a retail business. So getting that understanding, I'll be meeting with our big FinTech partners over the next couple weeks and I'm very excited to hear from them, how they see their businesses evolving and how we can work with you.
TG: And we wish you the very best with all your future plans. Well, great to have you on the show. Thank you very much for your time.
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