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CNBC EXCLUSIVE: CNBC'S KATE KELLY SITS DOWN WITH JES STALEY, CEO OF JPMORGAN CHASE & CO'S INVESTMENT BANK, TODAY ON CNBC'S "THE STRATEGY SESSION"

WHEN: TODAY, THURSDAY, AUGUST 4, 2011

WHERE: CNBC'S "THE STRATEGY SESSION"

Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Jes Staley, CEO of Investment Bank, JPMorgan Chase & Co, today on CNBC's "The Strategy Session."

The full interview is also available on CNBC.com: http://video.cnbc.com/gallery/?video=3000037024

All references must be sourced to CNBC.

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BRIAN SULLIVAN: WELL IF YOU WANT TO TALK ABOUT THE STABILITY OF THE FINANCIALS YOU COULDNT FIND A BETTER GUEST THAN WHO KATE KELLY HAS LINED UP RIGHT NOW JES STALEY IS THE CEO OF JP MORGANS INVESTMENT BANK THEY OVERSEE ALL OF SALES AND TRADING AND KATE JOINING US NOW FROM THE 50th FLOOR OF JPMS HEADQUARTERS. TAKE IT AWAY.

KATE KELLY: THANKS SO MUCH BRIAN. ITS SUCH A PLEASURE TO BE HERE WITH YOU JES. THANKS FOR DOING THIS.

JES STALEY: THANKS KATE.

KELLY: AND WE HAVE AN INCREDIBLY NUTTY DAY TO TALK ABOUT RIGHT NOW. EUROPEAN FINANCIALS DOWN HUGE.WE WERE JUST LOOKING AT SOME OF THE NUMBERS.A LOT OF TURBULENCE IN THE MARKETS HERE AS WELL. WHAT IS YOUR READ ON THIS SITUATION WE'RE FACING THIS MORNING?

STALEY: WELL, I DON'T WANT TO MAKE A PREDICTION ON THE SHORT-TERM. WE TEND TO LOOK AT LONGER TERM STRATEGIC ISSUES. CLEARLY EUROPE HAS GOT THE ECONOMIC WHEREWITHAL TO DEAL WITH THE CRISIS THAT IS CURRENTLY FACING. THERE ARE SOME STRUCTURAL CHALLENGES IN THE EUROPEAN UNION PARTICULARLY AROUND THE PERIPHERY BUT THEY HAVE THE WHEREWITHAL TO DEAL WITH THESE ISSUES WE'VE SEEN SOME VERY IMPORTANT POLITICAL MOVES TAKEN BY THE COUNTRIES OF EUROPE TO ADDRESS THESE ISSUES. BUT WERE NOT AT THE END GAME YET. I THINK THATS PART OF WHAT WE'RE SEEING TODAY

KELLY: NOW I MIGHT HAVE EXPECTED TO SEE A MARKET REACTION LIKE THIS 5 DAYS OR 7 DAYS AGO WHEN WE WERE STRUGGLING WITH THE DEBT CEILING BUT WITH THE GREEK BAILOUT I MIGHT HAVE THOUGHT EUROPE HAD CALMED DOWN A LITTLE BIT WHY TODAY AS OPPOSED TO A WEEK AGO?

STALEY: THE MARKETS, YOU KNOW, LAST WEEK WERE FOCUSED ON THE POLITICAL ISSUES FACING THE UNITED STATES AROUND THE DEBT CEILING. AND IN THE UNITED STATES IT WAS A POLITICAL CHALLENGE AS OPPOSED TO A STRUCTURAL ONE. SO THE EYE WAS SORT OF OFF EUROPE. EUROPE HAS GOT SOME POLITICAL CHALLENGES AS WELL BUT IT'S MORE OF A STRUCTURAL ISSUE AROUND THE PERIPHERY THAN IT IS A POLITICAL ONE. AND SO THE PROBLEMS ARE A LITTLE DEEPER I THINK IN EUROPE THAN THEY ARE IN THE US. BUT I WOULD BE VERY QUICK TO ADD, EUROPE HAS GOT THE ECONOMIC WHEREWITHAL TO DEAL WITH THESE ISSUES.

KELLY: NOW YOU GUYS JUST LAST NIGHT LOWERED YOUR EXPECTATIONS FOR GDP TOWARD THE END OF THE YEAR FROM 2.5% TO 1.5. THAT MAKES JPMORGAN ONE OF THE BIGGER BEARS OF THE LARGE BANKS IN TERMS OF THAT OUTLOOK. TELL US WHAT WAS BEHIND THAT AND WHAT YOUR OWN THOUGHTS ARE ABOUT WHATS STAVING OFF ECONOMIC GROWTH.

STALEY: YOU KNOW, THE CHALLENGE IN THE UNITED STATES IS UNEMPLOYMENT AND UNEMPLOYMENT IS CLEARLY WEIGHING ON CONSUMER CONFIDENCE. WE AS A NATION NEED TO DEAL WITH THE UNEMPLOYMENT ISSUE TO GET CONSUMER CONFIDENCE UP. ON THE GOOD NEWS FRONT CORPORATIONS ARE VERY STRONG MID-CORPORATIONS, SMALL BUSINESSES, LARGE CORPORATIONS, EARNINGS ARE UP SOME 90% FROM THE FINANCIAL CRISIS OF A COUPLE YEARS AGO. EXPORTS ARE UP 20%. SO THERE IS A LOT THERE IN CORPORATE AMERICA TO GET MOVING. ONCE WE CAN GET THE CONSUMER DEMAND GOING. WALL STREET'S FUNCTIONING, THE FINANCIAL MARKETS ARE WIDE OPEN. WE NEED TO BE FOCUSED ON UNEMPLOYMENT WE NEED TO BE FOCUSED ON THE HOUSING MARKET WHICH I THINK IS PART OF THAT EQUATION. IF WE GET THE CONSUMER DEMAND GOING, I THINK THE ECONOMY IS POISED TO RECOVER. BUT WHAT YOU SAW IN THAT NUMBER IS THE RECENT SENTIMENT AND WHAT YOU'RE SEEING IN CONSUMER SPENDING IS SOME CAUSE FOR CONCERN AND IT'S HOLDING BACK THE GROWTH WE ARE PREDICTING AT LEAST IN THE SHORT TERM.

KELLY: WOULD YOU SAY CONSUMER SPENDING HAS NOT BEEN ENOUGH OF A FOCUS? I MEAN UNEMPLOYMENT IS CLEARLY THE ISSUE HERE DESPITE THE FACT THAT CORPORATE PROFITS ARE STRONG THERE IS A LOT OF CASH ON BALANCE SHEETS. BUT HOUSING AND CONSUMER SPENDING ARE TWO THINGS YOU MENTIONED AS WELL. DO YOU THINK PEOPLE HAVE NOT FOCUSED STRONGLY ENOUGH ON THEM?

STALEY: NO I THINK WE HAVE FOCUSED ON THE ISSUE I THINK WASHINGTON IS CLEARLY FOCUSED ON THE UNEMPLOYMENT RATE AS IT SHOULD BE. I THINK EVERYONE IN BUSINESS WANTS TO GET MORE PEOPLE WORKING, WANTS TO GET MORE CONSUMER SPENDING. WE HAVEN'T FOUND THE WAY OUT YET. THE HOUSING MARKET AS I SAID I THINK IS STILL ON ICE. THE CREDIT MARKETS AROUND HOUSING ARE NOT FUNCTIONING THE WAY WE NEED THEM TO FUNCTION THERE IS UNCERTAINTY. WHILE I THINK ON ONE LEVEL WE SAW DEMOCRACY AT WORK AROUND THE DEBT CEILING AND ON THE OTHER SIDE THERE IS UNCERTAINTY AND TO THE EXTENT WE CAN GET THAT UNCERTAINTY DOWN AND CONSUMER CONFIDENCE GOING. IF CONSUMER SPENDING STARTS TO MOVE FORWARD I THINK THERE IS AN ACCELERANT IN HOW THE REST OF THE ECONOMY IS POSITIONED.

SULLIVAN: JES STALEY ITS BRIAN SULLIVAN BACK AT CNBC HQ THANKS FOR JOINING US. LISTEN I WANT TO GO OFF THAT TOPIC A LITTLE BIT. YOU OVERSEE ALL SALES AND TRADING WE SEE WHATS GOING ON IN EUROPE ARE EUROPEAN BANKS SAFE COUNTERPARTIES RIGHT NOW FOR TRADING?

STALEY: ABSOLUTELY. THERE ARE TREMENDOUS FINANCIAL INSTITUTIONS IN EUROPE. THESE ARE GREAT BANKS I THINK WHAT IS GOING ON RIGHT NOW IS NOT SOMETHING THAT IS NEW AND I THINK THE MARKETS HAVE BEEN MANAGING IN DIFFICULT TIMES FOR QUITE SOME PERIOD OF TIME AND SO WE ARE AN EXTENDER OF CREDIT TO EUROPE AN EXTENDER OF CREDIT TO THE EUROPEAN BANKING SYSTEM.

GARY KAMINSKY: JES THANK YOU AS WELL ITS GARY KAMINSKY HERE I KNOW WE'RE OBVIOUSLY FOCUSED ON THE MARKET BUT YOU'RE THERE AND I WOULD LIKE TO ASK YOU, JP MORGAN HAS BEEN ABLE TO MOVE UP IN THE LEAGUE TABLES. I WOULD LIKE YOU TO SORT OF ASSUME I'M A GUY I RUN A BILLION DOLLAR PRIVATE BUSINESS. WHATS THE SELLING PROPOSITION RIGHT NOW. WHY SHOULD I LET JPMORGAN RUN MY IPO TAKE MY COMPANY PUBLIC AS OPPOSED TO SAY A MORGAN STANLEY OR GOLDMAN SACHS?WHAT IS IT ABOUT JPMORGAN THAT MAKES IT SO SPECIAL?

STALEY: MORGAN STANLEY AND GOLDMAN SACHS ARE GREAT INSTITUTIONS. SO I DON'T THINK IT'S ONE FORM OR THE OTHER. WE ARE AN INSTITUTION VERY COMMITTED TO OUR CLIENTS. I THINK WE HAVE A GREAT CLIENT FRANCHISE I THINK WE SHOWED A COMMITMENT TO THAT CLIENT BASE DURING THE COURSE OF THE FINANCIAL CRISIS. HOPEFULLY THERE'S A TRUST OF RELATIONSHIPS BETWEEN YOU AND THE BANK AND YOU THINK THE ADVICE THAT WE'RE GIVING YOU IS IN YOUR INTEREST AND THAT WE'RE DOING THE BEST THING FOR YOUR SHAREHOLDERS AND YOUR EMPLOYEES. WE THINK THAT WE HAVE A VERY SOLID AND WELL-RESPECTED INSTITUTION AND HOPEFULLY WE CAN TAKE THAT REPUTATION FOR YOUR BENEFIT.

STEVE LIESMAN: HEY, JESS, LET'S GET BACK TO THE CURRENT MOVEMENT TODAY. IT'S STEVE LIESMAN HERE. IF YOU GO BACK TO '07 AND LETS SAY THE MARKET WAS FUNCTIONING AT A LEVEL OF 100 I MEAN THE FINANCIAL SYSTEM HERE, WHERE IS IT FUNCTIONING NOW AND HOW MUCH FEAR OF SYSTEMIC RISK IS THERE IN THE MARKET TODAY?

STALEY: STEVE I THINK WE ARE IN A SIGNIFICANTLY BETTER POSITION TODAY. THE U.S. FINANCIAL MARKETS ARE MUCH HEALTHIER. A LOT OF WORK HAS BEEN DONE BY REGULATORS AND LEGISLATORS. THE FINANCIAL INDUSTRY IN THE UNITED STATES HAS RECAPITALIZED ITSELF. THE FINANCIAL MARKETS ARE OPEN. LAST WEEK WE DID THE LARGEST HIGH YIELD DEAL FOR HOSPITAL CORPORATION OF AMERICA THATS BEEN DONE IN THE LAST FIVE YEARS. WE HAVE A FLUID OPEN FINANCIAL MARKET AND THAT SHOULD GIVE THE PEOPLE A LOT OF CONFIDENCE AS WE DEAL

SULLIVAN: JES --

STALEY: YES

SULLIVAN: I'M SORRY TO INTERRUPT. I HEAR YOU AND I ASKED YOU ABOUT COUNTERPARTY RISKS AND YOU SAID THE BANKS IN EUROPE WERE SAFE I JUST WANT TO GO A LITTLE DEEPER INTO THAT. THE SECOND BIGGEST BANK IN GERMANY IS DOWN 50% YEAR TO DATE. WE SEE WHAT IS GOING ON WITH UNICREDIT IN ITALY. THESE ARE MASSIVE GLOBAL INSTITUTIONS WHY DO YOU FEEL THERE IS SUCH A LEVEL OF SAFETY THERE?

STALEY: BECAUSE I DO THINK THAT THERE ARE SOME STRUCTURAL CHALLENGES AS IVE MENTIONED IN CERTAIN PARTS OF THE EUROPEAN UNION. AND THOSE STRUCTURAL CHALLENGES NEED TO BE MORE FULLY ADDRESSED I THINK IF WERE GOING TO PUT SOME OF THESE ISSUES BEHIND US. BUT THERE IS THE WHEREWITHAL TO DEAL WITH THE FINANCIAL CHALLENGES FACING EUROPE. WEVE JUST GOT TO GET SOME OF THESE STRUCTURAL ISSUES ULTIMATELY PUT TO REST.

KELLY: JES WHEN YOU REPORTED SECOND QUARTER RESULTS JULY 14th, JAMIE PUT A FIGURE ON WORST CASE SCENARIO LOSSES TO JP MORGAN IN A BAD EUROPEAN PICTURE, I THINK IT WAS $3 BILLION DOLLARS. HAVE YOU GUYS CHANGED YOUR EXPOSURE SINCE THAT TIME IN ANY MEANINGFUL WAY AND WHAT CAN YOU TELL US ABOUT YOUR CURRENT EXPOSURE TO NOT JUST THE PERIPHERY BUT THE CORE?

STALEY: TWO POINTS. FIRST OF ALL, JPMORGAN PRESERVING ITS REPUTATION AS BEING FINANCIALLY ONE OF THE STRONGEST INSTITUTIONS IN THE INDUSTRY IS VERY IMPORTANT AND WE'RE COMMITTED AND DEDICATED TO PRESERVING THAT. SECONDLY, THOUGH, ONE OF THE THINGS THAT WE DID LEARN IN 2008, WE ARE ALL CONNECTED. THE GLOBAL ECONOMY IS MORE INTERCONNECTED TODAY THAN ANY TIME. SO WE NEED EUROPE TO BE STABLE JUST LIKE WE NEED THE U.S. TO BE STABLE AND ASIA TO BE STABLE. YOU CAN NOT IGNORE OR AVOID THE INTERCONNECTIVENESS OF THE GLOBAL ECONOMY TODAY AND THAT EXTENDS TO US BUT WE ARE VERY COMFORTABLE WITH HOW WE ARE MANAGING OUR RISKS HOW WERE MANAGING OUR EXPOSURES AND WE THINK THE BANK IS IN A VERY GOOD POSITION TO HELP THE MARKETS AS THEY WORK THROUGH THESE DIFFICULT DAYS.

KELLY: THANK YOU VERY MUCH JES. BRIAN, BACK TO YOU AT THE STUDIO.

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