WEBVTT - Barclays CEO C.S. Venkatakrishnan Talks Middle East Expansion

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>I'm really happy to say that joining me right now

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<v Speaker 2>is Barklay's CEO cs Van Katza Krishnan.

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<v Speaker 3>I'm used to calling you, Venka. It's really good to

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<v Speaker 3>have you with us over here in Saudi Venkat.

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<v Speaker 2>Let me just start off by asking you, quite simply,

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<v Speaker 2>how is Barkley's affirming it's footprints in the Kingdom?

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<v Speaker 1>Thank you, Johanna, Thank you for having me. We're very

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<v Speaker 1>excited to be here. We've been in the Middle East

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<v Speaker 1>for about one hundred and thirty years, through the region

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<v Speaker 1>and in the Kingdom. Right now we are establishing our

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<v Speaker 1>regional headquarters. We are in the process of getting all

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<v Speaker 1>the appropriate investment, banking and other licenses, and we're very

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<v Speaker 1>hopeful that it will happen quickly. The Saudi government has

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<v Speaker 1>been extremely welcoming, extremely helpful to us in both telling

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<v Speaker 1>us what to do and navigating us through it. We

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<v Speaker 1>think it's a great place to be, so we're also

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<v Speaker 1>opening our new headquarters here, which we hope to have

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<v Speaker 1>set up sometime in the new year.

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<v Speaker 2>Okay, do you have any plans for headcounts for the

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<v Speaker 2>new office? Can you give us any more details about

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<v Speaker 2>where it's going to be headcount numbers.

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<v Speaker 1>Yeah, the office will be in the king of the

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<v Speaker 1>La Financial District, and we're getting enough to sort of

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<v Speaker 1>have a good sized office. You know, we'll build it

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<v Speaker 1>up as we get the licenses and as we move.

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<v Speaker 3>Yeah.

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<v Speaker 2>And for me, I mean when I look back at

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<v Speaker 2>sort of the evolution of Barclays in the region, it

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<v Speaker 2>was back in twenty fourteen where I believe the investment

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<v Speaker 2>banking license was canceled, and we fast forward almost a

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<v Speaker 2>decade later, you're coming back into the Kingdom. At the time,

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<v Speaker 2>we reported that there was a lot of competition coming

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<v Speaker 2>through from some of the local banks.

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<v Speaker 3>Why is this time going to be different.

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<v Speaker 1>Well, Barclays is different, Saudi is progressing, and the UK

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<v Speaker 1>Saudi relationship is extremely strong. We represent all parts of that.

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<v Speaker 1>We have a great global investment bank and we think

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<v Speaker 1>it's important to lead with that. We are not here

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<v Speaker 1>to compete in retail. The Saudi and the local banks

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<v Speaker 1>have an important role to play in this economy.

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<v Speaker 4>We're there to help. We're there to.

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<v Speaker 1>Provide the connection with the rest of the world, help

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<v Speaker 1>bring in direct investment, help actually bring in liquidity.

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<v Speaker 4>You know, if there are reports.

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<v Speaker 1>You would have seen it that Saudi banks themselves have

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<v Speaker 1>so much lending to do that actually this economy could

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<v Speaker 1>use some foreign lending.

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<v Speaker 4>We hope to be part of that.

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<v Speaker 1>And the connection with London, between Saudi Arabia and London

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<v Speaker 1>is very old.

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<v Speaker 4>And very deep.

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<v Speaker 2>Yeah, last week around earnings, you did say that you're

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<v Speaker 2>happy with how the Investment Bank is doing in terms

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<v Speaker 2>of this is a called positive jaws improving profitability, but

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<v Speaker 2>their scope to get more done in terms of boosting IPOs,

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<v Speaker 2>equity lengths, business and m and a. Where does the

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<v Speaker 2>Middle East fit into that.

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<v Speaker 4>It's a very very important part of it.

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<v Speaker 1>I mean, you know, there was a lot of activity

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<v Speaker 1>lost here in Saudi Arabia and actually in the region.

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<v Speaker 1>You know, the regional exchanges have seen a lot of

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<v Speaker 1>activity in addition their investment flows. And the important thing

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<v Speaker 1>about investment flows is it used to be out of

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<v Speaker 1>the region into the Europe, into the United States, where

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<v Speaker 1>of course we have a very strong presence. Now there's

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<v Speaker 1>a lot coming back into the region. It's two way,

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<v Speaker 1>and I think that's the part where we can help.

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<v Speaker 2>Yeah, and I saw also that you acted as one

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<v Speaker 2>of the book runners on the pis W Eurogreen bonds,

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<v Speaker 2>and what we are seeing is an increased amounts of

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<v Speaker 2>borrowing and issuance coming through from the kingdom.

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<v Speaker 3>Surely that also presents an opportunity.

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<v Speaker 1>It presents a great opportunity the Saudi sovereign. The kingdom

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<v Speaker 1>itself is issuing a lot more sovereign debt institutions like

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<v Speaker 1>the PIF the one you mentioned have and it was

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<v Speaker 1>great for us to be part of that bond, representing

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<v Speaker 1>as it does both sustainability and Saudi Okay, so we've.

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<v Speaker 2>Spoken about investment banking, how are you doing the growth

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<v Speaker 2>of the wealth business in this part of the world

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<v Speaker 2>as well.

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<v Speaker 1>So wealth is growing in hously, both the development of

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<v Speaker 1>regional wealth and then actually the movement of people into Dubai,

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<v Speaker 1>which is becoming a fairly big offshore center for wealth.

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<v Speaker 1>We've got a presence there and I think it is

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<v Speaker 1>to help people save and grow for the next generation

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<v Speaker 1>in the generation after that. That's what the country of

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<v Speaker 1>Saudi Arabia is doing through its institutions. That's what we

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<v Speaker 1>want to help the people to do.

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<v Speaker 2>Yeah, we were reporting on how HSBC's Middle East wealth

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<v Speaker 2>business was under scrutiny by the regulators and it's impacted

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<v Speaker 2>their ability to transact with a number of clients in

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<v Speaker 2>the region. Do you sense this as potentially an opportunity

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<v Speaker 2>to pick up market share and wealth?

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<v Speaker 1>No, Look, I think there's enough room in the region

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<v Speaker 1>for all the great banks, and what we will do

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<v Speaker 1>is do it in our own way, in our own style,

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<v Speaker 1>and you know, hope to serve the region.

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<v Speaker 2>Okay, so you mentioned the number of people moving to Dubai,

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<v Speaker 2>but we also hear and we report on it's on

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<v Speaker 2>Bloomberg all the time, the number of asset man hedge

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<v Speaker 2>funds moving to Divine Aubadew as well. Do you see

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<v Speaker 2>that as opening up an opportunity and sense of maybe

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<v Speaker 2>you can expand your prime brokerage services to cater for

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<v Speaker 2>all of these asset managers that are moving to the

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<v Speaker 2>region as well.

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<v Speaker 4>That's already happening.

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<v Speaker 1>We've catered many of them through London and we will

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<v Speaker 1>look to follow our clients to where they are. And

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<v Speaker 1>I think as the critical mass builds, you should expect

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<v Speaker 1>us to see us do more and more in the region.

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<v Speaker 3>Yeah.

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<v Speaker 2>Okay, so bright spots, bright growth spots around the world.

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<v Speaker 2>Let's talk about the rest of the world. We have

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<v Speaker 2>a FED meeting coming up this week. They are likely

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<v Speaker 2>to cut interest rates. But you know, you look at

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<v Speaker 2>US GDP numbers and we're still printing north of three percent.

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<v Speaker 3>I mean, how do you see the US economy here?

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<v Speaker 1>We continue to see signs of strength. Of course, right

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<v Speaker 1>now in the month of October, because of the government shutdown,

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<v Speaker 1>we don't have as much real time data as we

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<v Speaker 1>would normally have, and so for those of us outside,

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<v Speaker 1>it is difficult to handicap exactly what's going on with employment,

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<v Speaker 1>which is the most important part of this. But we

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<v Speaker 1>do think that the economy continues to perform reasonably well,

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<v Speaker 1>that credit conditions continue to be strong. Employment we think

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<v Speaker 1>continues to hold. But there is the effect of tariffs

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<v Speaker 1>which is a little bit uncertain, so we have to see,

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<v Speaker 1>but I think the expectation is that the fat cuts

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<v Speaker 1>a bit.

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<v Speaker 2>Lots of academic circles have been talking about this case

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<v Speaker 2>shaped economy and the fact that upper income earners are

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<v Speaker 2>thriving but lower income are struggling. You know, real wages

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<v Speaker 2>are declining, starting to keep up with inflation. Are you

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<v Speaker 2>seeing any signs of that? In your consumer business?

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<v Speaker 1>We see continued consumer strength and that consumer strength, which

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<v Speaker 1>we see both in the UK and the US, comes

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<v Speaker 1>from people improving their balance sheet. They're being very conservative,

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<v Speaker 1>so perhaps they're acting as if there's a ca shaped

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<v Speaker 1>economy because they are saving for the future and savings

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<v Speaker 1>rates are going up. So but I think this is

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<v Speaker 1>a phenomenon that's been happening over a long period of time.

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<v Speaker 1>Lots of academic writers have written about it, which is

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<v Speaker 1>that there's a lot of wealth growth at the high

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<v Speaker 1>end of the economy, driven in part by the equity markets,

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<v Speaker 1>especially in the US. I think that's part of the

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<v Speaker 1>reason why it's important for everybody to participate in the

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<v Speaker 1>equity markets to the degree they can and appropriate to

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<v Speaker 1>their own risk level, because it is a source of

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<v Speaker 1>wealth and it is less represented in portfolios, especially in

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<v Speaker 1>Western Europe and the UK.

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<v Speaker 3>Yeah. Yeah, that's a very good point.

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<v Speaker 2>And obviously there's a big budget coming up in the

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<v Speaker 2>UK later this month next month. But let me just

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<v Speaker 2>come back to what I was saying and the reason

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<v Speaker 2>I'm asking you about the health of the US consumer.

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<v Speaker 3>As all of a.

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<v Speaker 2>Sudden, people have started getting a bit worried about credit

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<v Speaker 2>conditions in the US, and you know, my colleagues in

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<v Speaker 2>Ploomberg last week asked you about, you know, certain exposure

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<v Speaker 2>that you had as a bank, but do you see signs.

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<v Speaker 3>Of perhaps credit deterioration.

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<v Speaker 2>Are you becoming perhaps a lot more vigilant about the

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<v Speaker 2>type of lending that you're doing based on the Tricolor

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<v Speaker 2>and First Brands experience.

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<v Speaker 4>Well, we didn't have First Brands, we had tri Color.

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<v Speaker 1>But we are absolutely becoming more vigilant because I think

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<v Speaker 1>whenever you have fraud, you've got to understand what you

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<v Speaker 1>can learn from it, what early warning science they might be,

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<v Speaker 1>and you have to look across the portfolio. You know,

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<v Speaker 1>credit is something you do throughout the cycle, but every

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<v Speaker 1>time there is an unexpected loss in credit, you have

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<v Speaker 1>to learn and I think it's important to be vigilant.

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<v Speaker 4>You know. We've also said, I've said it.

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<v Speaker 1>Many times through this year, that we are at the

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<v Speaker 1>end of a fifteen year long credit cycle, and so

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<v Speaker 1>you've got to be cautious. As credit cycles grow longer

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<v Speaker 1>and longer and longer, then you have incidents like this

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<v Speaker 1>which cause you to be more vigilant. And then we

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<v Speaker 1>have the economy, which, as we said just now, seems

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<v Speaker 1>to be at some sort of an inflection point. So

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<v Speaker 1>all of that tells you you've got to be a

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<v Speaker 1>little more vigilant.

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<v Speaker 2>Yeah, when you look at valuations and credits and equity,

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<v Speaker 2>do you feel that there's a risk that this is

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<v Speaker 2>going to fuel more and more speculative behavior and that

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<v Speaker 2>credit standards are going to begin to get water down

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<v Speaker 2>simply because people are chasing returns.

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<v Speaker 1>There's always the risk late in the credit cycle that

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<v Speaker 1>people are chasing returns. As you say, I think on

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<v Speaker 1>the equity market, obviously, there is a part of that

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<v Speaker 1>market AI related which is doing extremely, extremely well. There's

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<v Speaker 1>tremendous amount of allocation into it. Whenever you have these

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<v Speaker 1>vast amounts of allocation, there's always a risk of misallocation.

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<v Speaker 1>By the way, that doesn't mean that shouldn't happen, because people,

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<v Speaker 1>I think account for that in their returns forecast. But

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<v Speaker 1>for those who are lending, you know, we've got to

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<v Speaker 1>be careful because the bank is the lending.

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<v Speaker 3>Okay.

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<v Speaker 2>So putting that all together, how do you see the

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<v Speaker 2>momentum going into the last quarter of the year in

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<v Speaker 2>terms of just fmaking. Obviously there's a shutdown now, so

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<v Speaker 2>that's hampering some the IPO activity. But are the signals

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<v Speaker 2>positive as we head into the last quarter of the year.

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<v Speaker 1>So I think the signals are positive, and I would

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<v Speaker 1>look at it more fundamentally. We have interest rates which

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<v Speaker 1>are stable. We've got credit spread which are still relatively low,

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<v Speaker 1>so borrowing costs are still relatively stable. And then what

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<v Speaker 1>is happening with AI and the change in technology is

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<v Speaker 1>causing lots of companies to look at their business models

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<v Speaker 1>and see where they can become more effective. It's in

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<v Speaker 1>part what is purring a lot of the M and

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<v Speaker 1>A activity. So we think those fundamental forces will continue

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<v Speaker 1>through the rest of this year.

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<v Speaker 4>We've only got two months left and into next year.

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<v Speaker 2>Since you bring up AI, how is AI altering how

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<v Speaker 2>you think about your business?

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<v Speaker 1>It's altering how we think about it in a fundamental way.

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<v Speaker 1>We are taking we have some very important projects to

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<v Speaker 1>try to get the best out of it and to

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<v Speaker 1>understand how to get the best out of it. So

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<v Speaker 1>there's a technology at one side, there's making it available

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<v Speaker 1>to our staff, which we have done, and then there

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<v Speaker 1>is changing end to end business processes and doing them

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<v Speaker 1>through the lens of AI. That is the difficult part,

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<v Speaker 1>and that's the part that requires a lot of discipline

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<v Speaker 1>and commitment, and that's what we're trying to do.

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<v Speaker 2>Yeah, ultimately, though, you know, so many banks are spending

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<v Speaker 2>a lot on AI and AI applications. What is the

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<v Speaker 2>likelihood that you actually get that return on investments?

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<v Speaker 1>You know?

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<v Speaker 2>And I think there's this wideb reference MIT paper saying

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<v Speaker 2>ninety five percent of these AI applications are not generating

0:11:38.679 --> 0:11:40.720
<v Speaker 2>a return on investments. Do you have to be patient

0:11:41.000 --> 0:11:43.040
<v Speaker 2>or do you have to be more realistic in terms

0:11:43.080 --> 0:11:43.959
<v Speaker 2>of what you can expect?

0:11:44.320 --> 0:11:47.320
<v Speaker 1>You have to be selective and patient, And yeah, I

0:11:47.320 --> 0:11:49.080
<v Speaker 1>think you have to be realistic. So I think that

0:11:49.160 --> 0:11:52.920
<v Speaker 1>comes into the selectivity. You can't just you know, take

0:11:52.960 --> 0:11:55.360
<v Speaker 1>a quarter of a process and make it AI enabled

0:11:55.360 --> 0:11:57.640
<v Speaker 1>and the rest of it not. You can't just have

0:11:57.720 --> 0:12:00.679
<v Speaker 1>lots and lots of experiments to give it in the

0:12:00.800 --> 0:12:03.000
<v Speaker 1>arms of people so that they understand what the potential

0:12:03.080 --> 0:12:05.920
<v Speaker 1>is and they can in their own small ways improve

0:12:06.000 --> 0:12:08.120
<v Speaker 1>their lives, like we've all done with the internet, like

0:12:08.160 --> 0:12:10.640
<v Speaker 1>we've all done with a personal computer. But then there

0:12:10.679 --> 0:12:14.000
<v Speaker 1>are giant processes which are true in big banks that

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<v Speaker 1>you have to fundamentally reshape.

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<v Speaker 3>Yeah, is AI going to replace junior banker jobs?

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<v Speaker 4>I hope not.

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<v Speaker 1>I hope what we do is that we take AI

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<v Speaker 1>and we make the lives of all of our people

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<v Speaker 1>more productive, whether they are junior bankers, whether they are

0:12:30.520 --> 0:12:34.560
<v Speaker 1>junior traders, whether they are people in operations and in

0:12:34.600 --> 0:12:37.280
<v Speaker 1>customer service. I think if we look at it through

0:12:37.320 --> 0:12:40.320
<v Speaker 1>the lens of empowerment and enablement, we will get to

0:12:40.360 --> 0:12:43.040
<v Speaker 1>a better answer for both the company and for society

0:12:43.520 --> 0:12:44.960
<v Speaker 1>then if we look at it as a bit of

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<v Speaker 1>a zero some game.

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<v Speaker 2>I'm going to ask you one question about the UK budget,

0:12:49.600 --> 0:12:51.599
<v Speaker 2>because I don't think we're getting get an opportunity to

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<v Speaker 2>speak to you before the budget happens. Do you think

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<v Speaker 2>that this budget will be friendly towards the UK banking system?

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<v Speaker 3>Hope that it will be.

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<v Speaker 1>Well, I certainly hope it is. I have to say

0:13:03.080 --> 0:13:06.000
<v Speaker 1>the Chancellor is here this week. She's here today leading

0:13:06.000 --> 0:13:10.559
<v Speaker 1>a delegation and we will be part of that. I

0:13:10.600 --> 0:13:15.400
<v Speaker 1>think this government has been extremely friendly to the to

0:13:15.440 --> 0:13:18.000
<v Speaker 1>the private sector, and to the financial services sector and

0:13:18.040 --> 0:13:21.720
<v Speaker 1>to banking. They recognize our importance to the UK economy

0:13:21.800 --> 0:13:26.000
<v Speaker 1>and to the UK's rule in global trade. Uh and

0:13:26.040 --> 0:13:29.320
<v Speaker 1>so we see this as a joint interest between the

0:13:29.360 --> 0:13:30.360
<v Speaker 1>country and ourselves.

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<v Speaker 3>Can you tax your way to growth?

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<v Speaker 4>Maybe that's not for me to ask question for.

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<v Speaker 2>The answer a real pleasure. Thank you very much for

0:13:38.960 --> 0:13:42.120
<v Speaker 2>fielding all of our questions and congratulations on the RHQ

0:13:42.280 --> 0:13:46.560
<v Speaker 2>in Saudi Arabia that was the Berkley CEO cs venkat

0:13:46.720 --> 0:13:47.080
<v Speaker 2>Krishnan