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Speaker 1: Welcome back to Bloomberg Surveillance. I Michael McKee along with

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Speaker 1: Tom Keene. A man with enormous challenges ahead of him

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Speaker 1: is James Staley. Jess Staley. He's the new chief executive

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Speaker 1: officer of Barkley's and he is sitting down with our

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Speaker 1: Eric Shatzker for much He Welcome to Bloomberg television viewers

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Speaker 1: and Bloomberg radio listeners around the world to this conversation

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Speaker 1: with Jess Staley, the CEO of Barkley's, here at Barkley's

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Speaker 1: headquarters in Midtown Manhattan. Jessica, morning to Eric. How you doing?

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Speaker 1: This is your one day anniversary? You know that, no,

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Speaker 1: but nemb onst of today, one hundred days, right. How

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Speaker 1: does it feel? It's the honeymoon over? Uh? It feels terrific.

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Speaker 1: I mean it's uh, it's a lot of challenges, but

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Speaker 1: there's so strong assets inside of Barkley's. The people are great,

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Speaker 1: the client bases is terrific. The opportunities for this bank

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Speaker 1: are are great. So it's a run. There's a lot

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Speaker 1: in front of us, a lot of challenges, but I'm

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Speaker 1: very up to mystic about where we're gonna end up.

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Speaker 1: Let's speak about some of the immediate challenges. The market

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Speaker 1: conditions out there appear to be pretty tough, right, volatility

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Speaker 1: complaints about the liquidity and a fixed income market, for example.

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Speaker 1: The operating environment in general is Barkley's on the same

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Speaker 1: track as City Group and Jpmorganist quarter looking at the

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Speaker 1: sales and trading business down fift You know, obviously the

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Speaker 1: markets went through a very traumatic experience in two thousand

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Speaker 1: and eight and nine and created a global calamity in

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Speaker 1: terms of the economy that we're still recovering from. And

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Speaker 1: how the banks evolve, how the regulators evolved to end

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Speaker 1: up in a place where we have a safe financial

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Speaker 1: system where the banks won't get in trouble again, but

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Speaker 1: we have a functioning capital markets that finances economic growth.

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Speaker 1: We're still in the middle of that process and Barkley

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Speaker 1: is a is a player there. Um. We like the

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Speaker 1: assets that we have, you know, we've just redefined our

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Speaker 1: our strategy around being a transatlantic consumer, corporate and investment bank.

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Speaker 1: There are some great businesses there. Um uh, So we

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Speaker 1: like the assets that we have as a bank, but

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Speaker 1: there's still this evolution in the financial markets that we

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Speaker 1: have to live through. How is it going to affect

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Speaker 1: you this quarter. You know, we're not gonna talk about

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Speaker 1: this quarter. We did say we had a pretty good

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Speaker 1: January in February, the quarter is not over yet. Um.

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Speaker 1: We like how our businesses is moving forward, so but

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Speaker 1: we won't comment on the quarters Pacific. These imbalances that

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Speaker 1: you speak of, though, this tricky act right between preventing

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Speaker 1: the financial system from creating again and creating an environment

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Speaker 1: in which, uh, you know, the handmaidens of capitalism can

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Speaker 1: actually earn a return. Um. Is there any reason those

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Speaker 1: balances are going to be better struck between now and

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Speaker 1: the end of the year or is this where we

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Speaker 1: are for now and for a while yet? You know? Uh? Um,

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Speaker 1: the markets I think are having some difficult times adjusting

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Speaker 1: to what's happened with commodity prices and oil and particular

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Speaker 1: there what's going on in China clearly has had a

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Speaker 1: very big impact. Um. This whole slow growth is a

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Speaker 1: challenge for the market. The inflation expectations are incredibly low.

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Speaker 1: That's leading to some central banks talking about negative interest rates.

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Speaker 1: This is completely unchartered territory. You know, how the financial

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Speaker 1: markets would respond to negative answerstrates on the scale that

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Speaker 1: are being discussed is we just don't know UM so

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Speaker 1: the markets will be challenging UH this year. But the

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Speaker 1: banking industry is so much stronger now than it was

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Speaker 1: in two thousand and eight. The capital levels are completely different,

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Speaker 1: the liquidity levels are completely different. We have such a

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Speaker 1: more robust banking industry than we did back then, so

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Speaker 1: it is a safer group of banks dealing with the

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Speaker 1: challenging market. The ECB is going to make his latest

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Speaker 1: policy announcement just a few minutes from now at seven

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Speaker 1: forty five Eastern time this morning. There's a widespread expectation

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Speaker 1: that they're going to be even more accommodated that they

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Speaker 1: have been. Negative interest rates aren't an issue for your

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Speaker 1: UK consumer business, but you're operating in European banking environment.

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Speaker 1: How challenging are negative interest rates for a bank like Barclays.

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Speaker 1: The negative interest rates are are are a reality day,

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Speaker 1: but on a very limited scale. With the negative interest

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Speaker 1: rates right now are essentially only on excess reserve. The

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Speaker 1: interest rates for the consumer. The interest rates across the

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Speaker 1: banking industry itself are still positive. So we're a long

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Speaker 1: way ago, I think, from being a very disruptive influence

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Speaker 1: in the banking industry, but we've got to keep an

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Speaker 1: eye on it. And with inflation expectations so low, it's

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Speaker 1: a challenge for the investment banks and excuse for the

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Speaker 1: central banks to continue to be every day more accommodative

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Speaker 1: and to try to push the economy forward through that accommodation.

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Speaker 1: The the aggressive monetary policy, I think is having every

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Speaker 1: day less and less ability to get the economy of

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Speaker 1: moving forward, and that's a challenge for all of us. So,

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Speaker 1: but more specifically is as it concerns the banking industry.

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Speaker 1: I don't negative interest rate cause bank profits to shrink?

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Speaker 1: Don't they disincentivize cross border lending? Don't they create nonlinear

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Speaker 1: effects in bank funding. The big, the big factor which

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Speaker 1: is impacting bank profitability in terms of the retail banking

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Speaker 1: practice and whatnot are low interest rates. Um uh, you know,

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Speaker 1: the net interest margin of banks has been shrinking because

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Speaker 1: we have low interest rates across the board. So sure

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Speaker 1: that is a weight. But you know, most of the

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Speaker 1: retail banking industry is doing quite well. Barkley's you know,

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Speaker 1: our return on equity in our in our retail bank

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Speaker 1: and our credit card business are in the mid teens.

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Speaker 1: It's a great business for us. You know, as we're talking,

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Speaker 1: you know, we are a hugely important part of the

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Speaker 1: UK economy, about of the United Kingdom GDP every day

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Speaker 1: goes through the payment pipes of Barkley's, whether it's our

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Speaker 1: Barkley card or whether it's our retail branches. We are

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Speaker 1: inexorably linked with the economic success of the UK and

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Speaker 1: uh so these are difficult times, but we're doing well

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Speaker 1: and uh in our in our position in the UK

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Speaker 1: retail market is is great. Chess. You've had a chance

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Speaker 1: now to talk about the bank's new strategy with some

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Speaker 1: of your largest investors, and it's fair to say some

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Speaker 1: of them are deeply skeptical. What's the hardest question you've

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Speaker 1: had to answer? Um, You know, we've made two strategic

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Speaker 1: decisions in the first one days. UH one was to

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Speaker 1: sell to a deconsolidating non controlling position in Africa. Barclay's

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Speaker 1: has been in Africa for over a hundred years, in

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Speaker 1: places like Kenya and Uganda. To make that decision to

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Speaker 1: pull back from the continent has been very, very hard.

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Speaker 1: So that's a tough question. And then the second one

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Speaker 1: is the investment banking industry. No, our strategy is to

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Speaker 1: be a transatlantic consumer, corporate and investment bank, with with

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Speaker 1: our anchors being New York and London, the too financial

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Speaker 1: capitals of the world. Investment banking as an industry right

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Speaker 1: now does not cover its cost of capital. So if

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Speaker 1: you look at cross all the investment banks on average,

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Speaker 1: they do not generate a sufficient return to earn the

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Speaker 1: capital that they have. That's a fundamental flaw in the

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Speaker 1: financial system. And it's a tough manster and it's a

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Speaker 1: tough question to answer. When is that going to change?

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Speaker 1: It is Indeed, as we welcome Bloomberg television viewers and

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Speaker 1: radio listeners around the world to this conversation with Jess Daily, Jess,

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Speaker 1: I'm gonna say that I'm surprised that you didn't add

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Speaker 1: a third difficult question there, which was the dividend cut.

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Speaker 1: Um it came as a shock, that's fair to say

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Speaker 1: to many shareholders. Why cut the dividend when it saves

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Speaker 1: you roughly just about a half billion dollars a year

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Speaker 1: and there's such a strong shareholder preference for income in

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Speaker 1: the UK more so than in the US. UH one.

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Speaker 1: We will continue to pay a dividend, but we did

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Speaker 1: reduce the dividend by roughly uh for two years sixteen

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Speaker 1: and and seventeen. We have a core franchise of our

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Speaker 1: consumer credit card business, corporate bank and investment bank. That

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Speaker 1: is