00:00There's a lot going on.
00:01There's a lot of risks.
00:02There's a lot of geopolitical concerns, geo-economics.
00:04What do you worry about the most?
00:06I worry about the complete breakdown of dialogue.
00:09So what we found over the past many years, actually, this has been going on for quite
00:12a while, of geopolitical tension is that things get very hot.
00:15And then people talk about how there is some common ground.
00:19And we get back to something.
00:20Things change, of course.
00:21Things have changed a lot.
00:22But we get back to something that's manageable.
00:23So for us at Senator Trotter, our job is to connect.
00:25We connect markets to markets, people to people, east and west.
00:29And as long as people are talking, those connections work really well.
00:33So my fear is that the dialogue breaks down.
00:36Why?
00:37Why are people not talking?
00:38Because they're too far apart?
00:39I think people are talking.
00:40And I think it's fantastic that we've got six of the seven G7 heads of state sitting here
00:46in Davos.
00:47They didn't come here because they enjoy the cold weather.
00:49They came here because they want to talk and cherish the views.
00:51So I'm hopeful that we can work through this.
00:54But what do you worry if there is a breakdown, further breakdown in communications?
00:58Is it trade and tariffs that's off of mind?
00:59Is it potential wars?
01:01We've obviously been through a big period of volatility in tariffs.
01:05I think we've gotten to a place where we're definitely operating in a different world with
01:08much higher barriers to trade in some key corridors, most obviously with the US.
01:14But the global economy is continuing to perk along just fine.
01:18China, which was the most affected by tariffs, printed a 5% GDP number last year.
01:22Of course they've got problems.
01:23Of course there are challenges.
01:25This enormous trade surplus is one of the imbalances together with the fiscal deficit
01:30in most of the world.
01:32These are real imbalances that are structural.
01:34So I worry about these, but these seem to be a little bit more medium, long-term things
01:37than tomorrow.
01:38Yeah.
01:39But Bill, so what do you worry about tomorrow?
01:40And again, China was the only country last year that actually retaliated.
01:42What happens if more countries retaliate this year if things get a little bit crazier?
01:46Well, when we get into the tit for tat, it's always hard to know which came first.
01:50But at the end of the day, when people have stood up to each other and said, this is what's
01:54important to me, they've tended to find an accommodation that makes sense.
01:58I hope we can find the same accommodation on the issues of the day.
02:01But yeah, I mean, another ratchet up in tariffs would certainly rattle markets as they did a
02:05year ago.
02:06I think there would still be a hope that the dialogue could unravel that.
02:10I think the security issues around the world, the market seems to be a bit immune to what
02:16happens on the security front in any of the theaters of conflict, but only to a point.
02:21And if it feels like it's changing the world in a structural way or inviting aggression,
02:26for example, in any of the different spheres of conflict, I think that could be rattling
02:31for the markets.
02:32Are clients asking you to move away from U.S. assets?
02:35No.
02:36Look, we're a U.S. dollar denominated bank.
02:39Our main businesses are moving goods and money between markets.
02:45We're not a big asset accumulator.
02:47So no, we're not.
02:49And certainly nobody is saying you should be underweight the U.S.
02:52But do you see a move away longer term from U.S. assets?
02:56I think there's been a diversification of asset portfolios for some time.
02:59So the euro was created in part to have an alternative to the U.S. dollar as a reserve currency.
03:05But the euro has had its own problems, as we know.
03:08But the percentage of reserves held in U.S. dollars has been going down.
03:11U.S. dollar still dominates.
03:13The proportion of trade that's denominated in U.S. dollars is going down significantly.
03:18China has an interest in having payment flows happening in currencies other than the U.S.
03:25dollar for the obvious reason of the weaponization of the dollar.
03:29So that diversification and that – it's not even diversification.
03:32Diversification sounds like you're making a risk-based decision to spread things around.
03:36Actually, it's just there are convenient and efficient channels that aren't just the U.S. dollar channels.
03:42And those will continue to develop.
03:43But how much volatility are you expecting in markets?
03:46And actually, it could be a good kind of volatility or it could be the bad kind, which could come from like an AI bubble or a systemic worry.
03:53Oh, well, when we think more broadly, I think there's been a structural shift of capital from the banking system into non-banks globally.
04:02And that's following on the capital rules, following the great financial crisis, which leave the cost of capital for banks relatively high for some assets, not all assets.
04:10And that migration is happening.
04:13So the good news is – and these private credit buyers, whether they're mutual funds or big asset managers or dedicated private credit funds, they're not very leveraged, much less leveraged than banks.
04:23So if we do have this appearance of credit losses, if the credit cycle manifests itself, which it will –
04:30This year?
04:31No.
04:32I don't know.
04:32I wish I do.
04:33It doesn't feel like it at the moment, I can say.
04:35But the credit cycle is not dead.
04:37So, of course, it's going to come back.
04:38And credit cycles are fine.
04:40They get ugly when that translates into a property bubble, as has happened in China, happened in the U.S.
04:45That doesn't feel like it's going to happen outside of China, who's cleaning their problem up.
04:49And it's really bad.
04:50They get really bad when they infect the financial system, when the financial system has to deliver quickly, great financial crisis being the big example.
04:58Then the credit cycle becomes amplified by hundreds of times in terms of GDP and impact and prosperity.
05:03It doesn't feel like we're there because the system is just much, much safer and sounder than it has been.
05:09The debt, as we know, has gone into sovereigns.
05:11If a sovereign were to get into trouble, no indication of that, that would be a different story.
05:16But that's not going to happen.
05:17Could we see a downgrade of the U.S. economy?
05:18Could we, I mean, is there any, I don't know if there's a flash, is there a flashpoint that you worry about away from credit?
05:24The U.S. economy is doing quite well.
05:26The economic growth is strong.
05:27Inflation is not as low as the Fed and others would like, but it's not out of control.
05:33And trade flows are good.
05:35Investment flows are good.
05:36So, a downgrade of the economy, I don't know, a downgrade of the credit, possibly.
05:41I mean, they've got big budget deficits.
05:42No, so right now, the world feels pretty good.
05:46I think we'd have to do something pretty overt in terms of letting one of these conflicts blow up to disrupt what is otherwise a good business environment.
05:53Bill, your bank is probably a little bit more advanced when it comes to crypto and digital assets than others.
05:58Like, what's next?
05:58I think we're just in the very earliest stages of things like stable coins that have been a bedrock of the crypto community, that self-contained crypto community, moving into what has been traditional banking and the use of fiat currency.
06:15So, we're just beginning to use these stable coins or tokenized bank deposits or other types of digital money as a medium of exchange for trade and for payments.
06:25I think as that happens, we're going to see a complete rewiring of the banking system and, in fact, the financial system.
06:33We've been sort of on this case for about eight years now.
06:36We've got lots of seeds that are planted.
06:39They're sprouting, but they're really quite early green shoots.
06:42But it's going to happen.
06:43It's going to happen.
06:44Bill, last, I mean, I think less than two years ago, you called your share price a word that I cannot say because we're Ofcom regulated.
06:49But it wasn't a good word.
06:50It wasn't a good word.
06:51It wasn't that bad.
06:52But now you're all at record highs.
06:55Are we going to see M&A from you guys?
06:58Well, we've had a good runoff on our share price.
07:00I think we are, I'll say we're still cheap.
07:03I wouldn't go as far as to say, you know, some expletive.
07:07But there are a few areas that are critically important to us.
07:11We're a cross-border bank.
07:14Which means that we're serving our clients who have cross-border needs with their risk management, with their payments, with their funding flows, with their investments, et cetera, associated financing.
07:22We don't need to do any M&A for that.
07:23And nobody needs to do M&A with us.
07:26The second key area of focus for us is our affluent client franchise, so wealth management products.
07:32Super fast growth.
07:33We're the fastest growing wealth manager in Asia, Middle East, and Africa.
07:36Third largest overall.
07:38Very attractive business.
07:40And we would love to build out that portfolio.
07:43So if there's something that we could buy or partner with one way or the other, we'd love to do that.
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