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00:00I am Danny Berger, live from the Barclays' 24th Annual Financial Services Conference,
00:05and we have the man of the day with us. It is the Barclays CEO, CS Venkatakrishnan.
00:10Venkat, thank you so much for joining. Great to see you this morning.
00:12Danny, thank you so much for having me and for covering our conference.
00:16And look, I know it's early in the morning, but you've gathered countless of your peers.
00:20There's so much for this industry to grapple with, whether it be war, energy, rates, AI.
00:25What do you think at this moment is the single most pressing issue that financial services has to grapple with
00:31today?
00:31I would say there are two. One is that we are all running large companies,
00:35and we're dealing with the technology and the change of technology in our companies.
00:39We can come back to that. Second thing is the overall market environment.
00:43And for me, the bond markets are the things to focus on.
00:47There's a confluence of three forces, Danny, which make the bond markets particularly interesting.
00:52One is that we've had persistent inflation.
00:56Due to commodities, due to geopolitical events, something's out of our control.
01:00The second thing is that government spending across the world,
01:04so this is true in New York, it's true in London, it's true in Tokyo,
01:07government spending across the world has been rising as a function of GDP,
01:10so debt to GDP is going up, pressuring the long end of the curves across the world.
01:15And then the third thing is there's been a supply, a tremendous supply of debt,
01:19especially related to data centers and to tech.
01:22All three of these things are putting pressure on the bond market.
01:26It's a confluence of three forces.
01:27And we're speaking also just days before a Fed rate decision.
01:31The BOE will also have a decision too.
01:33How much of this falls to policymakers?
01:36What is their role in this to making sure we don't see both inflation
01:39and long-term yields become unmoored?
01:42Yeah. So I think it's interesting.
01:44Of the three things I said, the central bank controls the first.
01:47Now, it's very important.
01:48They need to respond to the persistency of inflation.
01:52And actually, the more they act on the front end,
01:57the better they probably can control the long end.
02:00And so those are the things I imagine are weighing on their minds
02:03as they come into their decisions this week.
02:05So does that mean we're in an environment where, kind of counterintuitively,
02:09if this is a Fed that hikes, that actually helps activity.
02:12That actually maybe helps financial services
02:14because it puts at least a ceiling or at least subdues volatility
02:17for the long end of the bond yields.
02:19When telegraphed and when gradual and when relatable to economic events,
02:25that's true in the starting point of a rate hiking cycle.
02:28Of course, later on, things can change.
02:31Do policymakers, governments, do they have a role in this?
02:33Are you concerned?
02:34You obviously have a global presence.
02:36It's a global issue, be it in the UK, where your home base is,
02:39here in the US, as you mentioned.
02:41Are you worried that policymakers are missing something,
02:44that deficits are at risk of running out of control
02:47and, again, unmooring the long end?
02:48Yeah.
02:49So the second of the things, which is debt to GDP,
02:52is very much on the fiscal side.
02:54It is on the side of Treasury and finance officials around the world.
02:58And I think, for instance, the UK has a budget coming up next month.
03:03They have to look at that combination of taxes, investment, and spending
03:08and see what they can do to control long-term taxes.
03:12Do you think that appetite's there?
03:13I mean, especially here in the US, Venkat, it's the midterms.
03:15I mean, that's not really part of the conversation at all.
03:18Yeah, I think, look, political pressures are always great on policymakers.
03:24And maybe you can postpone in the short run.
03:27But these things are unavoidable in the long run.
03:30There's fiscal discipline is a really important virtue.
03:33But is the bond market the only thing enacting that fiscal discipline now?
03:36Is that the mechanism for that?
03:37That is an important mechanism.
03:39So you mentioned technology, too.
03:41And I'd be remiss if I didn't mention the moment that we're kind of living in.
03:45AI fears reached a fever pitch over the weekend.
03:47And I wonder how you think about it.
03:49You know, this is an industry.
03:50Barclays itself is also a big part of just the funding of AI.
03:54Do you think there's a responsibility of this industry to help slow the advancement, too,
03:58if this is what we're worried about, some cataclysmic event of humanity itself falling under threat of AI?
04:04Well, I mean, certainly the people who are deeply involved on it have raised this issue,
04:11raised the specter of this.
04:14I'm certainly not as well informed as they are.
04:17But I think it would be good of them, as they've raised this issue,
04:20also to give us concrete proposals on what they think we should be doing.
04:24Now, at the same time, raising the specter at the extreme, in my opinion,
04:29does not take away the value of the mainstream capabilities of AI
04:34to help improve companies and to make them more efficient.
04:37That's what we are looking to do.
04:39One of the things I just said in our session a few minutes ago
04:43is that to me in financial services and in Barclays, certainly,
04:47AI is the icing on the cake.
04:48It's not the cake.
04:49The cake is the development of the infrastructure, data, compute platforms, and so on
04:55to make ourselves more efficient so that then we can apply AI and gain on that efficiency.
05:01And I think that virtue is still there for us.
05:03Is there a risk, though, if there is some sort of coordinated slowdown
05:06of both the advancements of the technology and the benefit it gives you
05:10and just the benefit it's given to capital markets,
05:12be it volatility or deal-making?
05:14What's the risk if all of that starts to slow down?
05:16Well, certainly, AI has been an important part of both debt and equity markets.
05:20And if that slows down, there could be an impact.
05:22And I would say, though, that the importance of mainstream AI
05:25in getting productivity is there.
05:27I should say, by the way, there's an important other thing
05:30which we as responsible corporate leaders have on us,
05:33which is that as you use AI and as you use technology for efficiency,
05:38the size and the shape of our workforce will change.
05:41And we've got to make those transitions easy for companies, for individuals,
05:46through reskilling programs, through training programs.
05:49I mean, we've been living through the AI disruption for the better part of a year plus now.
05:53How has your thinking evolved in how the workforce and how Barclay's workforce is evolving in line with that?
05:58Yeah. So I think there are certainly some types of jobs that will get affected
06:03as efficiency increases.
06:04What we are doing is trying to train people so that they can apply for different jobs
06:08and to develop the skills that will make them actually more successful
06:12when the AI impact is fully seen.
06:17We think there's going to be a great growth in personalization of services,
06:20in understanding and anticipating what your customer wants,
06:23in improving the cost of service and the efficiency of service,
06:27and making innovation happen more smoothly.
06:29And these are the great opportunities for people.
06:31For those just joining us, we are sitting down with the Barclays CEO on both TV and radio.
06:36And again, we've been discussing this idea of AI.
06:39Another aspect to this has been the boom in M&A.
06:42And it's a boom that Barclays has been participating in,
06:44but maybe not as much as your peers.
06:47You weren't on the SpaceX IPO.
06:49Your U.S. rivals seem to have gotten top billing on the Anthropic IPO.
06:53Is something missing with Barclays?
06:56So we were on nine of the ten big IPOs in the first half.
06:59We were actually in SpaceX in the U.K.
07:01I'm not going to comment on anything that's coming up.
07:03Sure.
07:04But look, I'm very happy with the progress of our investment banking franchise,
07:08whether it's IPOs and whether it's M&A.
07:11We have a robust pipeline.
07:13The first half was good, and the second half, bankers are busy, let's say.
07:17They're busy.
07:18And they have someone new coming in, too, Mike Zhu, Joe,
07:22who you recently hired from Bank of America to co-head the investment bank.
07:26What's the mandate you've given him?
07:27What is the bar for success?
07:29Well, look, I'm very happy with the progress we've made in the investment bank so far,
07:33in banking and in our corporate banking.
07:36As I look forward, I want, you know, I think one of our great strengths in Barclays
07:40is an integrated investment banking offering between our trading and markets division,
07:44our banking division.
07:45And to continue to accelerate our growth in an integrated way across all the products we offer.
07:52That is the mandate to him and to Adil Khan, who's going to co-head the investment bank with him.
07:57It's tough because there is sort of this structural difference in how your U.S. peers approach just talent
08:01and the amount that they can pay for them.
08:04Do you have to compete on that remuneration level also to get top talent here at Barclays?
08:08We absolutely want top talent.
08:12We are very competitive with the top talent, and we think we give them a great place in which to
08:16work.
08:17And a great pay?
08:18Yes, absolutely.
08:19So, I mean, compensation is an important part of this.
08:22It certainly is.
08:23What about commodities?
08:24That's been a boom also for the banking sector, too.
08:26Is that an area that you'd want to lean more into?
08:28We do a little in commodities.
08:30Right.
08:30What we don't do is physical.
08:33And I think, you know, look, if you step back on Barclays, we're the house that fixed income built.
08:40Our financing, our credit trading, our interest rate trading desks and businesses are among the best in the world.
08:47Our financing, both in stocks and bonds, are among the best in the world.
08:51Our equities division has been doing very strongly recently, very well recently, rounding out the franchise.
08:56So, I think we've got a good, broad, stable markets business with the right blend of financing and intermediation.
09:04And I'm very happy with our geographical and sectoral coverage.
09:07But things like M&A commodities, you wouldn't want to put more resources into now, considering just how big of
09:12a boom we're living,
09:13whether it be energy uncertainty or deal-making coming back?
09:16So, we have a very active investment banking franchise in energy.
09:20It's one of the leading ones.
09:22On the trading of commodities, you know, we're taking a more careful approach.
09:27Sure.
09:27What does more careful look like?
09:29Is that eventually watching?
09:31In my opinion, you can do the securities.
09:34I think the physical is very hard.
09:36So, just in the final moments I have you, I'd be remiss if I didn't ask about this current political
09:41moment in the U.K., too.
09:42We've touched upon it when it comes to deficits.
09:44And certainly fears of a banking surcharge are present.
09:46In the last earnings, you had said that your conversations with the chancellor had been productive.
09:50Are you getting any assurances at this moment that surcharges for the financial services industry won't be increased?
09:56Yeah.
09:57Well, we just spoke earlier.
09:58I think there are two parts.
09:59One is what's the actual impact.
10:01And I think the amount of revenue that the government gets out of all of this across the banking system
10:06is not that great.
10:07What it does is sends a signal to any industry that's successful that there can be a Damocles' sword hanging
10:15over your success.
10:15Look, the more successful we are, even at a constant tax rate, which is, by the way, the highest for
10:20banks among the major jurisdictions, even at a constant tax rate, we pay more if we make more profit.
10:26Right?
10:27Increasing that percentage take is, I think, not a good signal for growth.
10:33But, you know, let's see what happens.
10:35I think a lot of people would agree with you.
10:37Do you think this government agrees with you?
10:39Well, we'll find out.
10:40I've had very good interactions with the chancellor and with the government.
10:44I think they understand the importance of growth.
10:47In fact, more so because they talk about growth in every postcode in the U.K.
10:51And, you know, we as a bank are spread all over the United Kingdom, and we want to contribute to
10:56growth in every postcode.
10:57And the more capital we have and the more capital we retain, the more we can lend into the economy,
11:03which is what we've been doing and want to do.
11:05We want to be a productive part of this.
11:06I mean, worst-case scenario, many have floated somewhere going from 3% to maybe 8% of a surcharge.
11:11Is that something that Barclays could absorb easily?
11:15Look, the bank is running well.
11:16My issue is a simple one.
11:18It's an issue of principle.
11:19We think we can best help the country grow by investing in the country and lending into the country.
11:25And, therefore, we need all the capital we can to do that.
11:29That's a great message to leave it on.
11:30Venkat, thank you so much for joining.
11:32Thank you, Denny.
11:32And thank you again for having us.
11:33The 24th edition, I have that right?
11:35The Financial Services Conference.
11:37We love coming here.
11:38Thank you for having us.
11:39And, again, to our TV and radio audiences, that was the Barclays CEO, CS Venkata Christian.
11:44And, Isabel, with that, I will send it back to you for the opening bell.
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