Credit Suisse and UBS says merger has two important consequences, one for the
financial system as a whole. It has stabilized it because a slightly
wobbly SIFI bank is no longer there. It's absorbed into UBS in a very solid
transaction. The second is as UBS develops its
business model. It will be for Barclays, both an
important client for our markets business and a competitor for us in
investment banking. But that's the way all large banks are
with each other these days. NIKKEI, how do you keep score?
I mean, one way we look at it is price to book.
And your price book right now is somewhere around point four for your
lagging behind what you're prepared. Do you pay attention?
A price to book? And if so, how do you get that price
book back up? So I pay a lot of attention to price to
book. It's probably the single most important
metric for a bank, and a bank's price to book is dependent on
one of two things improving the quality of your assets or improving your
profitability. We have excellent assets.
So it's our profitability and the scaling of our profitability that we are
focused on. So within the UK consumer business and
the investment bank, as I said, we are at scale and we look to continue to
perform well. And then the other three businesses are
areas where we would like to grow our scale.
Our investment bank is about 60 percent of the bank.
In a way, it's been very successful. And what we would like to do is while
keeping its momentum growing, the rest of the bank outside of the investment
bank, how much is this make? Are the bankers that you have because
you have had some exodus to Jefferies to other places and you've remarked about
it, actually. What is the issue there?
Why are you losing investment bankers? Are you losing the ones you want to
lose? So, first of all, we are losing a few
investment bankers, but not that much more than what is normal annual
turnover. I mean, this is the period in the first
few months of the second quarter when people have been paid their bonuses.
And there's a little bit of musical chairs, as you know.
It's a time honored tradition in this industry.
We made a management change in our investment bank.
We spent a lot of time last year thinking about what we expected the
banking landscape to be over the next decade.
So what you've seen is rising interest rates, changing business models, the
importance of sectors that are fairly new to the economy, not just technology,
but sustainability, mobility, climate, tech.
And then there is just the different players and the importance of the
players in the banking market. The private equity groups have been very
large. Private credit funds are becoming
bigger. They are slightly dissenting, mediating
what banks are doing. And we as we began with a very American
investment bank here in the US, based from the Lehman acquisition of Barclays,
and we have grown in Europe. We wanted to put more emphasis in Europe
as well. So you bring it all together and you're
talking about us thinking about the next generation of leadership of the
investment bank. Building on our strengths and debt
capital markets, but growing in equities, growing in emanate, growing in
Europe. And when you do that kind of
organizational change, sometimes it has impacts what you suggested, something I
was curious about. Is there a strategic shift in emphasis
in the investment bank a little bit away from United States and toward Europe?
Because as I recall, your to call hedge before were based United States that you
call hedge now or group based in Europe. One is in Europe and one is here in the
US. So this is not a shift so much as an
expansion. It is to try to give more attention to
Europe. Relatively speaking, the US remains
critically important to us and the US businesses.
Some things, especially in the debt capital markets where we are absolutely
leading and we want to maintain that position.
Absolutely. And debt capital markets.
What about equity? Are you shifting toward equity?
We are trying to expand and grow our business in both equities and advisory.
When you look at U.S. expansion, where would you be expanding
if you're expanding? And I said I would love to grow our
credit card business even more. And then our investment banking and
trading businesses, as I said, we are the largest non U.S.
bank. But there's always room to increase our
market share and our reach. There's been a little bit of the shaking
up, if I could put it that way. The U.S.
banking system with some of the regional banks, starting with Silicon Valley
Bank, what do you make of that situation more broadly?
Do you expect more bank failures in that state?
I'm not sure I expect failures. What I expect is concerns and banks
cleaning up their act, if you like. So banks which have asset liability
problems will go get ahead of it. They will try to sell assets.
I think the net effect of it will be a curtailment or diminishment of lending,
especially in middle America, where the regional banks have a footprint.
Are you tightening your credit standards right now?
So the big banks, I think, all tightened our wholesale credit standards through
the leveraged finance business last year.
And, you know, there were many large loans, some didn't get placed.
And so the wholesale banks with rising rates tightened their credit standards,
the retail standards, we have tightened it, but they are margin.
Tighter than they were, say, during Covid.
I think what you're going to see in the regional banks is a tightening of credit
standards in areas like commercial real estate, small business lending, the
things that they do. So you said the magic words commercial
real estate. How exposed is Barclay Commercial real
estate? First of all, not very much.
We will do some direct lending in the UK, but it's small.
And in the US we mostly finance vehicles or portfolios of commercial real estate
assets, but we don't have adequate protection.
And in terms of first loss protections and loan to values, there are some
fairly substantial assets that probably have not been marked to market yet,
particularly in the commercial real estate area.
What is the likely effect of that to be on the banking system in the United
States, but also more broadly in the economy?
So I think two things will happen as they get marked down.
Some lenders and some investors will be exposed.
Hopefully it's equity investors and people who invest in them through hedge
funds or private equity vehicles. Then there will be banks who might get
exposed. And then ultimately, I think as in all
real estate cycles, there will be a surplus of supply, meaning empty
buildings. And then over time that will adjust
itself. You know how to manage risk control
risk. We've seen a fair amount of risk
recently coming from odd places. I mean, Jeffrey EPSTEIN, with respect to
private wealth, we've seen it just with Kristen O'Dea over in the UK with prime
brokerage, your pretty big in prime brokerage.
We saw before with our cargos. How do you manage for very, very large
clients like that who I can. I'll put it go off the rails.
David, it's a very difficult question. It's a very important question at the
heart of our business. We are dealing with people and assessing
the people. Know your client, as they say, is really
important. I think on the one hand, we'd like to
see successful people and work with them.
We also believe in generally we believe in the goodness of human character and
we believe in human redemption. On the other hand, you've got to be
fairly clinical about the reputational risks.
Some of these people pose to our businesses.
So I think it's important to assess your client when you onboard them and assess
them periodically and be very hard nosed if there's bad news.
Well, what about the technology? Last question.
I we hear a lot about generative A.I. What does that hold out for Barclays as
potential opportunities, tremendous potential in how you service your
clients, how you produce documents and and how you sort of manage the business
equally. We are a large regulated institution
with very strict controls over information.
So we've got to make sure we use it in the right way.