INTERVIEW: Barclays CEO Sits Down For An Exclusive Conversation With Bloomberg

I am delighted to be joined by the Barclays chief executive officers.

Then, Kat, thank you for joining us.

First of all, congratulations a pretty strong set of results. A lot of it has to do with fake What do you see in terms of main drivers going forward?

Yeah, thank you frand Scene. Great to be here with you. And yes, it was a very nice set of results this morning that we were privileged to publish. What I liked about the results friand Scene is not just the numbers, but the composition of it. And Fink was an important part,

The first is.

The investments which we've made in our business, whether it's in our credit card portfolios in the US where we acquired a gap portfolio of ten million customers, and whether it is in our market's business where not just investment in technology and people in fixed income, but also in our trading systems, but also in financing, both in fixed income and in equities prime, which continue to help us in this environment.

So if you look at FIG Trading, are you expecting this momentum to go into the second quarter?

So we hope to keep the market share that we have gained with our clients over a number of years. To persist, we've broadened and deepened relationships. The actual dollar amount of revenues, of course, goes up and down with volatility in the markets, and that's much much harder to predict. But what we try to do is to have that capability.

So is this a kind of diversification for the rest when you look at your main drivers going forward.

Well, what we hope is that we have a lot of drivers and that at the right times in the market, that they all are there and they click. So, you know, the first quarter of this year was a lot about the bond markets. Interest rates went up and down with the stuff in banking that happened in the US, and I'm sure we'll talk about that. The first quarter a year ago was about equity ball single stocks, and then our equity business was ready to capture that. So that's

So when you look at marked was pretty incredible.

When you look at the banks starting with the SVB and then CREDI, sweez. Does that mean that you had deposits that people come to you because they were afraid of other banks.

So the UK has been more insulated from that deposit flight across banks then certainly the US has been between the regionals and the big.

Money center banks.

Having said that, our deposit franchise grew by about ten billion pounds during the quarter, and a lot of that was actually people corporates putting deposits with us. On the consumer side, it dropped a little, but that seasonality we expect as people pay their income tax bills and draw money from their accounts to do that. So the deposit franchise has behaved extremely well and predictably.

But it's also for US.

It's a deposit franchise that we've built over decades, right, with a very nice mixture of individuals of corporates, small businesses.

But do you expect the worst of the banking turmoil to be over?

It's unclear.

So some people think that there was a banking turmoil in March. Others say, look, it's two specific cases for two specific reasons.

How do you see it going forward?

So I think I think the Credit SUEEE was a very specific case, while I think Silicon Valley Bank was a specific case in terms of its circumstances. It has highlighted an issue with some of the regional banks in the US and that we will see continuing to play out, maybe in a small number of names. And we've seen First Republic over the last couple of days, so I expect that we will see over a small number of names. It's not going to be systemic in any way, but there will be repercussions.

And it hasn't changed the way in which Barclay's behaves all. As you said, the UK was pretty immune to that. Or are you looking, for example, at possibly buying c forrety sweet assets?

So the UK has been immune from the deposit franchise. Obviously, what's happened in the US and with Credit Suite affected market volatility, especially in interest rates, and that our trading businesses engage in the coming back to assets. Look, we have built up our business over quarters and years. We have you know, we when Credit Suee got out of the prime business, we hired a few of their people and some of their clients chose to work with us,

When you look forward into what the banking you know, the banking world looks like, are you expecting more regulation or are you expecting also consumer behavior as would possibly go into a downturn.

So on the banking world, I think regulation will with some delay and with some benefit of perspective. Look at what happened in March, and whether it's thinking about liquidity, whether it's thinking about you know, the digital nature of liquidity, how fast people can withdraw. I'm sure they're going to look at it. They're also probably going to look at

But do you see distress in the market.

It's pretty incredible to me to look at interest rates going from one to five percent without you know, that much breaking.

Yeah, so I do think that you're seeing an impact on consumers. That impact has been really really cushioned by the starting conditions because people had more wealth, and by

So that's a reasonably big number.

We've also seen that when in March, when we look at the spending data of our customers debit card and credit card customers, what we've seen is that while inflation year over year was called it nine percent, their expenses went up about four or five percent. So they're economizing. They're either buying items that cost less or they're spending less normally, and I think so people are managing their

So we heard it from the chief Economists of the Bank of England saying, look, people should accept in the UK that they will be poor.

Is that what you're seeing?

I mean, is that kind of the pattern that you could see in terms of consumer spending.

So yeah, I saw the choice of words and I'm not going to dispute the Bank of England here.

Here's what I would say.

People are shifting their consumers spending I think from more expensive to less expensive, and they're choosing what they spend on sometimes that might just be better, right, But it's obviously happening because of inflation pressures.

But it's readjusting your You're not seeing something worrisome and loans. I know there was an impairment actually in your numbers, you know, what are the details on that. There's nothing something impending that can actually really be worry.

Some we're not seeing except in the very fine margins of very low rates, some increase in stress. We're not seeing that at all. The impairment you're seeing. Our impairment number was around five hundred million pounds compared to about one hundred and fifty a year ago. Most of that is the build up of the balances in our us Cord's portfolio, where it's sort of automatic. We build up balances, we create impairment.

When you look at the world, what worries you in terms of regions, term of spending and how does that impact your strategy. I know India, for example, is increasing its wealth quite significantly. Do you have a strategy specifically for India?

Yeah, I mean India is a very good question. We have long had a very strong investment banking presence in India and it has contributed well to US and in fact we participant in many transactions last year. So I think we will continue to invest in people in our capability in India. You know other parts of the world, I mean, we have generally outside we've concentrated on Europe,

Did the Imbani saga change anything in how people invest in India?

I don't think so. I don't think so.

It seemed particular to that company, and that company seems to have taken quite a lot of steps to improve its own financial position, So that's good.

Is there anything in liquidity that you worry when you look at the functioning of the markets.

It's much better now than it was six months ago, particularly in gelts. So let's begin here at home in London. The guilt market, as you remember from September October was quite something, was quite something. That market has the strains in that market have considerably improved, and you can see it in the improved quality of Sterling. I mean Sterling is eking its way back up, So that market has improved. I think in the US markets there have been spots

Case scenario for the dead ceiling. And I don't know whether you actually model this worst and best case scenario. So best case scenario, nothing really happens. Worst case scenario, could we actually see a US default?

I very much doubt it. I very much doubt it.

I think we've gone through this before and solutions always prevail. And people in Washington are beginning to talk, and there are proposals on both sides of the island Washington. So I think it's all of us have to prepare for these eventualities. But I doubt this eventuality will come.

We're here in Canary Wharf.

You are the most beautiful actually if you I think of all of London. Are you committed to Canary Wharf and London?

Yeah, well, we've just built four new wonderful trading flows in this building, and so we have invested in this building. We've invested in Canary Wharf and in London, you know, and across the UK. You know, we've built wonderful campus in Glasgow, so we do like to have a presence across the UK.

You've also come back after you know, a tough year. Yes, what's it been like coming back?

Thank you? It's actually been wonderful to come back.

You know, I was sick and I worked for a few months through my treatment, but I worked at home and sort of to reflect on that and reflect on the hybrid situation. What I can say is personally, I have experienced the joy of being back in the office, of being able to interact more casually with colleagues, and I think it's improved my productivity and it's improved my frame of mind.

So I'm very happy to be back.

Has it changed the way you see actually the working model at all for your employees.

It's made something that was in my mind intellectual more tangible, which is I always knew that there was a benefit of being in person and being around the office, and now I've experienced it. Because it's one thing when you're in COVID and everybody is away. It's another thing when you're sick and you're alone, but everybody's in the office, not all the time.

Now, there are.

Many benefits that have come from hybrid working which we should all use and we should we should capitalize on the flexibility and the acceptance of flexibility, which is I think the most important thing, and so we want to keep that. We don't want to dispel it. I'm very happy to say we were very satisfied, you know, Barclay's UK. In the UK, we've been named for the third year in a row as the LinkedIn Employer of the Year, so we hope that we are trying to get that mixed correct.

How do you view AI, that's the big question. Yeah, we don't have an hour unfortunately to talk about it.

So the most important thing for me in that is to try to educate myself on it. From everything I understand and what I have seen, it is and can represent a remarkable improvement in productivity and find ways to do certain tasks better by being able to map relationships as opposed to just a listing of facts. So I think the potential is enormous and I think it behooves all of us and organizations to try to understand what

So what does that look like at Barclay So you're deploying and I don't know whether this goes back to costs. Maybe costs we're a little bit disappointing, but you also have to grow and invest it. Is there a parallel to what you could achieve with a or new technology.

So it's a very good question. I think there is. I think in the end, efficiency will come.

From technology and digitization.

And the question for us, for instance, in AI is when you're looking at patterns and you're looking at relationships. You know, one of the areas where we see a lot of it is in financial crime aml kyic relationships between transactions. Is there a way to do this better that brings efficiency and brings actually better performance, you know, our own costs this quarter? Coming back to that question,

Anything that worries you actually in the next two to three years, I mean today was a strong day. Yeah, I think we're also looking at you know, fake and the only bank that did as well as you was probably Bank of America. How hard are the next twelve months.

Going to be?

So I think there's a part of there are three parts to that. One part of hard is how's the environment going to be and I think that's a little hard to predict. I mean, we've been very cautious for the last number of quarters. But if you told me on the first of January of this year that in the first quarter the sector that would be in crisis as banks, I.

Wouldn't have believed you. So the thing is we don't know.

So I think that volatility alone, while it brings opportunities in certain businesses, for us, is something that gives us caution. Right the investment banking landscape, now we did well in investment banking.

We actually had very.

Strong results, but we were the least negative, right, So that business itself is smaller for across the street because fewer deals are getting done, IPOs are scarce. So we think those are all things that weigh against it. I think on the consumer side, while the consumer is still holding up, if the pressure continues for longer and longer and longer, we have to worry. So I think it behooves us to be cautious.

When are you expecting all of the you know, the pipeline of deals to come back to normalize.

I think you've got to see the end or the science of the end of the interest rate cycle. When you and I last spoke in October, I had said I thought it would be in the middle of this year. I still think, give or take, it could be. It

So we have to see.

But it's probably closer to the end of the year in the middle part.

So this is basically montary policy transmission, right.

The fact that it could take up to eighteen months or I mean everyone or the market is expecting cuts from the Fed.

Yeah, is that your base case?

No?

I think first we have to see the stop. We have to see interest rate rises stop, and then I think there will be a holding period, a.

Holding period so where we have higher interest rates for much longer.

Is this a new.

Normal, Well, it could be an old normal. I mean thirty years ago, this is what it was. Right when I joined this industry, the FED funds rate was around five percent. So the question is whether what we've seen in the last twenty twenty five years was an abnormal period of low interest rates, and what we are going back to is actually what it should have been over the much longer period of time.

Is that how you see it, that this is normalizing instead of the new normal?

I think I see it personally as normalizing, but that may reflect my age more than anything else.

But it changes I mean, I guess it also changes trade or you know, psychology and market psychology.

If this is going to.

Be for the foreseeable future where we are.

It does it does?

I mean, first of all, if the risk free rate has now become five percent instead of zero, then it changes the hurdle for a whole host of investments, which is what you're seeing right, what you're seeing in the market.

The second is the transition from zero to five.

While it is well telegraphed, not very many people have lived through it, and you are seeing that again in the way in which certain acid portfolios have reacted to rising rates. We have tried to position ourselves carefully for it, but nobody gets this perfectly. And then once you stay at that higher level of rates, we've got to look at what volatility there will be and how business models evolve, and you're right, that's going to be new and different.

You also have a former shareholder activist of Barclays that says there should be a probe into you direct ties with Jeffrey Epstein, Like, what's your response to that.

Well, so two things I think. First of all, there are new allegations. Our board has spoken about these new allegations. They're serious. We are in no position to comment. I'm in no position to comment. They are being adjudicated in New York and we are not party to that, so I have no view on that.

I know our board well. They're very thoughtful, deliberate people.

Deliberative people, and while I was not a member of the board, I know individually and collectively that they employ very careful and.

Detailed processes to reach their decisions.

Kat, thank you so much. That was, of course a Barclays chief executive officer. And I also dicorrect myself because I think I meant a dining instead of umbona, So that was my fault.

That's okay.

Thank you so much for your time with us today.