Dave Francine.
Now we usually actually start with a bit of banter at the top of the show, but we have such a big guest today, we're skipping the banter and just getting straight to it.
That's absolutely right. Let's get started.
I'm Francine Lacqua.
And I'm David Merritt, and this is.
In the City, Bloomberg's podcast, connecting you to the conversations at the heart of the City of London.
And this week our guest is Barklay's chief executive officer, cs ven Kata Krishnan, joining us for I think his podcast debut.
It is my podcast debut.
Yes, thank you, well, we are very honored to have you on your podcast. Dut congratulations for joining in the City. We're sitting in New York. We have Francine sitting up late in London joining the conversation. Let's just start right in with the big question. You know, the headlines at the moment in the markets are all about nerves. I was just reading a headline on Bloomberg jitters in Wall Street, whether it's the bomb market, interest rates, the stock market.
There's a lot of nerves around a recession and if it's coming when it's coming.
How are you feeling at the moment?
So I do think that of rate moves has caused some amount of tension among market participants. I would like to take the longer view on this. I think what you've seen over the last two years is obviously a fairly substantial rise in short term rates and long term rates have adjusted accordingly. In the major economies of the world, I would say the US has been the most advanced in the rate rise. The UK now is not far behind, Europe is still lagging. What that has done is addressed
the immediate headline issue of inflation. The next question, which is something many of us have been asking about for some time, is how does the real economy, How do real businesses adjust to a world in which interest rates are higher and higher for longer. Because I think the one thing people do not question is that we will see call it four and a half ish to five percent ten year rates which have a currency you're talking about,
for some time. And as that settles in, people worry about what employment will do, and they're also at the same time there's a little bit worry on the long term side as to what's going to ultimately happen with inflation. I think it's just as six months ago or eight months ago, it was too soon to declare victory, it's too soon to declare defeat.
Right, So you're not looking to you jittery. I mean you're looking quite relaxed, and you've got an amazing rigul side seat in terms of how companies are doing, how the consumer is doing. Yeah, you seem fairly sanguine about where we're all.
Look one in as a big bank CEO, you're never sanguine because you're always worried about what might go wrong. But to think about what might go wrong does not mean it will go wrong or it is likely to go wrong. I mean we should all worry a little about if higher rates do get substantially higher, and what happens to business models.
But at this.
Stage, I think we have to see employment and watch employment. Employment, or rather a low unemployment rate, is the most critical measure of consumer health because as long as people have jobs, they will spend. And I'm hopeful that employment continues to hold up for various structural and other reasons on both sides of the Atlantic.
Venqatte, do you worry a little bit more about the US economy. We're talking about a credit crimeter. It's not easy out there, and I know, you know, things are looking better certainly than they were six months ago, but you've been in charge for two years. It's been a roller coaster over two years. For the market.
It has been a roller coaster for two years. I think the most important thing coming into this and coming into this rate rise is consumers on both sides of the Atlantic have been very, very cautious about their spending.
So one simple statistic in the UK, where obviously it's a more densely banked system and we see a fair amount of the payments that go in through the system, But one simple statistic in the UK is that over the last year, whatever the inflation print has been over a previous twelve month period as high as a ten percent and you know, down to around six percent more recently, the trailing twelve months spending growth that we saw in our own debit and credit card systems was half the
rate of inflation. So prices go up ten percent, people spending goes up five percent. Part of that is economizing going down market in terms of where they shop, what they shop for, how they shop, and part of it is cutting out certain more expensive kinds of expenditure, so discretionary spending on either holidays or big ticket items. They've done that while they've kept their jobs. It's a good
thing now. In part they've had to do that because their paycheck has been eaten up by two other things. Energy price inflation, which went up very high, came down. Of course, oil prices are going up again just a little now, and then at the same time, especially in the UK, a mortgage rate rise. Now, the US market responds less to that. I mean, there's just it affects the price of houses here and affects how many people
buy new homes. But because we have more of a fifteen and thirty year rate market in the US, it affects individual is less. But people have been adjusting, and that is the hopeful sign.
Do you worry about a credit crunch anywhere, Venkattie. After a couple of more months of this, or a couple more quarters, people can't afford to pay the bills. People are struggling to repay some of their credit card.
I'm not worried about it.
As long as energy prices and interest rates remain at these rough levels. I think people have adjusted to that.
So it's sustainable at this sort of level you think in terms of credit quality, Yes, it's a very elevated level right now.
Right, it's an elevated level where people have made the financial adjustment. The key to it is employment. People have to have their jobs. As long as jobs continue to be firm, people will adjust their expenditure levels to match this.
Right.
You know we look for kind of warning signs, don't we read flashing signs in the jobs market. Blimberg has an interesting tracker from Reed in terms of job vacancies. Now, James Reed has said that their indicators are never wrong about recession. It started to flash a bit red. That's about employment in Britain and that's a bit of a leading indicator postings for things like that. Are you seeing in your business any red flashing bulbs that we need to be worried about.
I think what we see in the UK more companies are talking about efficiency and they're talking about quote unquote right sizing. At the Conservative Party conference in Manchester, the Chancellor of the Exchequer spoke about freezing civil service recruitment. So those are signs we have to see how they build or hear.
That, and I think, right, okay, the government is putting back on hiring. You know, do you think corporate Britain and corporate America here those signals and think we've got to slow down, are hiring as well.
But I think people companies have been thinking about it for quite some time, and you saw it in tech very earlier this year, much earlier this year.
And you're thinking about our parties, Well.
We always look at the efficiency of our operations and so yes, we do think about it as well.
You're way too optimistic. I mean, Dave and I speak all the time, and I'm usually the optimist, and you're even more optimistic than me. I don't see who's hiring when you look at businesses. When you look at you don't talk about the government maybe hiring less. I just don't understand how we're going to grow from here.
So you're right that as people look at hiring itself, that in the very very short term everybody is a little more cautious. The two things to keep in mind in the UK, to begin with, is that there was a real structural supply shock in labor post to Brexit, right where the labor four shrunk and it wasn't that long ago we were talking about people and in fact the Chancellor of the Exchequer spoke about it again in
the UK. We were talking about people who were retiring early and the impact it's having on benefits, people who should be able to work but we're not willing.
To work, resignation and all.
Yea. So it wasn't that long ago we were talking about it. So I think our mood gets amplified one way or the other, right, And so I wouldn't sort of say so, Francine, I rarely would disagree with you, So I wouldn't say that I'm optimistic. Perhaps I'm a little calmer than I should be, so.
Very very calm indeed't it? What about the whole banking industry as a whole? In your industry, I mean, as Fancy said, it's been an unbelievable couple of years. But you know who would have predicted Credit Swiss would cease to exist, to've had the SVB de Bacala this year. I mean, how does the industry feel for you at the moment? It feels a little bit like it's perilous times for banks.
It depends on where in the industry. You asked that question, and I think the large banks, the megabanks, banks like Barclay's, the gesfees, the money center banks in the US have all spent a number of years improving their capital, increasing their liquidity, managing their risks more carefully, and we all
feel in a better place because of that. Now, the latest rules on Basel three point one caused some amount of nerves among people, but it's coming at a time when we are all well capitalized, and none of the very big banks were being called into question this year.
What you had was therefore other pockets.
One is fintech, where obviously there was a business model which was based on cheap money, which is getting tested and they've got to show real profitability. And ultimately size catches up with you in some of these smaller firms, because do you have the ability to put in all the systems, do you put in all the checks and balances in terms of KYC money laundering and so on?
And you see that about certain firms. And then in the UA regional banks where they were a certain size now where if they creep up to about one hundred billion dollars, they get caught in the regulatory net, and of course there was an acid liability issue which came to the fourth in February March. Credit suite occupies a different part of this universe. It was a bank that
was having difficulty coming into this year. And if you had said to people in January of this year that credit switee might have difficulty in twenty twenty three, I think people would have accepted it because we knew that they were dealing with deep structural issues.
The others were more surprising.
If you think about your business then now as it stands, where are you most concerned about? You know, the IPO market has been pretty deadly. You did get a great mandate on ARM, as we did, but what does the pipeline look like? I mean, particularly in investment banking.
Yeah, I mean there is a sentimentality or sentiment driven aspect to that pipeline. I would have said a month ago in early September, especially with ARM Instacart coming, people who are a little hopeful. Interest rates have risen since then, and those IPOs themselves have traded off a bit from their initial peak, so people are cautious about the IPO market.
Sentiment has to come back for that because it's a fundamental driven thing in terms of the build up to the decision to do an IPO, but the timing is sentiment driven. So I think if you look at it overall, there is a challenge in the banking environment. Number One, you've got deal flow which increased very slightly at the start of September, still looking that the revival is looking a little further away. I'm still hopeful by the way that if things settle down, deal flows come back. So
I think you need to look through this period. You've got interest rates which are peaking for a bank, it would lead to a peaking in net interest margins, and then market volatility which is there but less than it used to be, which will obviously impact the way you think longer term about trading revenues. All this means is, I think some stability in bank earnings as opposed to a shrinkage or tremendous growth, right, and for growth to come back, one of these things has to reverse.
What does that mean vencav for hiring and firing. So I know there's a number of also big Wall Street banks that are going through downsizing. I don't know how quickly you can see those green shoots coming back into hiring for certain parts of the bank.
So I think again, despends on the part of the bank you're looking at. If you're looking at the fundamental expense, the fundamental hiring which all of us do in technology, in productivity enhancement and investing in our systems and making the place run better, that will continue to happen. If you look at hiring related to trend actions, especially in the investment banking state, it's probably platetered and uh it's it's you know, you're going to have to wait to
see deal volume come before people build that up. And I think on the market side it's also going to be stable. So I think what I would say is stability, not growth.
So you were telling me earlier you just got back from the Tory conference in Manchester. You know a lot of talk there, you know about the growth agenda, and I read with interest your op ed in the Times about a bold agenda being needed for Britain, right, and I think, what do we hear for the Prime minister this week? We heard a strategy based around scrapping a rail line, increasing the smoking age and tweaking a levels.
Is that the sort of vision that Britain needs to kind of match the US levels of growth.
Well, I think there was other things.
There were other things that that the Prime Minister and the and the Chancellor said, including increasing investment into the UK, investment in important technology and sectors where the UK has a comparative advantage or a competitive advantage, including the life sciences, entertainment and obviously the digital economy. You know, some of the important chip companies and AI companies are headquartered in Britain and the lifetimes.
Yeah, so I think.
But equally so, I think they talk about that investment and they talk about the increase or the need to increase the equity risk culture in the UK, which is I think a very important thing to speak about. I should also say we spoke about the Tory conference. I think the Labor conference is coming up. The difference between Tory and Labor in the UK in these issues is
not as wide as it used to be. Yeah, I mean, I think in our lifetimes we have never seen such a small difference between the way labor thinks, the central part of the Labor doctrine and the Tory doctrine. And that's actually a good thing for the UK. Because it diminishes political risk.
Are you you bullish on the city of London again? There has been so much I guess outpouring of downbeat news that a lot of people are saying, look, the UK is now turning a corner that things can only look up. Do you agree with that assessment or were we always too tough on the ukn city of London.
I think there's a natural tendency to be a little tough on the city of London. I think certainly there was a lot of sentiment that happened with Brexit, and you know, there's a natural readjustment of the financial operations of companies from London to Europe because they couldn't serve Europe from London. But that is not to overlook the
many advantages that the UK have. Everybody speaks about them soft and hard in terms of workforce, education, rule of law, and then there's the professional disciplines that support a banking industry. Most important to me above all of these things is the approach of the UK public, the UK institutions, the UN, UK regulators, in the UK government to the financial industry. The financial industry in the UK is a source of strength.
It is a critical competitive advantage to the country. Barclays brings in two billion pounds of foreign exchange jarnings every year into the UK because we sell UK financial services globally. Now, the love hate relationship in the past has been driven probably more by bankers not behaving as well as they should.
I certainly hope the industry has put it far behind it and I think a well run, well regulated industry, regulated both by the pr in the FCA and the Treasury, and well managed by the participants in the industry of which we are one should lead to a greater amount of cooperation between the City of London and the government, working together on common goals to advance growth in the country and in investment into the sectors which need them. That's what my article in the terms is about.
Right, right, And when you interviewed the Chancellor, you told me sat the other side of the desk in Manchester, do you have faith that he has got the right agenda for this pro business stances, because you know, the last few years have not been great for the relations between particular Conservative Party and the city in business more broadly.
Yeah, I mean, look, I think you always are going to have voices on either side of this. But I look in two ways. I look in main at what the sort of the main part of opinion is and the centrality of opinion, if you like, the central part of the distribution, and that I think is very friendly, and it's friendly on the Tory side and it's friendly on the Labor side.
So that was to a point.
You know that the convergence of the two parties really whoever wins if we get an election yet next year, which it seems like we will, the city doesn't really mind who wins, just as long as the kind of policies are continued.
Yeah, I think the city should welcome the state of affairs on the confluence in thinking on economic policy, the role of the financial industry in.
The UK and the role of growth.
Now, obviously there are differences in Labor and between Labor and Tory on various other things, not my job to get into that, but on the central aspect of economic policy, financial regulation, the importance of the financial industry, I think they're far closer together than they are a part.
But when kat, what do you need from government right now to make your life easier? It must be sometimes frustrating, right to see valuations of Barclays or other big banks, and then you look at other companies that probably didn't even break a sweat or actually did any profit with crazy valuations because they're in a different sector. So what will make your job easier in two years from now?
So I actually don't think that's government's job. I think it's our job as bankers, as people who run companies, to produce good return for our shareholders, to distribute those returns and have them believe that we can do so, and if we do that job well, they will reward us. Right, this is much more in our hands than anybody else's. So in that instance, I.
And are you frustrated? And get are you frustrated about valuations? I mean, banks are so complex, especially in regulation, and sometimes the valuations may not match up. Is that a frustration? Do you think about that?
Look?
I spent a lot of time thinking about valuations, certainly of Barclays, and of course I look at the industry. It's a difficult industry. There is a risk premium attached to this industry, both in terms of our exposure to the macroeconomy and what people believe, especially parts of our business model, the investment banking parts of the business model. How they think we are vulnerable to the ups and downs of markets. We try to run our business well.
We try to manage our risk carefully. It's our job to continue to great returns reliably, and then shareholders will reward us. Will you get frustrated from time to time? You can, but you know we've got a job to do, and if we do the job, I'm certain over time we'll get rewarded.
Venkette, I know you're focused a lot on green tech, and it's something that you know is close to you. But how do you see that developing? There's there's seems to be a bifurcation about on countries but also companies that still want to be ESG friendly and green. Is this now more of a difficult question than almost two years ago?
I don't think it is. I think I think the train left the station. I think we are moving towards a world which will align to net zero. We Barclays hope to be aligned by twenty to fifty. Some companies will do sooner, some will do later. We think we will move towards that world. When that happens, I do not know, but the factors that are driving. It will happen. People will emit in greenhouse gases. Over time, people will use fossil fuels less. Companies will invest more in renewables.
Companies will invest more in either capturing carbon or making more efficient the use of fossil fuel so that less carbon is emitted. That's where green tech comes in. It will change industries like agriculture. There will be a greater use of nature based solutions, both to deal with the consequences of climate change and to help mitigate the impact of climate change, you know, like mangroves. We're involved across
all of this. There will be zigs and zags, you know, and industries that were out of favor, like nuclear, will come back into favor.
I think.
So, I think that we are on a path towards a cleaner, greener world. There will be zigs and zags, and fossil fuel usage may increase before it decreases, but ultimately it will decrease.
Please, as a leader in this transition.
We are a great advocate for it. I hope you're a leader in investing, in financing in companies that do it, bringing them to market, and in advocating for them. So yeah, I would like to be a leader and this and we're trying very hard to be.
Thank you so much, thank you.
Wait now we have to talk about cricket. Oh yeah, this is my one chance. O. Wait, I learned the rules for you.
Hold on, okay, what are you going to get to the World Cup?
No?
I'm not going to go to the World Cup, but I'm going to watch it intently.
I know nothing about cricket. I had to learn the rules just to make sure that if you told me something very complicated, I could keep up. But are you a huge cricket fan.
I am a very very big cricket fan who's going to win. So I'm going to get a lot of hate mail for this. I'm a very frustrated Indian cricket fan. I they have my deep loyalty, but they go up and down and my beta to them is very very high. I think the Indian team has a real advantage of the home pitch. However, this English team is a very very good team. Has been performing in a sustained way for over a couple of years, certainly in the test
match test format extremely well. You can never count out the Australians and New Zealand's a very good team and Pakistan is a team which all always surprised they don't get as much cricket exposure as they as the others do. So what I'm trying to tell you is it's an open field. I'm not trying to hedge. My sad part in all of this is that the West Indian team, which I grew up watching.
And loving is not as strong as it used to. I would like to see that.
So I was in Mumbai in twenty eleven the last time when India one final and the party erupted in the town. And you know, I mean, it's not going to be in Mumbai the final this time, right, but it's going to be in the Dinamdaba.
Yeah, it's name the Bad and well I watched it in twenty eleven on TV and I'll watch it again this time.
Okay.
I'm also going to ask you because I can't talk cricket. I mean, I'm better at net interest, margins and cricket. So I'm going to ask you, Nkata, how do you keep up with the news or how much do you read?
Do you?
Is it podcasts? Is it papers? Is it TV? There's so much information out there. Yeah, city, there's so much information out there, Like how do you filter everything?
So I this is my first podcast in a champ speaking, I actually don't listen much to podcasts.
I will start now. So you've changed my life. Yeah.
I read about eight newspapers slash magazines every morning and I read them all again at night just before I go to sleep.
Of course, Bloomberg is one of them, and so I go through that.
You know, a couple of UK newspapers, certainly the important US news papers, the financial newspapers, one Indian newspaper, just to get a sense of everything that's going on. And I think it's important to do that.
But when you when you're absorbing all that news you find particularly now you know, talking about the jitters and the headlines, does it wash over you or do you? For you can assimilate all this stuff without it's very hard.
It's very hard to assimilate everything. So there are a few articles on things which for whatever reason I feel close to I read in depth. There are some things where I read the headlines, and there are some things which I would rather.
Not admit to reading. But I do like Taylor Swift and the Jets.
Thank you, Thank you so much for joining us.
Thank you, Transceine, thank you for staying up late in London, and David, thank you, and I'll explain the LBW rule to you. The next time we're on we will need two hours.
Thank you.
Thanks for listening to this week's in the City. We will be back next week.
But in the meantime, if you like our show, please head on over to Apple Podcasts or wherever you listen to podcasts and rate, review and subscribe.
This episode was hosted by Me, David.
Merritt and Me Francin Lackward.
It was produced by Somasadi
Additional editing by Blake Maples and special thanks to The Berkeley's Chief Executive Officer, CS Vankatak Krishna