Barclays CEO Jes Staley has no fears for his bank's business. We met a few days before British prime minister Theresa May announced an election on the issue of Britain's exit from the European Union, and although Barclays is originally a British bank and is headquartered in London, Staley, experienced banker that he is, refuses to be fazed.
"London is currently the financial capital of Europe, and I think it will remain so," he says in an interview with Globes' "G" magazine during a visit to Israel. "There will be a few adjustments, but since we are such a central player in the country's payments system, we are exposed to economic information in real time, and can confirm the fact that the British economy continues to be strong even after the Brexit vote."
Still, it's not just another event.
"Brexit is clearly a significant political event, but what its economic consequences will be is an open question. It could very well be that the British economy will grow less fast, but the change will be measured in tenths of a percentage point annually, so it will have economic consequences, but we will never see them, and they will never make the headlines."
The separation has not yet begun, and perhaps in the long term it will have an effect?
"There are many uncertainties, and for sure there will be a lot of exchanges of political accusations, but there are many mutual advantages in the economic relationship between Britain and Europe, and in the end they will tell. The important thing is that, unlike in the US for example, Teresa May's government is very focused on free trade and committed to it, and very much wants to maintain the economic partnership with Europe. In the US, by contrast, Trump's administration says every trade deal must first of all be good for us."
Then let's talk about the US. How will the economy there look in the Trump era?
"The US economy is flourishing now, and I think the Trump administration is focused on fiscal stimulation of the economy, whether through lower taxes or through government spending on infrastructure, so that the combination of the two will move the economy even faster that it is already moving. On the other hand, the risk is that the Federal Reserve will also raise interest rates faster. So in my view, in the next few years we will see normalization of US monetary policy alongside a stable and strong US economy."
At least according to his declarations, Trump also intends to raise tariff barriers to protect the domestic economy. Will he really do that, and what will be the consequences?
"It is clear without a shadow of a doubt that he will take action to return production to the US. In my opinion, he will conduct new negotiations on NAFTA, and is seems that he is refusing to negotiate on the Pacific free trade agreement. All this is happening because President Trump rightly understood that completely free trade created many employment challenges in the US, and he won a great deal of political support when he said that 'we must adopt a different approach to free trade.'
"In this context, you have to remember the history. The US did something that very few countries have done in the history of the world. Since it understood that the world was traumatized following World War II, it decided to contribute from its power and economic strength for the benefit of the world, in order to create geopolitical stability, while itself paying a price for that. You live in a tough neighborhood here in the Middle East, but in most of the world, the US recorded a huge achievement in stability and peace."
So you are basically saying that the time has come for "America first"?
"Political reality is apparently a pendulum, and there was a long period of time in which it moved to one side. So to make this pendulum move back a little, towards preserving American jobs, is a step that has a great deal of logic to it."
Another thing that Trump talks about is relaxing the regulation imposed on the banks after the crisis of 2008. Do you think that you, that is the banks, have learned the lesson of that catastrophe?
"The regulation we got – we had to accept. The bank's had frighteningly low equity in relation to risk, and they did not have sufficient liquidity. On the other hand, there are some aspects of the amount of capital that a bank is obliged to hold and of the definition of a risk asset against which capital must be allocated that perhaps went too far.
"We must not of course return to where we were in 2007-2008, but it's possible to ease up a little. After all, in the past two and half years we have seen three crises: the collapse of US government bonds in October 2014, the removal of the rate ceiling on the Swiss franc, and last year's crisis in the pound-dollar exchange rate, which happened in Asia overnight. There are those who claim that these crises stem from the fact that the banks took too much money out of these liquid markets.
"So the banks, that were at the center of the crisis of 2008, had to undergo regulatory reform, and most of it made the banks much safer and the economy better. But that doesn't mean that it isn't possible to fine-tune a bit and to move the needle a little towards the relaxation side."
Some argue that globalization is marching backwards and shrinking. Do you agree with that view?
"When the world's biggest economy wants to reopen all its trade agreements, that is going to put pressure on globalization. And I don’t think that the trend of reconsidering free trade is limited to Trump. There is a wider consensus among countries on this. But there's another phenomenon that affects globalization, and that's interesting in the Israeli context: technology is changing the labor component in the cost of production, and that's one of the most significant phenomena that we're seeing.
"If you had wanted to open a new company to make cars ten years ago, all the consultants would have sent you to Brazil, to India, to China, to Mexico, because of the relatively low cost of production in those places. In your wildest dreams you wouldn't have imagined consultants recommending you to look at Israel and San Francisco. Because if in the past the cost of labor was the most important factor in the value of the car, today it's the engineering innovation. Everything that Israel is doing in, for example, development of the driverless car, is part of this."
"Something is going well here"
Staley, who came to visit the Israeli branch of Barclays, managed by Len Rosen, does not hide his admiration of what has happened in its environs. "I came to Tel Aviv twenty years ago, and today it looks like a completely different city," he says. "Evidently something is going well here. I think that creativity and innovation have certainly helped the Israelis, whether in services and technology, or in development of the natural gas resource. Strong businesses produce more strong businesses, and Israel is going to be a country that exemplifies the positive power of technology."
Barclays is one of the most important players in the Israeli capital market. The following is a partial list of high-profile deals in which the bank participated:
- $40.5 billion acquisition of Actavis by Teva
- €2.25 billion State of Israel bond issue in Europe
- $811 million acquisition of EZchip by Mellanox
- €415 million offering of Israeli real estate company ADO in Germany
- Offerings totaling $700 million by CyberArk
- $572 million acquisition of Alon Energy USA by Delek US Holdings
- Offerings totaling $1.8 billion by Mobileye
- Offerings totaling $220 million by Kornit Digital
- Advising Syneron, the $400 million sale of which to Apax Partners was announced just last week
In 2011, Barclays opened a research and development center in the framework of the Israel Innovation Authority's financial centers program for supporting Israel's fintech industry, and a year ago, in April 2016, the bank opened its Rise technology accelerator in Tel Aviv for young companies developing solutions for the bank.
You support the adoption of financial technologies and the start-up companies that produce them. Is that out of fear that otherwise you will be overtaken by fintech?
"Technology is changing banking dramatically. At Barclays we now have six million people in Britain who run their bank accounts only via their smartphones. I really like the innovation I see at Barclays, but I don't think that small fintech companies are going to challenge us.
"Take for example a fintech company that has a payments system platform, and for some reason it stops working – a software bug or some other hitch. Not pleasant, but it doesn't cause huge damage. By contrast, every day, 30% of Britain's GDP goes through Barclays payment systems, and a shutdown of a few hours is dangerous for the British and global economies.
"Large corporations like Microsoft or Barclays need robustness and stability, which are critical to the economy, and very expensive to maintain, and certainly to build from the ground up. So I'm not concerned that new technologies will harm Barclays."
Published by Globes [online], Israel business news - www.globes-online.com - on April 30, 2017
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