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Bloomberg Audio Studios Podcasts, Radio News. I'm really happy to say that joining me right now is Barkley's CEO, CS Venkata Krishnan. I'm used to calling you Venkat. It's really good. Good to have you with us over here in Saudi. Venkat, let me just start off by asking you quite simply, how is Barclays affirming its footprint in the kingdom?
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C
Thank you, Johanna. Thank you for having me. We are very excited to be here. We've been in the Middle east for about 130 years through the region and the kingdom. Right now we are establishing our regional headquarters. We are in the process of getting all the appropriate investment banking and other licenses and we are very hopeful that it will happen quickly. The Saudi government has been extremely welcoming, extremely helpful to us in both telling us what to do and navigating us through it. And we think it's a great place to be. So we are also opening our new headquarters here, which we hope to have set up sometime in the new year.
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B
Okay, do you have any plans for headcounts for the new office? Can you give us any more details about where it's going to be? Headcount numbers?
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C
Yeah, the office will be in the King Abdullah financial district and we're getting enough to sort of have a good sized office. You know, we'll build it up as we, as we get the licenses and as we move.
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B
Yeah, and for me, I mean, when I look back at sort of the evolution of Barclays in the region, it was back in 2014 where I believe the investment banking license was canceled. And we fast forward almost a decade later, you're coming back into the kingdom. At the time we reported that there was a lot of competition coming through from some of the local banks. Why is this time going to be different?
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C
Well, Barclays is different. Saudi is progressing and the UK Saudi relationship is extremely strong. We represent all parts of that. We have a great global investment bank and we think it's important to lead with that. We are not here to compete in retail. The Saudi and the local banks have an important role to play in this economy. We are there to help. We're there to provide the connection with the rest of the world. Help bring in direct investment, help actually bring in liquidity. You know, if there are reports you would have seen it that some the banks themselves have so much lending to do that actually this economy could use some foreign lending. We hope to be part of that. And the connection with London between Saudi Arabia and London is very old and very deep.
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B
Yeah. Last week around earnings you did say that you're happy with how the investment bank is doing in terms of this is a quote positive jaws improving profitability. But there's scope to get more done in Terms of boosting IPOs Equity linked business and M and A. Where does the Middle east fit into that?
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C
It's a very, very important part of it. I mean you know there was a lot of activity last year in Saudi Arabia and actually in the region, you know the regional exchanges have seen a lot of activity in addition their investment flows. And the important thing about investment flows is it used to be out of the region into the Europe into the United States where of course we have a very strong presence. Now there's a lot coming back into the region. It's two way and I think that's the where we can help.
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B
Yeah, and I saw also that you acted as one of the book runners on the PIs debut Euro Green bonds and what we are seeing is an increased amount of borrowing and issuance coming through from the Kingdom. Surely that also presents an opportunity.
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C
It presents a great opportunity. The Saudi sovereign. The kingdom itself is issuing a lot more sovereign debt institutions like the PIF, the one you mentioned have and it was great for us to be part of that bond representing as it does both sustainability and Saudi.
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B
Okay, so we've spoken about investment banking. How are you doing the growth of the wealth business in this part of the world as well.
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C
So wealth is growing enormously. Both the development of regional wealth and then actually the movement of people into Dubai which is becoming a fairly big offshore center for wealth. We've got a presence there and I think it is to help people, you know, save and grow for the next generation and the generation after that. That's what the country of Saudi Arabia is doing through its instit. That's what we want to help the people to do.
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B
Yeah. We were reporting on how HSBC's Middle east wealth business was under scrutiny by the regulators and it's impacted their ability to transact with a number of clients in the region. Do you sense this as potentially an opportunity to pick up market share and wealth?
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C
No. Look, I think there's enough room in the region for all the great banks and what we will do is do it in our own way, in our own style. And you Know, hope to serve the region.
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B
Okay, so you mentioned the number of people moving to Dubai, but we also hear, and we report on it on Bloomberg all the time, the number of asset managers, hedge funds, moving to Dubai and Abu Dhabi as well. Do you see that as opening up an opportunity in the sense of maybe you can expand your prime brokerage services to cater for all of these asset managers that are moving to the region as well?
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C
That's already happening. We've catered many of them through London and we will look to follow our clients to where they are. And I think as the critical mass builds, you should expect us to see, do see us do more and more in the region.
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B
Yeah. Okay, so bright spots and bright growth spots around the world. Let's talk about the rest of the world. We have a Fed meeting coming up this week. They are likely to cut interest rates, but you know, you look at US GDP numbers and we're still printing north of 3%. I mean, how do you see the US economy here?
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C
We continue to see signs of strength, of course, right now in the month of October because of the government shutdown. We don't have as much real time data as we would normally have. And so for those of us outside, it is difficult to handicap exactly what's going on with employment, which is the most important part of this. But we do think that the economy continues to perform reasonably well, that credit conditions continue to be strong. Employment we think continues to hold, but there is the effect of, of tariffs, which is a little bit uncertain. So we have to see. But I think the expectation is that the Fed cuts a bit.
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B
Lots of academic circles have been talking about this K shaped economy and the fact that upper income earners are thriving, but lower income are struggling. You know, real wages are declining, struggling to keep up with inflation. Are you seeing any signs of that in your consumer business?
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C
We see continued consumption, consumer strength. And that consumer strength which we see both in the UK and the US comes from people improving their balance sheet. They're being very conservative, so perhaps they're acting as if there's a K shaped economy because they are saving for the future and savings rates are going up. So. But I think this is a phenomenon that's been happening over a long period of time. Lots of academic writers have written about it, which is that there's a lot of wealth growth at the high end of the economy, driven in part by the equity markets, especially in the U.S. i think that's part of the reason why it's important for everybody to participate in the equity markets to the degree they can and appropriate to their own risk level because it is a source of wealth and it is less represented in portfolios, especially in Western Europe and the uk.
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B
Yeah, yeah, that's a very good point. And obviously there's a big budget coming up in the UK later, later this month, next month. But let me just come back to what I was saying. The reason I'm asking you about the health of the US consumer as all of a sudden people have started getting a bit worried about credit conditions in the U.S. and you know, my colleagues and Bloomberg last week asked you about certain exposure that you had as a bank. But do you see signs of perhaps, perhaps credit deterioration? Are you becoming perhaps a lot more vigilant about the type of lending that you're doing based on the Tricolor and First Brands experience?
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C
Well, we didn't have First Brands, we had Tricolor. But we are absolutely becoming more vigilant because I think whenever you have fraud, you've got to understand what you can learn from it, what early warning signs there might be and you have to look across the portfolio. You know, credit is something you do throughout the cycle, but every time there is an unexpected loss in credit, you have to learn. And I think it's important to be vigilant. You know, we've also said, I've said it many times through this year, that we're at the end of a 15 year long credit cycle. And so you've got to be cautious. As credit cycles grow longer and longer and longer, then you have incidents like this which cause you to be more vigilant. And then we have the economy which as we said just now, seems to be at some sort of an inflection point. So all of that tells you you've got to be a little more vigilant.
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B
When you look at valuations and credits and equity, do you feel that there's a risk that this is going to fuel more and more speculative behavior and that credit standards are going to begin to get watered down simply because people are chasing returns?
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C
There's always the risk late in the credit cycle that people are chasing returns, as you say. I think on the equity market, obviously there is a part of that market, AI related which is doing extremely, extremely well. There's tremendous amount of allocation into it. Whenever you have these vast amounts of allocation, there's always a risk of misallocation. By the way, that doesn't mean that shouldn't happen because people, I think, account for that in their returns forecasts. But for those who are lending We've got to be careful because the bank is the lender.
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B
Okay, so putting that all together, how do you see the momentum going into the last quarter of the year in terms of just dealmaking? Obviously there's a shutdown now, so that's hampering some of the IPO activity. But, you know, are these signals positive as we head into the last quarter of the year?
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C
So I think the signals are positive. And I would look at it more fundamentally. We have interest rates which are stable. We've got credit spreads which are still relatively low. So borrowing costs are still relatively stable. And then what is happening with AI and the change in technology is causing lots of companies to look at their business models and see where they can become more effective. It's in part what is spurring a lot of the M and A activity. So we think those fundamental forces will continue through the rest of this year. We've only got two months left and into next year.
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B
Yeah. Since you bring up AI, how is AI altering how you think about your business?
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C
It's altering how we think about it in a fundamental way. We are taking, we have some very important projects to try to get the best out of it and to understand how to get the best out of it. So there's technology at one side, there's making it available to our staff, which we have done. And then there is changing end to end business processes and doing them through the lens of AI. That is the difficult part and that's the part that requires a lot of discipline and commitment. And that's what we are trying to do.
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B
Yeah. Ultimately though, you know, so many, so many banks are spending a lot on AI and AI applications. What is the likelihood that you actually get that return on investments? You know, and I think there's this widely referenced MIT paper saying 95% of these AI applications are not generating return, return on investment. Do you have to be patient or do you have to be more realistic in terms of what you can expect?
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C
You have to be selective and patient. And I think you have to be realistic. So I think, and that comes into the selectivity, you can't just, you know, take a quarter of a process and make it AI enabled and the rest of it not. You can't just have lots and lots of experiments. You have to give it in the arms of people so that they understand what the potential is and they can in their own small ways improve their lives. Like we've all done with the Internet, like we've all done with a personal computer. But then there are giant processes which are true in big banks that you have to fundamentally reshape.
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B
Yeah. Is AI going to replace junior banker jobs?
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C
I hope not. I hope what we do is that we take AI and we make the lives of all of our people more productive, whether they are junior bankers, whether they are junior traders, whether they are people in operations and in customer service. I think if we look at it through the lens of empowerment and enablement, we will get to a better answer for both the company and for society than if we look at it as a bit of a zero sum game.
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B
I'm going to ask you one question about the UK budget because I don't think we're going to get an opportunity to speak to you before the budget happens. Do you think that this budget will be friendly towards it's the UK banking system or do you hope that it will be?
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C
I certainly hope it is. I have to say the Chancellor is here this week. She's here today leading a delegation and we'll be part of that. I think this government has been extremely friendly to the private sector and to the financial services sector and to banking. They recognize our importance to the UK economy and to the UK's role in global trade. And so we see this as a joint interest between the country and ourselves.
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B
Can you tax your way to growth?
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C
Maybe that's not for me.
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B
To answer a question for the Chancellor, Venkat, a real pleasure. Thank you very much for fielding all of our questions. And congratulations on the RHQ in Saudi Arabia. That was the Barclays CEO CS Venkatakrishnan.
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