♪ john: as the world's leading figures of economics and finance brexit andavos, donald trump are dominating the agenda. in exclusive interview, i sit --n with the ceo of hsbc europe's biggest bank. they give for sitting down with bloomberg. today, theresa may presented about brexit. do you feel like it is a firmer decision than before?

mr. gulliver: i think hsbc will move slowly in terms of how we organize our business. in terms of a single market, it is important how we move forward. you could see how the pound was valued as the prime minister was speaking. we have a subsidiary in france it do not have to make decisions today. we can see how this develops. we still need to see how this thing about, but i think it was a very good speech and a positive step forward in removing the uncertainty that has been old enough. has been thatce she wants to prioritize immigration over the single market. she has not made a big fuss over financial services. you are a global bank that employs a number of non-british people. mr. gulliver: we do. is --the perspective it

the direction it is going in is not in keeping with your perspective? mr. gulliver: decisions about brexit have no impact on the domicile decision. london remains the best place, we think, to headquarter a global bank. u.k. retail bank has really impacted -- is really impacted by any slowdown in the economy. what happens with gdp? mr. gulliver: there is what we call the global banks and the market. there are about a thousand jobs which are carrying out activities that are covered by european legislation. that remains the case. there's no rush for us to

relocate or restructure at this point in time. some of our fellow bankers have to make decisions quickly now after u.k. has said they will come of the single market. is eugger issue nationals. we have some waiting in the u.k.. the are about 1300 working on permits. the work permit immigration policy is of considerable interest. we want to get the best possible people, but i do not get any sense from the prime minister's speech where we cannot keep employing the best people from the world. .ohn: you mentioned paris is there any sense in which you are reconsidering it? you are almost in a beauty parade right now. all these beautiful cities want your business. mr. gulliver: we brought credit commerce to france in 2002. so, we also have this universal

bank in front. john: you are a famous negotiator. how credible do think is theresa may's threat that if it does not work out, she will simply walk? mr. gulliver: i do not want to comment. she is in a very difficult position. john: when you look at china, you see that now as a sort of new leading force in the world economy? mr. gulliver: i think china will take an increasingly bigger role in the asian pacific. i think the extent to which the u.s. will not support dtp, and , and the extent that new multinational trade agreements will be cemented, i think that will cement the role of china in the global economy. i think there will be in increase in interregional asia trade. i think china will take an

increasingly dominant role in regional trade agreements in the asia-pacific. probablyk the world is going to evolve into big, regional trading blocks. we might see less global trade, but we will see much larger global -- regional trading blocks. obviously, nafta is something that president trump has indicated he wants to revisit. i was in mexico last week -- john: hang on, staying on china, you'd think -- do you think the china is -- the chinese are now the new apostles of global economy? mr. gulliver: it is a change from a we have expected, but it is consistent with beijing policy. it is consistent with the political developments in china. it should be looking to play a greater role on the world stage. for years or five years ago, we

how china had a bigger economic role to play come of that they were not stepping up enough. in a number of ways, it is what we were calling for four or five years ago. john: you still want to hire 4000 people. you are pushing in a big way towards that. how are you doing on things like property loans and bad debt? mr. gulliver: in every country, there are big risks. china is not unique to that. areadly, we see that the that that certain areas are being a concentration of cantonese speaking. go across to shenzhen. there is a high-speed railroad being built. it is a lot that integration

taking place. we see this as a large opportunity for us. -- weg kong, they invest have a very big market share. really our first time of expanding across the border. and the deltas, gdp has slowed somewhat. our timescale of hiring or thousand people is probably pushed out -- hiring 4000 people is probably pushed out. john: as you know, they are not only -- always friendly relations. mr. gulliver: true, but the dominant operations will be in hong kong. we have some very talented cantonese staff. it is a very logical thing. i have confidence we can execute this well. john: it is not quite answer the question about the bad debt. you have all these numbers -- 3.8 trillion in wealth

management products. that is not entirely solid. you have the financial system. had you deal with that? -- how do you deal with that? mr. gulliver: you have to do with it at two different levels. first, what is your own exposure to it. our exposure is very low. we follow our hong kong clients across the border. they are mostly privately owned enterprises in china. we have very little exposure. the second order is through the chinese banks. again, i think we have been quite prudent in how we have constructed are lending exposure to the chinese banks. the third level is that, to the extent to which the bad debt if the system, how it slows overall gdp. we are exposed to that. analysis -- ihe still do not see a hard landing. we will still said at 6.5% gdp

in 2017. i think there is a point where people assume chinese statistics were not reliable. the imf has had a team working with the chinese to to six office for the last couple of years. so, it appears the chinese data is reliable. so, prepare to the rest of the world that compared to the rest of the world, pretty good gdp group -- growth. tradei imagine with between -- with a potential trade war between u.s. and china, what is your position on the? -- that? mr. gulliver: i do not think there will be one. there the too much loss on either side. my operating assumption is that there will be some tweaks around country of origin rules and dumping. there will be some redefinition

of rules of trade. however, i do not think that will be an all out trade war between the two countries. what president trump is looking to do is trying to get jobs home in the united states. so, definitely there will be an engagement, but to be see a trade war bricking up -- breaking out? not so much. john: do think the chinese leaders will tolerate that? mr. gulliver: my sense is that the chinese leadership will engage. absolutely. john: the our two countries that the incoming president has targeted -- china and mexico. campaign, hasbc he -- mr. gulliver: he has indicated he is interested in reaching a trade agreement with the u.k.. it is not completely across the board. john: but mexico? mr. gulliver: i was in mexico

--t week, and it is clearly and there is clearly concerned about president trump. to aeople he has selected point government, and the advisory council, it all indicates a level of engagement at the business level that is actually encouraging. clearly, there will be changes to the weight nafta is but, at the end of the day, mexico i still think will represent an important manufacturing hub for u.s. business. the balance clearly has to got -- clearly has to be reconstructed. often what he has talked about is that he is not against free trade, what that the agreements put in place not good deals for the u.s. john: he only sees trade as a zero-sum game.

were only exports is good. mr. gulliver: absolutely. we would probably disagree with that. put aside the word of globalization, free trade and open market is -- has definitely resulted in people prospering. people being lifted out of poverty. there are endless studies that prove that. and free trade is regarded as a force for good. what has happened is that by narrowing the distance between sovereign levels in the country, oftentimes what happens in the country is that there has been a whitening of wealth -- widening of wealth. it has an affinity certain countries -- benefited certain countries come up but it has also -- countries, but it has also caused greater separation

in countries. john: you are one of the great, big, global banks. when you are talking earlier about how the world seems to be divided into what you sense as different units -- that is against everything in a strange way that the bank set out to do. mr. gulliver: it probably requires us to fine-tune our approach. within those trading blocs, there is tremendous to be done. as the world digitizes, trade commodities to trade in services. there is change taking place structurally. ♪

♪ you have mortgage settlements still being discussed with american authorities great you have a more optimistic view on that under donald trump? york --rs in new other --ver: no, some i think, the sense we have from talking to our peers at the american banks is that there is a constructive attitude towards

wall street. we seeing strong value in american tank stocks. it clearly favors a pro-business outlook of the president. higher interest rates clearly benefit the banking system. system of the banks does not work very well at all if interest rates are down. the shift in yield curve is clearly benefiting a number of banks. the way the judicial process will work remains to be seen. john: you can talk to bankers who have worked at other foreign banks. aims isk one of the close to extorting from foreign banks. you could end up with a trump administration that is both fairly tolerant of american banks but much harsher on foreign banks. does that worry you? me, butiver: it worries

it remained to be seen how that will unfold. with hsbc, we have employed about 10,000 people in the united states. companiesnance u.s. in their overseas operations outside of the united states. they are also creating jobs in the united states. we have 69 countries in the world that we operate in. we have a function or a role that is of benefit to the united states. i think it remains to be seen how that plays out. john: last question on political risk. if she were to become -- would that change your position? mr. gulliver: i think we have the cross that bridge. john: and is not occur to you in the back of your mind? mr. gulliver: it has occurred to us, but we could see both a fee on presidency and eight micron

presidency as being entirely positive. john: we talked in the beginning , the idea that you decided not to go to this enormous center of growth you told us about. you decided to stay in london. no regrets? mr. gulliver: no regrets. we think we get the best of both worlds. the benefit of london as a global financial center. i think, in perspective of exit, we need to get on and executed -- london will remain a global, financial center. i believe that the revenue impacts on financial services will be good that will be made good in it to our three years time. equity market moving -- specifically, what will happen is that those activities covered specifically by european legislation will need to move. john: what about the globally

systemic banks? you are one of them. do you think the will be a change on the global level? will the blue a more -- will there be a more tolerant appreciation for what you do? i think we are moving towards the end of revisionist capital leverage rules. i think the view is that there is not a bar. i think that it will be. i think that will also help the industry. one thing that has not happened -- we are holding more capital than we were in 2016. i think the reason it has not worked is because investors have not managed to get their heads around what is the quantity of capital you need. but ourseen one ratio, investors think the cost of

equity is the same as it was in 2006. they are probably not sure if 13.9 is the right number. once we get clarity ground once the actual quantity is, the cost will come down. went to solve this issue of-get r.o.e.'s off 12% -- 12% or 13%? 10%, ae in r.o.e. of dividend, trading -- john: you think 10 is the new normal? mr. gulliver: if you are a global bank, it is much less risky than it was before to run considerably less leverage than the system was before. i think it is, actually. john: who'd you measure yourself against in that group? abigail: mr. gulliver: -- mr. gulliver: the people we regard as creditors --

competitors are citibank, jp morgan, standard charters, these are the guys we compete against every day everywhere. however, there is always going to be a big, regional competitor as well. these regional guys will become more competitor -- more important as competitors. john: there are a handful of banks -- mr. gulliver: yes, i think that will be a handful of banks that continue to try to be global. if you look at the banks that are global, i think it is about eight or nine, the role of the be about six or seven that are global at the end of 2017. john: people often talk about deutsche bank. for the long time, they were the also big european centered bank. mr. gulliver: i think i will dodge that question. economy,the british

the small and medium-sized enterprises that theresa may talked about -- you have one of the networks. mr. gulliver: yes, we have one of the networks that should help them reach out to the markets outside the eu. it will be a fight -- it is an exciting opportunity for us. we are operating in several countries, so if they start to trade with india or china or singapore, we are the british bank with the largest international network. we also have a much bigger domestic network than any of the any of the other international banks. as the u.k. establishes these free trade agreements, we ought to be able to take them to the markets. the is exciting. john: when you think about what it means -- the idea that britain can be a global economy that can trade with though world. we are a services economy.

try to do that with australia is extremely difficult. try to do it with europe is quite easier. is there a sort of policy there -- fallacy there? mr. gulliver: i think in certain areas, we still have considerable expertise. civil engineering, mechanical engineering -- we are still leaders there. in the service area, we are still leaders in several respects. i think there is enough that the u.k. economy will create -- was it not -- we should not undersell the u.k. economy, it is still one of the biggest economies that can service the world. the fact we did not have a primary or secondary industry of old that i do not think it is a handicap. world,ooking at the which is the place that frightens you most? which is the biggest worry going

into this year? 2017, theer: in economy is looking reasonably ok, so it is a question around political risk. concerns are how a trump presidency will unfold. how will exit unfold and be unfold and beexit executed? those are the two big one. concerns in china not quite so much. it is really the execution around the u.k. exiting the eu. i think this will be true of the unknown of how do you trump presidency will work out. it could work out positively based on the cabinet he has selected. john: what are you most excited about? mr. gulliver: i still think it is the broader asia-pacific region. , you werelast thing

talking about moving on. what do you think you would like to see as your legacy at hsbc? creatediver: we have one of the largest restructurings since world war ii. we have built the capital base up to 13.9. we continue to pay a dividend throughout that period. we have remained profitable at every quarter. we have reduced a huge amount of risk weight access -- assets. it is a massive restructuring in the way the firm is organized. we have gone from eight franchise structure in almost 88 countries to being in almost singular, global business. i think what we have done is a big piece of reconstruction.

i think it is the most significant reconstruction in a post second world war period. it creates a platform that my successors should be able to benefit from. the firm has $1.3 trillion in deposits that we have been able -- and we have been able to earn next to nothing since 2009. john: biggest regret? mr. gulliver: probably that we did not move faster on the restructuring. john: thank you for joining us on bloomberg. mr. gulliver: thank you. ♪

♪ francine: hello and welcome to the annual devereaux's debate where we bring together leading figures in the world of politics and finance. names, theas many rise of populism, the crisis of the middle class, the politics of rage. it's the movement that has been sweeping across the developed world. this was the biggest surprise in 2016. this year, will the establishment race for what's next