♪ >> his father was ceo of the philadelphia chemicals company. his grandfather was the ceo of a retail chain started in massachusetts. when he got his degree in economics, he headed to new york and the world of finance. jes staley cut his teeth at morgan guaranty trust company, moving to latin america and ultimately running a brazilian business. he made his biggest move at jpmorgan after he took on the struggling private banking division and got the bank to buy one of the most successful hedge funds around. -- funds around, highbridge

capital. now, he runs his own bank, barclays. he's following the strategy he helped put together a jpmorgan. marrying a strong consumer retail business to an international investment bank. for jes staley it all comes down , to loyalty and the bond between the bank and the people who work there. welcome to big decisions. jes: it's great to be here with you. david let's talk about barclays. : when you took over as ceo, you had a plan that you systematically implemented. as i understand it, a very strong retail base with a powerful international investment bank. jes: we announced this transatlantic consumer wholesale model for barclays in march of 2016. it was informed by a number of events that i've experienced in the banking industry in the last close to 40 years. one of the most impactful

moments from most anyone in finance over the last couple of decades was the financial crisis in 2008 and 2009. i was on the operating committee of j.p. morgan chase. in many ways, j.p. morgan chase was a very strong contributor to at bearncial crisis stearns. that bank him out of the financial crisis in a stronger position than almost any other major financial institution. to me, the reason for that is because morgan was a universal bank. it had a consumer bank and an investment bank. we saw between 2008 and 2009 the value of that diversification. morgan's investment bank lost $24,000 in 2008. our credit card business in 2009 lost close to $30 billion. morgan made money every quarter because the investment bank had a record year that year.

that balance of a consumer business and wholesale business is a diversification benefit that if you are running a large financial institution, you have a responsibility to keep, if not build. what came out of the financial crisis, the u.s. regulators wanted to create universal banks. they put merrill lynch together with bank of america. when you look at barclays, we have a tremendously strong consumer presence in the fifth largest economy in the world in the united kingdom. we have a global bold bracket bank anchored in new york and london. that has that balance and diversification that i think we have a responsibility as leaders of a major financial institution to use that diversification to decrease the risk, so that when there's the next financial crisis, we have a balanced portfolio that will make barclays a safe harbor. david: one of the reasons why some banks have pulled back some in the investment banking area

is risk. how do you manage that growth, that goal of establishing an investment bank while not running risk beyond what you want to handle? let me be specific. take a look at deutsche bank. they have had problem after problem. how does barclays make sure you don't turn into deutsche bank? jes: i'll leave deutsche bank aside. the first call i made when i was offered the opportunity to lead barclays was to become the chief risk officer. i have a very good head of risk. the market is somewhat missing this. investment banking has changed a lot precrisis versus now. when we created the non-core part of barclays, the assets we wanted to close down, we took every single derivative contract written in the bank prior to 2014 into that non-core pool and

closed it by june of 2017. our portfolio right now is really a portfolio constructed with the new capital and regulatory environment that we faced post the financial crisis. you go into 2006 or 2007, barclays had 4% of capital against the total risk-weighted assets in the bank. today, it is 13%. we are well over three times the amount of capital we have against the assets on our balance sheet. moreover then that, if you go back to 2006, things like aaa securities, even if they were made up of subprime mortgages, had zero risk. you had no capital against it. it was not even a risk-weighted asset. today in the modern bank everything is a risk. ,we turn the lights on and we have a risk-weighted asset, even though it is not an asset. the amount of capital is more than three times higher. the calculation of risk is much bigger than it was pre-financial crisis.

these banks are bulletproof. then you take the fact that the volcker rule has had a big impact on the amount of asset held on your balance sheet by closing that non-core portfolio with legacy assets in june 2017. that's really when we significantly de-risked barclays. david: did congress and the fed regulators in general, do the big banks a favor in imposing some limitations? jes: yes. i'm one of those that believe that the banks were in large part responsible for one of the worst economic crises that we have ever lived through. risk got out of control. banks got in front of regulators. there wasn't a collaborative interchange, necessary for the regulators to fully understand what the banks were doing. today, we meet with the bank of england three or four times a week.

the understanding that the pra and bank of england have about the risk in our bank -- whether it's the credit card portfolio or the mortgage portfolio or the trading desk on the investment bank -- this exchange of information that would've been unheard of precrisis, i think that's very healthy. david: you strengthened the barclays balance sheet a lot. how are you making a decision about how to deploy that capital? it strikes me there are at least , two decisions to make. one is, i can put more capital against investment banks. the more at risk that way. or you can give it back to the shareholders. how do you make that decision? jes: right now, all major financial institutions have a covenant with their shareholders that by and large most excess , capital being generated should be returned to shareholders. if you take the five large u.s. banks, all of them are returning

roughly 100% if not more of earnings to shareholders in dividends and stock buybacks. we've asked for our shareholders to go through a journey over the last couple of years, whether it's paying conduct charges or restructuring charges. this year, we increased how much we returned to our shareholders, both in dividend and buying preferred stock from 500 million to 1.8s last year billion pounds this year. as we continue to generate earnings and whatnot, you will see most of that excess go back to shareholders in terms of dividends and buybacks. david: we have proven that if you take central banks and pump trillions of dollars in euro and yen into the market, you can get growth. we've proven just in the united states -- $1.5 trillion, giving it in tax cuts and spending. you can get growth.

is there another way to get growth? we can't keep growing balance sheets for central banks. how do you get productivity? jes: i think one of the great mysteries of the current economic era is, where has productivity gone? particularly given the impact that we see every day around technology. i think that is the great economic mystery that we need to understand. hopefully we do over time. ultimately, healthy economic growth is driven by productivity. you would think that the investment in technology, the positives of globalization, that we would be seeing more productivity you then we are seeing so the growth wouldn't be , so dependent on easy monetary policy or tax cuts. in the united states, one of the things we need to recognize, it is one of the first times in modern economic history where the government debt to gdp is growing even though the gdp is growing at a very strong rate. that hasn't happened before. that means at some point, we

have to change the fiscal fixture for the u.s. economy and have its growth be invigorated by productivity as opposed to fiscal stimulus? david: how concerned should we be with china? ♪

♪ david: if we listen to mr. carney, the governor of the bank of england a solution to the , problem is not brexit. at least not a disruptive brexit. it's fair to say, we have some projections now in case of a disorganized exit. what do you make of those? do you agree with them? are they overly negative? gdp, was 8% reduction in 25% reduction of the pound. they were pretty dire. jes: if there is a real hard brexit, where there is not an understanding between the european union and the u.k. on an orderly separation of the

rules of trade, the governor -- while it's very hard to predict, i think it's a good enough estimate of what might happen. you are seeing it in where the sterling is trading. bank, as ceo of a major how do you plan for that? do you have to plan for a hard brexit no matter what? jes: the sunday after the referendum vote which was on a thursday, the whole met,tive committee preparing for hard brexit, almost two years ago. for and --n hoping and organized separation. we have been preparing for a very hard one. we had a bank subsidiary in ireland. we significantly expanded the capacity of that bank subsidiary in dublin.

we are in the process right now, almost done with relicensing all of our branches in europe. frankfurt milan, madrid. , 1200 people. we will move those people from british banks to european bank without moving a single body. david: putting the united kingdom to one side, let's talk about continental europe. jes: i don't know if i have seen a time post the cold war where geopolitics might be having such an impact on economics. we started this year with economic growth in almost every corner. from china to europe to the u.s. there are breakages in that right now. clearly, economic growth is slowing in europe, slowing the u.k., slowing in china. that will fuel some of the geopolitical tensions that we are seeing in europe and asia in -- and in the u.s. david: china is particularly important in that sense. it has been disproportionally

the contributor to global growth. it is slowing down some. you have to expect it to slow down, it can't keep going at the same rate. how concerned should we be with china? jes: in addition to the issue of productivity, perhaps the other great question is china. i remember when i first got into finance, everyone was talking about japan. in japan, it went from a postoyed economy most -- the second world war, to the second largest economy in a pretty quicktime. everyone thought japan had solved the formula and was off and would leave the rest of us behind. what also happened, they became country in theed world. in the last 30 years, we have seen stagnant growth out of japan. we also have demographics in there.

china comes in, comes out of the era with nora -- debt. roars its economy up in a reasonably controlled fashion. now it becomes the second largest economy in the world. a major innovator in things like technology and whatnot. what will happen? is it sustainable? they have used a lot of debt to get there as well. in a country that perhaps doesn't have the full transparency that we would all like to see, i think it's a question mark. it's extraordinary what's going on in that country. one hopes it is for real. the population, having strong economic growth, the buildout of a middle-class it would be , helpful for everybody. mark.a big question

david: what makes jes staley the -- today? jes: it's a very powerful place to be in. ♪

♪ david: what makes jes staley the banker he is today? you are identified often with asset management and high ridge capital. a big move that you made, which was not universally seen as the right way to go. it was somewhat contrarian. what led to that decision? jes: when you set the strategy of a bank going forward, every now and then if part of your strategy is a contrarian move, and you get lucky or get it right, being a contrarian is a very powerful place to be. we came into the asset management in around 2001. -- margin's --

morgan's asset business was struggling. i went to a conference of asset managers, ceo's. they got nine of us together in a room and said, let's talk about what's going on in finance. that was right after the dot com bubble. they thought that the hedge fund industry was a bubble, that two and 20 was an unsustainable revenue model. you couldn't act as a fiduciary with a long portfolio and short stocks on the other side. i left that conference and said, what if they are wrong? what if the hedge fund industry is a significant transformation in the investment management business? one year later, we did the largest acquisition ever of a hedge fund with high ridge capital. i thought it was transformative for the quality of jpmorgan asset management and how that business evolved in the years following.

i think over my career, i've always seen financial crises -- they come. my first job out of college was working in latin america. i went down to brazil. that was the place you wanted to be. banks were funding dams and steel mills. a very famous banker said sovereigns can't go bust. paulo,itting in sao brazil in 1982, the whole continent went bankrupt. you learn through that. it took about four years for latin america to come out of its deep darkness. i think finance is so dynamic. it changes. there are risks. i think what you need to do, when times are good, always keep in the back of your mind, it's not going to last.

in the depths of financial downturns like we saw in 2008, don't lose faith. doing the right things and working together, we can reestablish the financial markets. david: success in retrospect always looks easy. at the time, it is not quite so easy. come back to where you did the high ridge capital deal. where there moments where you had doubts? what were your biggest risks? it's putting together two very different cultures. jes: one of the main risks, i remember when we took it to the board of margin to get approved, one of the director said, jes, i really leaning to not vote in favor of this acquisition. what is ironic about that is i have a lot of my own money with highbridge. the reason is, my view is, that asset manager is the best portfolios in the world that you find in hedge funds, they won't work for a big bank.

i took that to heart. i realize that. what makes an asset management business are the portfolio managers that drive alpha. after that acquisition, i moved my office into highbridge and spent all my time with those portfolio managers to make sure that we had the right dynamic so they wanted to stay part of jpmorgan so we would keep those , portfolio managers managing our board of directors' investments. david: you can keep people happy if you tell them yes all the time. it is fine to say we will have glenn do been play by a different set of rules than regular employees. you have to make sure you are managing them. that they are not putting the overall company at risk. how do you strike that balance? jes: you cannot say yes all the time. loyalty.oyalty begets one of the best conferences i get to go to every year is the bill gates microsoft conference. a couple of years ago, they had

a group of millennials on stage talking about their world and their lives. there were two women that had started a tech company. they said something that really struck me. they said, we think that most of the people in the audience, they were all you thinkolder men, that we are not loyal. we think it's the opposite. we think, who lacks the loyalty are the major corporations. we corrupt in the 2001 recession , the financial crisis of 2008. many if not most of us had a parent laid off. a factory in rochester got moved mexico in a weekend and it was over. this is one reason why we like startups. if you are a founder, i get to

keep my job. it to stability towards it. if i could do one thing when i leave, it would be to plant a conviction in employees of barclays that this institution is very loyal to them. david: what setback or mistake have you had that you learned the most from? jes: i characterize it as a mistake. one of the interesting things in my career, a number of moves i've made on the face of it look like they were big reversals. i spent the first decade of my career working in latin america. lived in sao paulo for eight years. my wife and i agreed that i would try to be a banker in new york and not just in sao paulo. i went to morgan. at that time, i was running the bank in brazil. the bank said, there's no job for you here in the u.s.

we had enough of a relationship where the bank said, if you want to come, we will give you a desk and see if you could find something to do here in new york. latin america was on the resurgence he again so i knew i could go back to latin america if i wanted to. i moved to new york and got a desk. i sat there for three months until i knew what my next i was going to be. it was the time they wanted to get into the capital markets. they gave me the ability to build a bond desk. taking that risk paid off in a very big way. 10 years later, i was one of basically three people running morgan's global equities business which , was quite strong at that time. i was doing all the underwriting in syndicate and underwriting.- i got a call from the then ceo saying, we have a private bank

in midtown that is losing money. you are one of our rainmakers in the equities business. let me tell you, some people believe you cannot manage people. why don't you go and run the bank and see how to manage people? an investment banker to running a private bank, that was one of the biggest demotions you could take. it was an opportunity to see whether i could manage people of some scale. it was an incredible challenge. the private bank was in a structurally bad place. that was another step back down. i think ultimately i learned a lot from it. that morphed into the asset management business and went back to the investment bank. sometimes you have to take a couple step backwards to reset

and move forward again. david: thank you so much. really appreciate it. ♪

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"all sites are green." all of which helps you do more than your customers thought possible. comcast business. beyond fast. >> you are watching the best of bloomberg daybreak middle east. this week, oil on the up. crude climbs on optimism about a potential trade deal. the u.s. economy and the opec production cuts. wti breaks back from $50 a barrel. the dubai property slump has put some of its developers among the worst emerging markets. is there any sign of relief? ♪ yousef: