♪ in david: his father was ceo of a philadelphia chemical company. his grandfather ceo of a department chain started in massachusetts. he headed to new york and the world of finance. jes staley moved to latin america and ultimately running morgan's brazilian business. after returning to new york and taking over equity capital markets, he made his biggest move for j.p. morgan taking on the struggling bank initiative, and then getting the bank to buy one of the most successful hedge funds around.

now staley runs his own bank, barclays, where he's following the strategy he helped put together with j.p. morgan with a strong consumer retail business. for jes staley, it all comes down to loyalty and the bond between the bank and the people. jes staley, welcome to "big decisions." jes: it's good to be here with you, david. david: when you take over as ceo of barclays, you had a plan. that's a very strong retail base with a very strong investment bank why is that the -- investment bank. why is that the right plan? jes: we came out and announced this transatlantic consumer wholesale for barclays and it was informed by a number of events i have experienced in the banking industry in the past 40 years. one of the most impactful

moments, i think from us anyone in finance was the financial crisis of 2008 and 2009. i was on the operating committee of j.p. morgan chase. in the many ways, j.p. morgan chase was a very strong contributor to evolving the -- to solving the financial crisis. the bank came out of the financial crisis in a stronger position than other major financial institution. to me, the reason for that is because morgan is a universal bank. it had a consumer bank and an investment bank. and we saw between 2008 and 2009, the value of that diversification. the investment bank lost $24 billion in 2008. the bank made money every quarter because the consumer bank had a good year. then our credit card business in 2009 lost $30 billion and morgan made money every quarter because the investment bank had a record year that year. and that balance of having a

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

investment is a risk. how do you manage that growth, the goal of establishing the investment bank while and not running risk beyond what you want to handle? let me be very specific. take a look at deutsche bank, problem after problem after problem. how does barclays make sure you do not turn into deutsche bank? jes: well, i'll leave deutsche bank aside. the first telephone call i made when i was offered the opportunity to lead barclays was to cs bank to become a chief risk assessor for barclays. i was ahead of risk. i think the market is somewhat missing this. it's been thinking has changed pre-crisis versus now. when we created the non-core part, the assets we wanted to close down, essentially what we did was we took every single derivative contract written in the bank prior to 2014 into the rule and closed it by june 2010

and 2017 last year. our portfolio is a portfolio constructed with new capital and regulatory environments that we face posted the financial crisis. you go into 2006-2007, barclays had 4% of capital against the total risk assets in the bank. today, it's 13%. so we are well over three times the amount of capital we have against the assets. back in 2006-2007, aaa securities, even if they were made up of subprime mortgages, had zero risk. we had no capitals against it. today with the modern bank, everything is a risk. we turn the lights on and we have a risk. the amount of capital is more than three times higher. the calculation of risk is bigger than it was pre-financial

crisis. these banks are, in many ways, bulletproof. it has had an impact in the amount of assets held on your balance sheet. by closing the non-core portfolio, which were the legacy assets in june 2017, that's when we significantly de-risked berkeley. david: did congress and fed regulators do barclays a favor in him posing some of the 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 you and i have ever lived through. i think risk got out of control. i think banks got in front of the regulators. there wasn't a collaborative interchange necessary for regulators to understand what the banks were doing. today, we made, with the bank of

england -- met with the bank of england, 3-4 times a week with the understanding that pra have about the risk interbank. whether it's the credit card portfolio or the mortgage portfolio or the trading depth, there's an exchange of information that would have been unheard of pre-crisis. i think that's a very healthy. david: you've strengthened the barclays balance sheet by a lot the last few months or so. how are you making decisions about how to deploy the capital? there were two decisions you made. one was put more capital against investment bank, pull more risk or give it back to shareholders. how do you make that decision? jes: right now, almost all the major financial institutions have a covenant with shareholders that, by and large, most excess capital being generated should be returned to shareholders. if you take the five largest u.s. banks, all of them are returning roughly 100%, if not

more earnings to shareholders and dividends and stock buybacks. we've asked for our shareholders to go through a journey the last couple of years, whether paying conduct charges or restructuring charges. this year, we increased how much we returned to our shareholders both in dividends and buying preferred stock. from 500 million pounds last year to 1.8 billion pounds this year. and as we continue to generate earnings, clear litigation challenges and whatnot, you will see most excess earnings back to dividends and buybacks. david: we've proven, if we needed to prove it, that if you take central banks and pumped trillions of dollars in euros and yen into the market -- we 've proven in the u.s. you can save $1.5 trillion and give it

in tax cuts and spending for growth. is there another way to get growth? we cannot keep doing that, growing balance sheets for central banks. how do we get productivity? jes: i think one of the great mysteries of the current economic era is where does -- is the productivity going? particularly given the impact that we all see every day around technology. that's the great economic mystery that we need to understand and hopefully we do over time. ultimately, healthy economic growth is driven by productivity. and you would think the investment in technology, the positives of globalization, that we would be seeing more productivity than we're se eing, so growth would not be so dependent upon monetary policy or tax cuts. in the u.s., one of the things we must mechanize is this is one of the first times and 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, you have to change the fiscal picture for the u.s. economy and have growth be invigorated i productivity as opposed to risk. david: how concerned should we be with china? as an engine for global growth going forward? ♪

david: if we listen to mr. carney, the governor of the bank of england, the solution is not brexit, a disruptive exit. we have projections in case of a disorganized, i think he said, exit. what do you make of those? do you agree with them? 8% reduction of gdp and 25% reduction of the pound. they were pretty dire. jes: if there was a really hard brexit, where there is not an

understanding to the european union and the u.k. on an orderly separation of the rules of trade, i think the governor, while it's very hard to predict, i think that's a good estimate at what might happen. i think you're seeing it. david: as a ceo of a bank, how do you plan for that? do you have to plan for a hard brexit no matter what? you can hope for something better but cannot guarantee it. jes: the sunday after the referendum vote, the whole executive committee meeting -- we met to prepare for a hard brexit two years ago. we'd been hoping for an organized separation but have been preparing for a hard one. we had a bank subsidiary and ireland. we significantly expanded the capacity of that bank subsidiary in dublin.

we're in the process right now, almost done, relicensing all of our branches in europe, frankfurt, madrid. print is ever bank in london and branches in dublin. we'll move 1,200 people from a british bank to a european bank without losing a single body. david: putting the u.k. to one side, let's talk about continental europe. jes: i don't think i've ever seen a time post-cold war where geopolitics would have such an impact on economics. we started this year with economic growth in almost every corner, from china, europe, the u.s. for sure and there are breakages in that right now. economic growth is a slowing in europe, slowing in the u.k. and china. that fuels geopolitical tension that we're seeing in europe, asia, and that the u.s. david: china is particularly

important in that sentence. it's been disproportionately a contributor of global growth. slowing down -- we cannot expected not to slow down. how concerned should be be with china as an engine for global growth? jes: i think that in addition to the issue of productivity -- that the other great question is china. when i first got into finance, everyone was about japan. japan went from a destroyed economy post second world war two the second largest economy in a quick amount of time. everyone thought that japan had solved the formula and would leave the rest of us behind. what also happened with economic growth is they became the most indebted country in the world. in the last 30 years, we've seen

stagnant growth out of japan. we also have demographics. china comes out of the mao zedong era with no debt and gets its economy up and a reasonably controlled fashion and becomes the second largest economy in the world, and a major innovator in things like technology and whatnot. and so, what will happen? is it sustainable? they have used a lot of debt to get there, as well. and in a country that perhaps doesn't have the full transparency we would like to see, i think it's still a question mark. it's extraordinary what is going on in that country. one surely hopes it's for real. the population having strong economic growth in the middle class will be healthy for everybody. but it's a big question mark.

david: what makes jes staley the banker he is today? jes: being a contrarian is a powerful place to be in. ♪

david: what makes jes staley, at least the banker, that he is today? you identify with asset management. that's a big move you made which was not universally seen as the right way to go. it was contrarian. what led to your 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 right. being a contrarian is a powerful

place to be in. we came into asset management around 2001 and a part of it was struggling. i went to a conference with ceos from capital and whatnot, and they actually got nine of us together and said let's talk about what's going on in asset management. that was after the dot-com bubble. two ceos said they got the hedge -- and thought the hedge fund industry was a bubble. two in 20 was unsustainable. i left the conference and said, what if they're wrong? what if the hedge fund industry has significant transformation? and so a year later, we did the largest acquisition ever i thought it was transformative for market management and how the business evolved in the years following.

but, i think over my career, one, i've seen financial crises -- my first job out of college was in latin america. i went to brazil. that was the place you wanted to be. banks were funding dams and steel mills. i was sitting in brazil in the -- and sent how low, brazil -- brazil in the fall of 1982 and the whole continent went bankrupt. it took four years to come out of the deep darkness. finance is so dynamic and it changes and there are risks. and so i think what you need to do is when times are good, keep in the back of your mind that it 's not going to last.

in the depths of financial down andes, like we saw in 2008 2009, don't lose faith. keep doing the right things and working together, you can reestablish financial markets. and that's what happened. david: success in retrospect always looks easy. perhaps it's not so easy. go back to when you did that hybrid hedge fund deal? what were the biggest doubts? what were the biggest risks as you did it? jes: one of the main risks was one-way ticket to the board of the morgan to get it approved, one of the directors said, i am leaning to not voting in favor of this acquisition. what's ironic is i have a lot of my own money with hybrid. the reason is because my view is the best portfolios in the world which you find in hedge funds , they won't work for a big

bank. i took that to heart. what makes an asset management business is -- right after that acquisition, i moved my office into hybrid and spent all of my time with those portfolio managers, trying to make sure we had the right dynamic so they wanted to stay part of jp morgan and keep those portfolio managers that were managing our board of directors investments. david: you can keep people happy if you tell them yes all of the time. it's fine if you say we're going to play by a different set of rules. sometimes you have to also make sure you're managing them, they 're not taking risks you do not want to take. how do you strike the balance?

jes: obviously, you can't say yes all of the time. loyalty begets loyalty. one of the best conferences i go to every year is the bill gates microsoft conference in seattle. they had a group of millennials on stage talking about their world and lives. there were two women who started a tech company. they said something that really, really struck me. they said, we think most of the people in the audience -- and they were mostly ceos and older men -- you think we're not loyal. we think it's the opposite. we think who lacks the loyalty are the major corporations. we grew up during the 2001 recession and financial crisis of 2008. many of us, if not most of us, have had a parent laid off. we grew up where a factory in rochester, new york was moved to mexico during a weekend. one of the reasons we like

startups is because if you're the founder, i get to keep my job. there's actually a stability to it. if i could do one thing when i leave, it would be to plant a conviction in the employees of barclays that the institution is loyal to them. david: what mistake have you had that you learned the most from? jes: i sort of characterize it as a mistake. but one of the interesting number ofmy career, a moves i've made that looks like they were big reversals. i spent the first decade of my career working in latin america. my wife agreed that i'd try to be a banker in new york, not just a banker in san paolo.

i went to morgan and it was money in the bank in brazil. the banks said there's no job for you in the u.s. but if you want to come, we will give you a desk and see if you can find something to do. latin america was on the decision seem so i knew i could go back if i wanted to. i packed up the family and moved to new york. it was three months before i knew what my next up was going to be. they wanted to get into capital markets and they gave me the ability to build a convertible bond the desk, and i didn't even know what a convertible bond desk was. taking the risk paid off in a very big way. 10 years later, i was one of three people running morgan's global equity business, which at that time was quite strong. i was doing all of the underwriting of the syndicate equity capital markets. i got a call saying we have a private bank in midtown losing

money, losing clients, and losing people. you're one of our rainmakers in the equities business and investment bank. let me tell you, there are some people who believe you can't manage people. here's an opportunity. go run the bank and see what you can do managing people. at that time, being a big dealmaker in the investment bank to running a private bank, that was as much of a demotion as one could take. my compensation was reduced. again, the whole visibility was much less. but it was an opportunity to see if i could manage people of some scale. it was an incredible challenge. the private bank was in a structurally, feasibly bad place. that was another step down. it helped me learn a lot from it. that morphed into the asset management business and then i went back to invest in banking.

sometimes, you have to take steps backward to reset and move forward again. david: thank you so much. i really appreciate it. ♪

♪ emma: coming up on "bloomberg best," the stories from business around the world. the trade deal as the u.s. and china returned to the bargaining table. >> both sides said there was progress made. >> a long way from conclusive and final trade agreement. anchor: more signs of a tech slowdown. tesla breaks ground on a factory in shanghai and the u.s. government shutdown drags on. >> both sides doubled down and dug their heels on their current strategy. >> fomc releases min