Top firm CEO: 'We will be continuing to reduce headcount at a measured pace'

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'We have imposed a headcount freeze'.

Following are excerpts from a CNBC interview with Steve Sedgwick and Karen Tso, and Jes Staley, CEO of Barclays.

SS: We've been going through a whole host of numbers, given what you've learned over the last three months, are things worse than you thought they were when you joined this company?

JS: I actually think that the core franchise of Barclays, the core consumer, corporate and investment bank, that core franchise is actually as strong as I could hope for. In 2015 even, that core franchise produced a double digit return on tangible equity, so we've got a great core business at Barclays, our challenge is basically two fold, we need to wind down our non-core assets, those assets that we've decided to exit as we simplify Barclays business model and we need to put our conduct and litigation issues behind us, but I'm very pleased with how our core franchise function, from our retail bank in the UK, our very strong credit card operation, and our investment bank, while not hitting its cost of capital yet did double its earnings in 2015.

SS: Jes, just let me ask you about capital, you're cutting the dividend, you're getting rid of certain assets in Africa and elsewhere, does this alleviate concern in the market that you're going to have to go directly to the market to raise money?

JS: No, we have done a lot of strategic things over the last couple of years, in the last three years we have moved our tier one capital ratio from 9% to 11.4% today, so we've got plenty of capital and like our capital position. We're cutting the dividend for a very simple reason. We need to accelerate the closure of our non-core business. If we can get the majority of our non-core business, these are things like the Italian retail business which we sold recently or the US wealth management business that we sold recently, if we can close these transactions and just have Barclays illuminate the core franchise that we have as a transatlantic bank with a strong consumer franchise, corporate bank and investment bank, and let the profitability of that core business stand for itself, Barclays would be in a very good position.

KT: Jes, let me ask you about the proposed sell down of Barclays Africa Group, how are you hoping this would take place because the market is concerned about your ability to find a single buyer for this asset.

JS: We own 62% of Barclays, there's a very strong shareholder base in Africa, there's a very strong institutional base, we're going to give ourselves two to three years to sell to a deconsolidated, non-controlling position in Barclays Africa, there's a lot going on in the continent, it's a terrific franchise, Barclays Africa has got a great management team, there will be a lot of shareholder interest in Barclays, but we will do it prudently and over a safe period of time.

KT: Jes, the other big announcement here on strategy is the ring fencing of the two parts of Barclays and we know the chairman John McFarlane was talking about a mother – daughter relationship that regulators were simply not approving, today you've described a more of a sibling relationship, is this sister – sister how you would describe the ring fencing that's taking place today?

JS: So we are simplifying the business model to a transatlantic bank. We will be run by two divisions; one will be Barclays UK, that will be comprised of Barclays retail presence in the United Kingdom, and our UK credit card business, plus our lending to small businesses, our small business practice. That's a very strong, powerful franchise, very profitable, it'll be well capitalised and will stand very much on its own. Then we'll have Barclays corporate and international, that also will be a well-capitalised, strong franchise with solid investment grade ratings, it will focus on our investment bank, on our corporate bank, and on our consumer business anchored by our credit card businesses across Europe and across the United States so we'll have two divisions underneath Barclays which are strong on their own right, and ultimately we will be compliant with all the ring fence rules and will run it as a sibling structure.

KT: Jes, lots to ask you about today and particularly on the energy side of the business, I'm not seeing any numbers coming through yet so perhaps you could give us a little bit more clarity – Deutsche Bank had some numbers out in the last six months or so, tallying up what your exposures might be to the energy sector, and they're saying if you look at the numbers from 2012 to 2015, if you tally up about 24 in investment grade loans and about 12.7 billion in non-investment grade loans that's about 37 billion in exposures that you might have to the sector, is that in the ball park, and how would you describe your strategy around energy loans given the low price for oil?

JS: You know, Barclays I think has been very prudent in the management of its credit risk. We'll go over later this morning the exact numbers around oil and gas closure but it is primarily to the large majors, to investment-made companies. We are very comfortable with our oil and gas closure. Given our presence in that space I feel great about where we are not worries about any significant impairment issues in 2016, even wi5th the price of oil where it is today.

SS: Jes, have you got an update for us on the amount of jobs you'll be cutting, of courses certain jobs will go but they'll go in disposals. What about amongst the core group and especially I think people are interested in the investment bank?

JS: We have imposed a headcount freeze since the day I got here. That has reduced our headcount as of now by 5,700 employees and when you reduce employees through a headcount freeze, that's 5,700 people that we have not had to let go. We will be continuing to reduce headcount at a measured pace. We did pull away from nine counties recently and the decision to reset the perimeter of our investment bank. As I said we are getting out of retail franchises in Europe as part of our non-core. So we're on target to get our headcount number to a number that's manageable and we feel comfortable with the progress we've made thus far.

KT: Jes, let me ask you about interest rates globally because we're running out of time and there is a feeling as though the trend now is for negative interest rates globally, from Japan to Europe, and then the US potentially down the track. Are they still going to be able to lift rates this year or will they be heading back to negative territory? What do you make of the interest rate environment as an investment banker now I head of a bank?

JS: This is a very complicated environment in terms of monetary policy. We are, for sure, in uncharted waters. There is a deep desire and I think the central banks around the world have done extraordinary things to try and get the global economy back on track. Managing with very low interest rates is a challenge for the financial sector but we're going to do our part to help the global economy get back on its feet and hopefully we'll have robust growth going forward and we can get back to monetary policy which is more normal, somewhere down the road.

SS: Jes, finally, wealth is seen as the big growth driver for so many banks. I think it's getting quite crowded as well. I noticed your wealth income reduced by 15% even without the US business decreasing by 2%. Are you concerned at that as a growth driver? It's just not going to happen.

JS: No, our growth drivers is our consumer practice be it the retail bank in the UK, our credit card operations for them UK to Europe and Germany to the US. We have a very good wealth practice anchored in the UK. But our franchise is more about retail banking, consumer financing and then our corporate and investment bank and we like those three assets given the current environment.

 

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