Bloomberg SurveillanceBarclays CEO C.S. Venkatakrishnan discusses Barclays' three-year restructuring plan that aims to return over $12 billion to shareholders and expand relationships with sovereign wealth funds. Monica DiCenso, Head of Global Investment Opportunities at JP Morgan Private Bank, says equities are well-positioned across the S&P 500. Sahm Consulting founder Claudia Sahm, former Federal Reserve Economist & Bloomberg Opinion columnist, says she expects the Fed to hold rates steady on Wednesday and hopes for 'most boring meeting ever.'
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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwoz and Amrie Hordern. Join us each day for insight from the best in markets, economics, and geopolitics from our global headquarters in New York City. We are live on Bloomberg Television weekday mornings from six to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the Bloomberg Terminal and the Bloomberg Business app. I pleased to say that joining us around the table is the CEO of Barclay's cs Van Kama Krishnan Benkat. Great to see you, sir, Very good to see you, particularly here in New York City. The stock is doing really nicely, so let's start with some good news. We've rallied since the mid of February pretty aggressively, I would say, up by something like twenty percent last time I looked yesterday evening. Do you think that's evidence that shareholders are buying into your vision.
It's the earliest stage of that evidence. What's most important for us is this plan, and it's a plan to increase our rote to twelve percent from the tennis it is now. It's a plan to return about ten billion pounds to shareholders and capital distributions, and it's a plan to have a broad diversified bank that's a global banking leader centered in the UK, with an investment bank that is going to fifty percent of the bank from around the sixty percent it's now. So our job is to having created the plans to execute it, and the share price hopefully will follow.
Can we get into the investment bank and you talk about diversifying revenue and leaning maybe more into advisory phase. Is the talent there on board in the investment bank all ready to make that shift or do you need to hire to make that happen?
It is substantially there. You know, we made some organizational changes last year. We have new leadership in the investment bank. We hired a bunch of very you know, very skilled bankers in healthcare, in technology, in the energy transition, and that has already started to have its effect. Last week we announced eqt's sale. We advised EQT on its sale to ecuotrans ecotansit and its sale to EQT and so we're beginning to feel the momentum from those HighRes.
What do you think it is about investment banking in and of itself that makes it a less attractive proposition to remain it the same size versus say, advisory fees.
Well, one of the things is when you move into advisory fees, you start getting a better return on your capital because you're not outlaying as much capital per unit of revenue as you do if you're purely lending. Now, lending is an important part of what we do. We are a very big player in the fixed income markets, in the debt capital markets as well as fixed income trading, So lending is a part of what we do, but we are just trying to broaden it into more advisory and more equity related revenues.
How much is this sort of a new model of banking that's basically taking all of Wall Street and a lot of the global banks too, which is trying to cater to the whole client rather than say, go after specific deals and be focused on, for example, being at the top of a league table.
Yeah, I think it's an important part of the shift that's happening, and it's happening because Previously in the investment banking side, we were working with corporations, and since then we still work with corporations in a very big way. But in addition to that, you've got the financial sponsors and the sovereign wealth funds, So the growth of concentrated pools of capital makes it important to have that full relationship with those players in the market.
Every time we sit across the Barclay spouse, I think we asked the same question. I can think of that when Bob Diamond left that morning. Then Anthony Jenkins came in our Remember I was actually at Barclay's HQ the morning Jenkins got fired. I was sitting down with the chairman, and we talked about the same thing, the investment bank, the future of the investment bank. Do you find that's more of a media obsession than it is an obsession with investors. Where does that question come from?
It's a legitimate question, and in our Invested Day four weeks ago, I tried to address it directly as well. I think, first of all, it's important for Barclays to have an investment bank. We are good at it. We are the largest investment bank outside the top five in the US. I think it's an important for the world to have a counterparty that's not just a US bank, and they would prefer a UK bank when they do it. It's an important source of revenue for US, and as I said, we are good at it.
Why is it important and why do they prefer a UK bank? Why is it important to have a bank outside of the US. What are the benefits of that?
Well, you're diversifying your counterparty exposure in a national way as the world is becoming a little more deglobalized. You know, London has been historically a great financial center and remains one, so and it's a very important one. And then UK law governs a lot of financial contracts. So all those three things make it very attractive to work with a UK bank.
Does it also make it incredibly difficult to compete outside of the UK, or say in the US, when you've got a JP Morgan that's dominating absolutely everything.
Well, look, there are very large banks that are in the US. The world is big enough for all of us. We act like a US bank when we are in the US.
Well, when you act like a US bank with a very specific focus you've talked about in the Pillars the five pillars in reorganization, the importance on focusing on consumer lending consumer spending. Recently, you offset some risks from your credit card portfolio. There is a real question here about where you see an opportunity to consumer to lend in the consumer space at a time of uncertainty in the cycle.
So we view the consumer space in two ways. In the US, we've got a great credit card for business, but it's very specialized on partnership cards. We've got twenty corporate partners, very blue chip corporations, twenty million underlying customers. We're looking to continue to grow that partnership card business in the US in a measured way because it has great synergies with our investment bank and a great overall business for US. In the UK, we have strength across the consumer franchise and in small business banking, in corporates and there it's sort of you know, it's our homeland, it is our home turf, and we are very strong and we look to increase that strength.
Well, I guess here's a question. Is there basically more emphasis on growing in the United Kingdom outside of the US, and the US effort is going to be much more bespoke focused on very clear sort of verticals rather than the whole picture in the same kind of way as the UK or elsewhere.
Yeah, So the way I think about it is that we've got a complete banking presence in the UK, touching customers from the very largest corporations down to individuals and offering them the full range of financial services. In the US we offer investment banking services very well trading and for banking, and as I said, a very good specialized partnership credit card business.
We had a right shock big time on both side of the Atlantic in the last twelve eighteen months. What we haven't seen is the credit stress off the back of that. As you look across the business at the moment, corporates, consumers, the US, the UK, you see any of that emerge at all.
You're seeing small signs of it in the consumer side, with just a take up of delinquencies off the COVID lows. And I think, look, employment remains extremely strong or unemployment is low. You're seeing the effects of inflation, and you're seeing the effects of the r you know, the wearing off of the consumer stimulus that you had during COVID, and so you're seeing a small increase in delinquencies in the consumer business.
It's the a popular risk that you're being super vigilant at about at the moment that maybe you're pulling back on lending around that particular area of the economy.
Not really. I mean, I think as an overall matter, taking the very big picture, the economy is stabilizing. It looks like on both sides of the Atlantic you're having a softish landing. Uh employment, as I said, remains strong in overall credit statistics and the corporate it's remained strong. So generally we are constructive towards lending.
I wanted to finish on the City of London if I can, if you'll indulge me. Barclay's and its roots of Barclays go all the way back to the late sixteen hundreds, early seventeen hundreds. We're talking about centuries the city of London for a long long time. It's been at the epicenter of global finance. Do you see that as under threat in any way, shape or form. Do you think the UK has taken that for granted over the last several years.
I don't think the UK has taken it for granted. I think it's very important for the UK. I think the UK understands that. I think politicians on both sides in the UK understand that extremely well. So No, I think there's a lot of support for the City of London.
This raises a question of where we are in the economic cycle, where it is strongest, and this week would you get a Bank of England decision is it beneficial of rate stay higher for longer or do you want them to come down to support the economic growth and maybe some of the engine that John was talking about.
So ultimately that's a decision they have to make. It's very important to balance, you know. I actually think, I actually think a little prudence and waiting a little is not a bad thing.
You think there is an option that's a wait a little longer than why do you think? So why is the bigger risk? Maybe the cut too soon and not to hold too long.
Well, I think that the economy is stabilizing, employment is still robust, inflation is coming down, so I think on the balance it might be more prudent to wait a little longer. Now our house view and that of many others, is for more rate cuts over.
This year, with the same applied to the US the same characterization of the situation.
I think so yeah, but just would that be good for you? Are high rates good for banks or are they bad for banks? This has been a preennial question.
Stable rates are good for banks.
Thank camp, very diplomatic. We appreciate your time. So it's fantastic catch up and thank you see here in New York City. Thanks for being able to see you, Baby Morgan's Monica to sense so saying this, we need to acknowledge the strong starts of the year, with the S and P five hundred now only a few percent away from our year round twenty twenty four price target. This also argues for more selectivity and being thoughtful if you are still sitting on too much cash. We believe stocks will continue to make new highs. Monica joins us now in New York. Monica cand morning to year warning, we will make new highs in this sancraity market. Talk to me about how you put cash to work right now?
Then, the challenge has been everyone's waiting for certainty. You just talked about that. I don't think we're going to get it. The FED is never going to tell us what the path is going to look like, and so the challenge becomes, then what do I do do I wait for certainty? Well, anyone who tried that the last couple of years has missed out on a massive rally. And so what we've been advocating to clients is just look at what we can see earnings inflecting right. Put the mag seven aside. The other four ninety three earnings were down last year. We think they'll be up this year. You do have a modist inflictioneryronment, probably some cuts at some point. That is all good for stocks.
Now.
I don't think it means another twenty five percent rally, but it is the path to saying maybe five six seven percent from here, which is pretty good after we've already run something.
How would you play that? Is that an equal way? SMP five hundred? Is there a sect the preference underpinning that in any hy shape or form.
I mean, the temptations to say we'll see the broadening you've got to go outside of the magnificent seven. I think it depends where you're starting from. Many people just don't have enough risk on full stop. So if you don't have an ef equities full stop, you should be buying broad. If you are over levered to tech, then that's where I start looking to things like MidCap, where you have valuations that are significantly lower than the SMP and you have better earnings growth always you've leverage to things like industrials.
I was looking at your notes and it was amazing because there's sort of this clarion call from all different financial advisors saying.
Get out of your cash. Why are you in so much cash?
Rotate out? You're going to miss out. But you talk about keeping a buffer. What's the buffer?
It depends on what your goals are, right, Like, I work with clients across the wealth spectrum, and so you have to just have a plan. I think that's the biggest challenge. Has felt good, but the problem is I've seen balance is go twenty thirty percent plus of a portfolio. I think that's too much really, whoever you are, and so it comes down to what is my plan. If I'm trying to work towards a ten percent buffer, you probably have some wood to chob most people. I would also argue, you look at what the market's giving you. Volatility is still exceptionally low. So if you're really that scared about going into equities and risk assets. I would say, dip a toe in and then buy a little protection. You're earning a lot on your cash, spend a little bit of that to buy some pots or something like that, just to keep you invested.
There is this issue that the winners have won a lot, the losers really haven't gone anywhere. You start looking at the winners. I think, for example, Japanese equities, do you pile on or do you sort of say, you know, there's more downside risk here just based on potential surprises in the Bank of Japan and elsewhere.
You know.
It's funny at the beginning of the year we did see some rotation out of Japan into areas that looked cheap, like China. I get that just as a tactical trade. But if you are heavily levered to the US from a risk asset standpoint, and Japan has been underinvested in for decades, I think it's okay to say and need to have a little bit of Japan as a longer term bet. Hard to make a call for one to two weeks or even a couple months, but I do think there's some reasons to own Japan again. Very cheap valuations. I think it's like twenty five percent of the topics is under one times book value, which seems kind of crazy. And then obviously you have policy shifts coming, reforms coming. Again, that doesn't happen overnight, but it's a reason to have some allocation.
We've been trying to work out what happens to Japanese equities if you do get this move in the Japanese Yet certainly things have been pretty contained because we've had five days of again weakness going and gets to this decision. Dolly En is still in and around one fifty. But just a little bit of scenario analysis, what would happen if we went from one to fifty forty one thirty one twenty Where does that leave equacies?
Yeah, that is clearly a more challenging backdrop, and I think that's the risk, and so some of our clients have been doing this trying to hedge out the currency exposure really have been added to Japan. That's a little bit more complicated, but again I think that's why the Japan call can't be a one month or two month trade. You have to say I want to have an allocation intermediate to longer term to something outside of the US, and I think Japan does look relatively more interesting than see.
You're right now, there's.
This question right now, just taking a step back, whether there's a shift going on under the surface. We saw it last week with commodity stocks outperforming dramatically, and it makes me wonder whether we are on the precipice of a reinflating of goods and whether you see that from the increase in activity not only Japan, but also to some degree on the march is China and around the rest of the world.
Do you lean into that or do.
You see that as something that has a sort of self limiting aspect to it.
We do think, I mean our outlook for presable brent. We do think you can see brents like mid eighties to low nineties. So that does suggest a bit higher from here that probably is supportive for energy equities. I would remind you energy equities underperformed last year. That was the one sector that did not do well, and so I think you could see some rebalancing some addition back there. There's always this struggle to people who want to get on board with the ev revolution, but then you realize we still need oil in the near to intermediate term, and so I think that makes sense to have some allocation there, especially as we figure out what that transition looks like. But I'm not overly worried that we're going to see oil north of a hunt barring some big geopolitical shock, and so I think that from an inflationary standpoint, is a little bit less of a risk.
To wrap it all up, I am wanting to know what your take is on Ben Ladler's points that he made earlier this morning. He kind of kicked off the show at the same where he thinks that in Vidia's conference Developer conference is going to be more important than Ja Powell's speech. Do you think that that's true, especially because in some ways the FED can't tell us all that much because they don't really have a crystal ball.
I think it's probably true for equities this week. If something cataclysmically negative were to happen today, you would see some rotation out of some of these names that have been so heavily owned. That said, I actually think the tone is probably going to be pretty positive, and you're going to hopefully hear some commentary about how this is not just an Nvidia story. It's a broad story for the market, for the S and P for companies that will become more efficient. I know as a JP Morgan we're using AI everywhere. It's a huge part of all of our conversations and how we can become better advisors, more efficient, quicker, faster. Doesn't mean we're not hiring. It just means hopefully I'll get better at my job and I can do more.
I think it ends capitalized, not today, no.
Tomorrow, longer term than it's a different question, but we'll still be here next week.
Want I have it's going to see it. I want to cut a sense of JP morcom Private Bank, former fed aclumist Cladia Sal'm a good friend of this program over the years. Joined just now for more, Claudia, I want to put a catch up with you. As you've said, maybe a challenge for chairman power this week is to make sure that everyone stays around the three implied in the Median dog. Can we just start with the dots themselves? Because I know you have thoughts on this. When can we and how can we get away from this?
It's hopeless at this point. I mean, everyone wants some scrap of certainty and they look at the FED and have a very misguided belief that the Fed is going to give that to us. The FED would really like a scrap of certainty about what they're going to do later this year. My hope for this meeting. It is the most boring meeting ever. And you have traders to sleep at their desk, like, we know they're not going to cut this week, and we better not see anything material change on that summary of economic projections, in particular the are we looking at likely three cuts or two cuts? Jay is absolutely my reading of what he has said, he is a let's cut in June. He's got to keep it together. If those dots move towards July, which I actually think that's not likely, or the longer run estimate of where the rate should be the infamous r star, either of those two could get people and see and push the expectations to July in the markets.
I am a longstanding hater of the dot plot. I love the way you write. Thank you for that, Claudia. I am curious whether you think it's a liability though, that the Federal Reserve isn't operating with some sort of overarching thesis of where the economy is right now post pandemic, about whether it is sort of a hotter and higher inflation regime or if it is going to revert back to something more of what we were customed to pre pandemic.
My expectations of what the Fed is on track to do did not change. Last week. We did we had the second disappointing read on inflation. We also had this second disappointing read on retail sales. And Pale has talked about multiple times that the risk to the two sides of the mandate, the stable prices and the maximum employment, those risks are coming into balance, and we saw that last week, right, that nailed the balance of Yeah, inflation has been not so good, and really January clearly from the February looks pretty fluky with owner's equivalent rent coming back down and those retail sales those are not good numbers. I mean, I did consumer spending at the FED. Those are not good numbers. So that should maintain the quote unquote coming into balance.
Well, can you elaborate a little bit on why those are not good numbers and why that's important Because we were hearing earlier this morning from Lindsay Piagsa that they weren't that bad and that you're seeing a deceleration, but overall there still is quite a bit of spending and you can tell that balance seats aren't terrible.
Why are they terrible?
So in terms of the retail sales, I mean these were the clients, right, like, these aren't good numbers. And yes, a acceleration was what we were looking for, but we know and the flip side is the acceleration worries on inflation. We know, once things get going, it's kind of like the snowball. Right, this is a big economy. It takes some work to get it going, and then you can end up with like a really big snowball that's like crushing us and bringing down the economy. So once you start going in a direction, there is a danger that you build up speed in that direction for the economy. For the spending side, that would be a contraction in spending. That's a recession if we get there. And on the inflation side, if that not just sticks but kind of gets you know, going, that's that's a big problem too. Right, So they have the potential for two big problems, which speaks to don't do anything. Just let us.
See Claudia, I'd love you though, is just to wrap things up on inflation as well. We had a hot CPI print relative to expectations likewise on PPI, where the components of that that gave you encouragement, maybe even made you uncomfortable about the path I've head had. What were you focused on?
Well, first the encouragement. We did see the owner's equivalent rent, which had come in really hot and inexplicable in January, that did cool back off. So that tells us a lot that that piece, which was very important in CPI and important in PCE, that was something Pluchy in all likelihood. Now the discouraging part is what we've gotten into in the core services outside of shelter, the supercore. The stickiest part in there is motor vehicle insurance and the homeowners insurance is in there too. That is not about the FED the motor vehicle that is a knock on effect of the used car prices. The car prices were high, they're making up for repair costs. There's really hot relief on the horizon for that piece until later in the year. That's an unfortunate part of inflation for us US to latch onto the FED to wait on, and yet it's in there. I mean, it is making a contribution, and it is outsized from before the pandemic, and it ain't going away, probably for a little while.
You know, the enner workings of the feder reserve better than mouse quadia. How do you think they would deal with that around the table this week? And how do you think cham and Powell will address the topic in the news conference.
I go on the news conference to get Marcus to kind of stay where they are, and we're this rare moment that the FED is kind of lined up with markets, you know, this June cut and probably where Jay Powell is. So I think it's reinforcing you have a balance of risk. If we don't see retail sales mentioned in the statement, then that's a sign they have gotten more hawkish. You know, there are all these details under the hood, like motor vehicle insurance. Yeah, that's wonky, and yet it gives hawks. I mean, if you look at the top line, it gives them cover to push out to July. Frankly, I think they're going to win. July is my baseline. And so it's the messaging, you know. So, but the FED knows better, like they know what's under the hood. It's just a question of can they look past it or are they gonna get antci like sometimes they do.
Interesting Claudia, you're one of the very best, and we always appreciate your time. Thanks for being with us. Cludia, Sam, there of sum consulting on the Federal Reserve. This is the Bloomberg Surveillance Podcast, bringing you the best in markets, economics, antient politics. You can watch the show live on Bloomberg TV weekday mornings from six am to nine am Eastern. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and as always, on the Bloomberg Terminal and the Bloomberg Business app.
