tv Leaders with Lacqua Bloomberg May 1, 2016 12:30pm-1:01pm EDT
♪ francine: welcome to "leaders with lacqua." i am francine lacqua. today we are focusing on the banking industry. some banks were brought to their knees, standard chartered came out unscathed. in june 2015, bill winters was picked to turn the company around. as ceo, he sold 19 businesses and hired new management. he is no stranger to the banking world. he spent 26 years at jpmorgan.
he was the co-ceo of his investor unit for about five years. he worked on regulation and started his own alternative asset management firm. in his first interview as ceo, he sat down with me exclusively. bill winters, thank you for speaking to bloomberg. it is such a pleasure to speak to you again. how are you settling in? bill: it's going well. the thing that attracted me in the first place is the great history, really exciting markets, clients that know the bank well and like the bank a lot. this was all my sense from the outside. i came knowing the plenty of problems as well. i knew there were problems and expected the external environment would be challenging. here we are a year after i agreed to join, it's everything i expected. we've got a great franchise with a ton of opportunity.
we have a ton of problems as well, and i try to be transparent about it. in august, when i made my first public statements about the bank, we set up a very robust program of actions. we are doing it. the earnings are poor. the profitability is poor. we said we were going to do a bunch of things, and we are doing them. the market took our earnings as an encouraging sign. the market understands what our clients know, there is a ton of business for us to do. we are well-positioned to do it. francine: impairments are better than expected? is that a trend of things to come? bill: i'm not sure what that means. our stock has been up and down like a yo-yo. not always on a lot of real information. the fact is we had overextended ourselves in a number of areas. we had concentrations in areas that were hardest hit. probably not a coincidence.
we identified the problem before i arrived and were very transparent. we dealt with it. we said at year end, that we are comfortable with our portfolio, and we have a lot more to do. we have a portfolio of assets to be liquidated. that is a work in progress. we had some concentrations that we are still watching. broadly our portfolio is in good , shape. francine: can you talk to us about dividends? you had to cut back understandably so. bill: we cut back our dividend at the half year last year. we canceled our dividend. we did that in part, because we were asking our shareholders for incremental capital. more importantly, we said this is the time to reset our thinking. we understand our shareholders care about the dividend and they
want a dividend, and we want to pay a dividend. we want to resume at a time when we have a visibility into our earnings that demonstrates capital strength that we can sustain. francine: this year or not? bill: it's possible. we have said that we understand how important this is to shareholders. we will resume the dividend as soon as we think it is appropriate. francine: how do you increase revenue in this environment? bill: what we experienced last year was shrinking demand for our balance sheets. at the same time returns were compressed, because of strong local competition. the good news in the first quarter is we halted the decrease in our balance sheet and the decrease in income. the income level is suppressed. part of that is that we have underinvested in parts of our franchise for many years. we are investing a lot in this business right now. we're going to save $3 billion from our operating expense and we are putting that back into our core franchise. infrastructure, client relation
managers, having a competitive advantage, that's the key way to get income. we need to build productive capacity. we also know that we have a set of client relationship managers that were focused on one set of measures, historically. it was around growing income at the topline, not on returns. we shifted the focused toward returns, and there is a risk that in that transition you lose the focus on growth. i think we've got the balance right. our relationship managers are trained and focused on getting the market share up and getting the client up. we need clients that are investing in their own businesses. that has been the other problem. francine: it's a very fine balance. are you ready to take a loss for the year, so you get the market share you are happy with? bill: our market share is actually pretty good. we have seen some slippage in
some markets in retail. most of the income downdraft has been the result of commodity prices, lower levels of global trade. last year was the first year in a longtime that trade grew at a slower rate than underlying gdp. francine: it's not impossible? bill: we are of the over $500 -- we earned a bit over $500 million in the first quarter. i'm hoping we can grow income over the course of this year. i think we have demonstrated a good control expenses so far. we will see of one of the bigger exposures has a surprising turn for the worst that could have in impact on us. francine: what about litigation? is the ball of the costly bulk ofulk -- is the the costly litigation behind you? bill: probably. we are very transparent about a number of investigations that we have with u.s. authorities and
the fca relating to money laundering compliance and sanctions going back to 2012 and a little bit beyond. those are open investigations, and we don't know when they will include. we would love for them to conclude soon. they have to run their course. we are cooperating as fully as we can, and we are doing our own investigations. i'm comfortable from what i have seen that nobody in the bank intentionally misled any of our external stakeholders. francine: bill talks about the risks he sees in monetary policy. bill: it feels a little bit like a rubber band that's been stretched. there is a risk of snapping. francine: we will be back with more on that exclusive conversation. ♪
comes from asia, africa, the middle east. that's where they have had a rough time. emerging markets have been hurt by concerns over bad debt and not enough structural reform. i asked bill winters about his outlook on china's economy. are you a little more positive about china than you were six months ago? it seems like the economy is stabilizing a little bit. it seems like it's stabilized a little bit. overall, it feels better. bill: it does feel better. i was never in the doomsday camp. been i would not do this job in -- if i had been, i would not do this job in the first place. there were clearly some policy fumbles back in august last year. there was a failure to communicate intentions in the market about the equity market and the currency market. the actual economic activity is very good. francine: if you believe the numbers. bill: you can discount the
numbers by a fair amount, and it's still pretty good. i think the numbers are fair enough. there is a clear shift toward service and consumption-based economy. there is a growing, and i think demonstrated resolved to deal with the capacity overhangs. a lot of the growth, while i think it is real, it's an increase in the debt stock. that debt stock is effectively a policy matter. the big state banks and the capital markets are encouraging that creation. that is mortgaging the future. how much of that growth is manufactured through increased debt and continued capital spending versus real underlying growth. i think the majority is real underlying growth and most of us would be happy with 5% growth with no incremental increases in the debt stock. especially in the second biggest economy in the world. francine: you're not concerned about defaults? you will be quite active in china?
bill: we are active in the local lending and the local markets. we are concerned about defaults. there has been an increase. they are still manageable. francine: they are managed. bill: the quality of our book in china is concentrated toward some companies and banks. the large banks. we are a trade bank. we are facilitating payments. the nature of that business is very encouraging. where we have a broader based commercial banking and corporate banking, we are seeing some stresses and strains as the economy adjusts, in the old economy areas. we think this is manageable in the overall scheme of things. francine: what are the biggest risks you see out there? i would point to china, brexit, implosion of the eu policy fed, and theom the quiddity on the market -- the
uidity on theiq market? bill: my biggest concern is the effect of extraordinary monetary stimulus over time with an element of fiscal stimulus that is different from region to region, that is bringing up some imbalances. it feels like a rubber band that is being stretched. there is a risk of snapping. the pressure on banks to increase capital is to see through an unexpected shock. that is the macro theme. francine: a shock like what? a possible recession? a possibility of freezing up of liquidity in the markets? systemic risk coming from from a big commodity going under? bill: i must worry about the systemic risks. i think the wobble we saw last year, when there was concern that monetary stimulus in that -- that increasing monetary stimulus in that case in europe and japan was having diminishing returns. in the sense that that may be the only tool in the arsenal.
francine: negative rates really haven't worked as expected. bill: we have not played this one out yet and no one knows how , it ends. we have to be careful and aware of that. that's why i am comfortable in a well-capitalized position and am resilient against things we are concerned about that don't know -- about, but don't know how they will play out. the other risk that you mentioned, the market became very concerned about the combination of a tightening fed and a china whose objectives were unclear. francine: janet yellen has been dovish, she has become a lot -- it she becomes a lot more hawkish in the next couple of weeks or months, what does that do to emerging markets and debt? bill: i think the emerging markets are much better prepared for an interest rate differential relative to where they were two years ago. as we saw last year, and we saw
from the volatility this year, a little bit of stimulus creates a lot of jitters in the marketplace. i think the fed has to be careful. by the same token, we had a rate increase. i think the market can handle that. we have had a good run. -- francine: what do you expect the commodity prices to do? we've had a good run backup. we have a supply surplus in the oil markets. i think we have reached a reasonable equilibrium for this supply bracket. we have continued growing demand. at the end of the day, if the growth in china is right or it's debt fueled, it still 6.8% growth. there is demand for oil in the united states and china and its positive. supply will come off and it will begin to come off. i think we will see a stabilization of commodity prices around this level.
francine: given what you have just said where do you see the , bright spots? i know there is china and they are still growing. growth is still sluggish. we have thrown a lot and the forecast for growth is not going anywhere. bill: the bright spot closest to home is the banking system being very resilient right now. we have much higher levels of capital than we did just three years ago. we have much more liquid. the fund industry is much less leverage. cap markets are in much better shape, there is a much better shock absorber for the system. francine: this is worldwide? bill: absolutely. i think the u.s. got there faster. europe has gotten their slower. the u.k. is in between. i feel comfortable with our capital position. we could absorb a severe shock. we will have a stress test this year, which will be even more severe. i am sure we will absorb that as
well and carry on with our business. that is one very good piece of news. most of the world is still growing. francine: a little bit. bill: not as quickly as it did. the demographic trends in the parts of the world that are still growing, the demographics are very good. china in the short term is ok, but in the long-term it is a challenge. the rest of asia, india is growing, east africa is booming. across these markets, we still have growth and we have good underlying demographics. this is an increasingly large part of global gdp. there are plenty of risks. there are plenty of them. we must be ready for those risks. in aggregate, the world feels like it has every opportunity to get back to a stable lower level of growth with a more balanced and resilient financial system. francine: is it the end of the dollar rally? bill: the dollar rally is
connected to the whole risk off theme we have had on balance over the past year. i think it's too early to call the end of the risk off theme. i think we will have episodes of risk aversion and i think that gives the dollar some legs. francine: you are expecting volatility? awd see some markets -- see-s markets? bill: definitely. francine: bill tells us how he measures success. bill: we are going to be transparent about the problems, and we will tell you what we're going to do about it. we will let you track it. more with bill winters. ♪
♪ francine: as standard chartered overhaul its business, other banks have new ceos in charge. sometimes it feels like they are chasing the same customer. i asked bill winters what kind of bank he wants to build. bill: what we have today is a great international bank focused on a trade payment since serving affluent individuals and corporations in asia, the middle east, africa. we start with a fabulous franchise. we looked if there were parts of the franchise that weren't critical for our future. we have decided and recognized that we have fantastic opportunities in retail,
commercial banking, a very strong corporate institutional business we want to continue to grow. we would like it to be a much better run version of what we are today. that will involve lots of ins and outs. we sold 19 businesses last year, and we are selling a bunch of businesses right now. we are investing in our underlying businesses. so far, all that investment is organic, and i think that's the right thing to do. there will be inorganic opportunities at some point. when we are ready to deal with those things, i'm not talking about big acquisitions, just build outs around our core strengths. francine: what needs to happen to be at that point. the oil price starting to fall? or are you looking more towards asia and the middle east? bill: we are doing what we need to do to get to the place were we have options open to us. we needed to strengthen our foundations and get our capital position rocksolid.
we are in a good place right now. second is to tighten up everything around our control environment, risk controls, expense controls. the ethical culture in the bank is fantastic. we were a little bit loose in how we just kept track of things. as a result little mistakes got , amplified. hence the bad financial year last year, we had a very bad and the very bad challenge getting out of that. we need to execute better. we need to invest intelligently and create long-term franchises off our core strengths. that is what we are doing. francine: how do you cut enough fat that you have enough time to play out? bill: shareholders have been supportive. we went to them with a strategic plan last year, and said it was a three to five-year plan. we set out knowing a poor operating environment with low growth and low commodity prices and low interest rates. we said we will get to 8% returns in three years.
10% returns in five years. that is not a very exciting return. we said to our shareholders, we would like you to invest $5.1 billion in our company. that's what we can do in the short term. in the long term, we think we can create real value. 90% of our shareholders signed up for that deal. including me and every other member of our management team. everyone who bought shares with our own money and agreed in terms of the bonus round to forgo any cash bonuses and put everything into hitting the targets we set out in november of last year. i am talking about the top 150 -- 250 people in the company. you've got a management team that is completely aligned with shareholders. we are voting with our own wallets. we say we think we can get this bank to be where we wanted to -- where we want it to be but
, it's going to take time. francine: in asia, it's a crowded market. how do you differentiate yourself? bill: it's a crowded market, but that also means it's a fragmented market. it will consolidate overtime. there is a role for different types of players. there is a role for the big swiss banks, who have a strong offshore offering. there is a role for local banks who are banking the emerging , affluent, and that's a natural place for us. that is our retail business. there is a role for those in between, which is where we fit in neatly above are retail business. -- with our retail business. for our private banking clients, we have an offshore opening in singapore and london and dubai. we have onshore offerings that are customized for high net worth clients that are also local banks with branches. in many cases, we know the corporations that the individuals are running and owning.
we have a natural sourcing ground for private banking clients. ofalso have an understanding their business their local , requirements and their local needs. of course from time to time we will compete with a big swiss bank or a local bank in thailand or the philippines. we occupy an intermediate ground which as a truly global , international bank we are almost unrivaled. francine: how do you measure success? is it the share price? is it when you pay back dividends? what is it? bill: it may distress our shareholders to know that i don't watch the share price. i don't want share price because -- watch the share price because it is not influencing what we're are doing every day when we come in to work. what we want to do is tighten up the ship in every way we can and serve our clients and develop products that are relevant and understand the competitive environment and respond to it
, and get ahead of it. we are investing for the medium to long term. three years to five years. that's it. we know there are things we have to do right now. we have to be very strong right now. we have to demonstrate that we are making progress against each of these things. we will lose the faith of the shareholders, even if we believe ourselves. we have tried to do that since i -- to do that in the eight months since i have been here. we're going to diagnose problems and tell you what we are going to do about it and then let you track it. we cannot control the price of oil, or the rate of growth in china. we can be prepared for the downside and capitalize on the upside. we tell you what we are going to do, and we are doing it. francine: what has surprised you most since you've been in charge? your management style, your team, shareholders? bill: you never know what you're really going to find on the inside. i came in thinking this was a bank with a superstrong ethical
culture. people come to standard chartered because they think , they can help change the world. it sounds cliche, but it's true. it's real. it's genuine in the bank. that's great to see. the flip side of that is there was a looseness to the way that we manage the place. i'm not blaming anybody for that business. -- that looseness. i think it came from years of great success with the bank outperformed. i get a time from shareholders who say how can we have seen such a great drop in price? things must be terrible. i can tell you what you were doing, you were encouraging management to grow more and get bigger. you, madam shareholder, were encouraging the bank to do the things that ultimately were its partial undoing. shareholders don't appreciate that. what we're doing now is focusing on what's great about the bank
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