Davos News, Bank of America outlook and JPMorgan's shift towards Paris
Welcome to banking weekly from the Financial Times with me Patrick Jenkins this week. I'll be joined by David. Crowe biking editor from Devas Laura Newnan are us. Banking at set from New York. And also by Stephen Morris European banking correspondent. And I guess this week is Brian Moynihan Chief Executive of Bank of America this week. We'll be talking about Davos and the latest financial news from the world the Economic Forum. Also our interview with Brian Moynahan and finally J. P.. Morgan is it moving to Paris. I to Davos Davos with joined down the line from the ski slopes by David Crowe Banking editor David. Thanks very much for making the time. Tell us what is the main the theme of this year's gathering of the bigwigs of finance policymaking and business. Hi Patrick and greetings from a very busy very loud congress center in Devas. It's still very early days but I think one of the main themes this year is going to be climate and sustainability. Now that is in part because the organizers of the World Economic Forum want it to be Greta thin Berg the seventeen year old climate activist and in some senses a standard ended Barrett for the green agenda has been on stage today asking delegates to take the climate emergency seriously. And you remember that Larry think the Chief Executive of fund on Management Join Black Rock in a sense. Set the tone for this meeting by putting big changes to his business to focus more on sustainable investment that included things like cutting big polluters that divided big chunk of their revenues from thermal coal for instance from its active portfolios. But not. Everyone here is singing from the same songsheet earlier. Today Mike Colbert's the CEO of Citibank spoke on a panel and he said his bank would take take a more nuanced approach working with companies to help them become more sustainable using the carrot. If you like without beating them with a stick as he put it. Let's hear a bit of what he had to say. We've actually been introducing outcome based financing more of the actual cost of your financing will be based on what what's your actual carbon emissions is at a certain point in time so getting stick right in terms of the right benchmark pricing and then creating the right outcomes and certainly is a financial institution what I say to our clients his. I don't WanNa be the sharp end of the spear meaning. I don't WanNa have to be the ones I'm telling you are enforcing standards in your industry or in Your Business. You should set those you get proper buying and we'll be here to support you. We're we don't WANNA find ourselves is is being the person that starts to dictate winners and losers ebanks job is to support the communities in which should operate it's not to dictate outcomes so I think it shows that there is going to increasingly. Be a divergence on this issue between banks fund managers inches and other financial services companies that want to cut polluters off from the global financial system. Like the Netherlands Lender I N G for instance which has said it might have to bank some polluting customers. And then there are those like Mr Corbett who think that it is not the banking industries job to police. The climate who think that that job should fall. Instead to policy makers shareholders customers regulators and so on finally David aside from climate sustainability. What are the themes are on the agenda? Well I think there's going to be a lot of soul-searching about negative rates in the euro zone and lower rates elsewhere in the global economy enemy. We had another set of lackluster earnings from. UBS this morning predominantly because of its struggling investment. Bang but also because negative rates in Switzerland are hurting cutting its net interest income. My sense is the bank. CEO's accept the negative rates are going to be here for the medium to long-term despite their best efforts convince central bankers that low profitability in the banking industry is bad for the real economy. So you're going to hear a lot less about battered margins and more about the long game came about the need for government to take fiscal measures on spending and tax to boost the European economy. Well enjoy the ski slopes David thank you very much for that. Let's move on to second topic now. And a few days ago law renewed US banking editor and Rob Armstrong. US Finance editor. Sat that down with Brian. Moynahan the Chief Executive of Bank of America to talk about what he's learned during his time at the top and also what. The plans are for Bank of America. Going food one of the most interesting areas for discussion was around the booming share prices of US banks especially when compared to those in Europe. Bank of America's stock is up about twenty percent over the past year but despite that impressive performance. It's still lags. The Industry Leader J. P. Morgan organ. So Laura and rob asked Brian Moynihan what that mentality he judged himself against his competitors. Wolves Bank of America actually getting left behind calling. I look at what we've done in our stock price performances than one three five. He just up from the industry and so there's a couple of perform very well. Frankly in the last five. The additional profit beginning is that the holes put in the company's capabilities from a pure calculation basis and from the risk. framers we had required required us to issue a lot more shares and that's why our share reductions a critical part of restoring the overall profitability of companies. So the market caps gone from say on sixty billion with three hundred thirty billion. We earned one hundred. Thirty billion dollars of the decade would return two hundred thirty minutes share share buybacks and dividends in. We've reduced is the share count from eleven half-billion at aged under nine now and until we get the name of completely back. Then that's why we have momentum even your where learnings relatively flat last year for the fourth quarter or ups is up and that's because that is part of shareholder value proposition. And you can go back and look at the first prison stations. May which is we have to get to the fortress balance sheets and indeed once we get there. We can grow what we call ourselves. So we're joined by Laura. Thanks for much for joining Rene Solorio. What did you make of this common from Brian? Monahan is clearly a little bit sensitive about the idea that J. P. is taking spoils the very much playing second fiddle. What's your thoughts? Are they getting left behind. So if we look at it on the net income basis or on a shareholder return basis certainly j. p. Morgan Chase House done better than Bank of America on on most fronts. If you look at the last decade or so and digging Morgan Chase has also really succeed in creating narrative that it is the truly strong you buying from the financial crisis but isn't to say that bank America is losing to Jason Audience. Mike America is the biggest digital bank in the US. It's the biggest small business lender. It has number one to share in the US. So let's hear another clip now. This is Brian. Moynihan's statement of his ambition Iran growth and particularly the scope for expanding their consumer banking operations creations get gross these to talk about consumer market share because people can sort of relate to that all consumers with large thank you franchise United States largest visits franchise largest commercial money in the United States. And yet we are market shares consumer probably twelve thirteen fourteen percent depending council obvious. You could double thirty million dollars over time if you could after so Laura what do you make of this plan clam for growth. Is it realistic so surprising feature of the US bank earnings. Every quarter is at the biggest banks helping continuing to gain share. And that's even as as we see lots of new banks launching the space particularly digital buyings. The biggest banks have continued to really tighten their grip. So I think Brian's point is at that's something we're going to continue did you see and that there's still a lot of market share to begin given that the market shares of the top banks are actually quite small routers other industries. So I think it's fair to say that that the market share we'll grow whether it will double. I think that's probably a bit of a stretch. He didn't give any time frame. I think even over the longest timeframe personally surprised if they monitor double because the big. US banks are constrained in their growth. It's not like they can grow. We'll just going out and buying something it can't so I think doubling it is going to be quite ambitious and then finally Laura Utah. Oh to lot I think to Mr Moynihan banked what he's learned from the past ten years or so since the crisis have he ensured that his as he called them his his teammates. Keep in mind the lessons that should have been learned from the crisis. What did he have to say on my exactly? I think Brian and a lot of Wall Street. Executives and other senior executives are concerned about is that as a crisis becomes an older memory and as there are fewer people working in the banks who have been through us or being through any kind of entering the institutional memory is lost and lock in effect decision making in the can affect how people view risks. So if you think about someone there are people working in the US banking industry. Who worked in industry she for ten years and have only known economic growth? I mean you can learn about in history books you can learn about it from your account last but it's not the same as actually seeing the loans turn by seeing in the borrower learnt money for a small business facing bankruptcy trying to structure those out and so I think one of the fears is that because the US been economically nonstop in particular so good for so long. It's very important to try to keep the new wave of US bankers grant in the fact that actually things can go wrong. And when they I do this is how we cope with them. Great Laura thank you so much for joining us onto a third item of the day. And we're joined now by Steven Stephen Morris our European banking correspondent and the Line Stephen. JP Morgan has made an interesting of news this week by announcing the purchase of a new building in Paris this is brexit related. Does this mean they're moving their European headquarters out of London. Well not quite MRIs. Wha- Investment Banking Times. They call optionality which is horrible would basically they have fought the office next one. They have already in the first al-Hindi small giving them room for an extra four hundred fifty people on top of the two hundred and thirty. They already have in Paris. This is interesting because these will be potentially the sales and trading team full any products donated in euros so it looks like Paris is becoming a much bigger part of that plan than initially. We must still emphasize that Paris as European Office is currently the fourth biggest ten thousand people in London that are five hundred the people and Luxembourg and four hundred and fifty people in Frankfurt already so if they fill this out it will become the second largest office and that European trading hub. They have said that they're waiting to see what happens during this transition period which will kick off from the end of this month. Just what kind of financial deal is struck between in the UK and the European Union. What kind of market access will be retained from the city of London because obviously the people they have to move the few computer assist transfer across the cheaper for them which is ultimately that goal? There's an obvious parallel here. Isn't there with Bank of America which probably around and about a year ago now started the move all of a substantial number four hundred also sales and trading people out of London or at least they set up around four hundred New People in Paris many of them transfer from London. Is that the model here. Well yes it looks like. Harris is rapidly emerging as the win. A At least in terms of trading from Brexit we know about the well-documented difficulties of American and other investment bankers moving from London to less large metropolitan cities such as Frankfurt and Zurich and. It looks like Paris is the best situation for most of these banks of the right mix exa culture infrastructure in an increasingly business friendly attitude we tried to know. My chrome was instrumental in Dissuading Bank of America Citi Group and blackrock the world's largest asset manager to locate more of their operations in Paris after brexit and he continues to make positive noises J. P. Morgan announcement of your office building purchase actually came alongside a roth of other companies announcing investments in Paris including child the big energy and company which just moved this entire treasury operations from London to Paris specifically citing the increased cost of operating from London after Brexit. So it looks like J. P. Morgan and is really following a wider trend not just in financial services but in all business in picking Paris. It's kind of a place to do trading and sales and eastern financial at your markets for the future. Yes it clearly helps doesn't it when you're president is a former investment banker himself. Thank you very much. Well that's all for this week and also from me. That's it as your host of banking weekly will join for the next few weeks by Matthew Vincent my colleague in the meantime I just wanted to say. Thank you very very much to David. Lawrence Stephen and also to Brian Moynihan of Bank of America. And thank you so much for listening for all of these years. Remember you can keep up to date with all the the latest banking stories at dot com slash banking banking weekly was produced by Fiona Simon. Until next week goodbye.