How has the Indian government done in the last decade? Do you think it has taken advantage of the opportunities created by changes in the geopolitical equations?
It looks like they did. Didn’t Apple move some of their production here? You can get other people to do the same. I think they call it ‘China Plus One’. India has already done a great job in global service exports. So it is a production opportunity.
What is the feedback from investors? Do you expect equity portfolio flows to accelerate after inclusion in bond indices?
… Because India makes up 10% of the index, it will buy $25 billion worth of foreign bonds. It is a very good thing that India is part of the index as it has other consequences and implications for the country’s transparency and growth. So it will promote capital flows into India.
You have increased the workforce in the global capacity centers. Has Covid encouraged remote working…
It has nothing to do with Covid. In 2005 we had 6,000 people here and had an eye on twenty companies. We were a very small investment bank with a small sales and trading organization. Today we cover approximately 120 companies, bring in 400 to 500 multinationals and employ 50,000 people. At the time, service centers were mainly call centers and surgery centers. Today it’s everything we do as a company: data science, cyber, research. This is due to the talent and capabilities of the people. All these people here are also taking jobs at JP Morgan outside India, and in my opinion that will continue for the next 20 years.
Will the offshoring trend continue to grow?
We were probably the largest of the financial companies. Without these service centers, your service export would not be possible. What they do has become dramatically luxurious. I’m visiting our center in Mumbai on Tuesday and it’s very special.
During your 2021 visit, you said interest rates were likely to rise. Did you expect them to reach the current level?
When we talked about the economy, I didn’t know what would happen, but the chances of inflation and higher interest rates were pretty good, and we were prepared for it. With so much spending, I don’t know how you can avoid inflation. Governments can’t spend all that money, and it can’t be inflationary.
What are the risks of a hard landing for the US economy?
Nobody knows. There is a range of outcomes. It will be affected by everything else: Ukraine, oil, gas, war, Europe. I would be careful. I think we’re feeling pretty good because of all the monetary and fiscal stimulus. But it can be a bit more of a sugar high. We will face all these serious problems over time, and your deficits cannot last forever. Rates could therefore rise even further. But I hope and pray that there will be a soft landing.
When interest rates rise sharply, debt repayment stresses. How are companies supposed to live with such high rates?
First of all, the interest rate went to zero. The transition from zero to 2% was virtually no increase. The move from zero to 5% caught some people off guard, but no one would have considered 5% out of the realm of possibility. I’m not sure the world is prepared for 7%. I ask people in business, “Are you prepared for something like 7%?” The worst case is 7% with stagflation. If they start charging lower volumes and higher rates, there will be tension in the system. We urge our customers to be prepared for this type of stress. Warren Buffett says that at low tide you discover who is swimming naked. That will be the tide that will turn. These 200 bps will be more painful than the 3% to 5%.
The SVB crisis has prompted comments about the risks arising from the combination of digital banking with social media-driven bank runs. Does this make all banks ‘too big to fail’?
I think this is being blown out of proportion. Social media and online banking existed during the great financial crisis. Only a handful of banks had this problem: Silicon Valley Bank, First Republic Bank, and Signature. Other banks had no problem. It did highlight other issues that regulators and banks need to be aware of: that concentrated deposits move in a herd, and that we need to have plans to deal with that. The problem of interest rate exposure was known to everyone. I don’t think we want a system where no bank ever fails. So it’s okay to have some failures. But if the system causes damage, we must adjust regulations to prevent that.
You’ve been a proponent of returning to the office…
JP Morgan is a microcosm of the broader people. About 60% of people are in positions 100% of the time, which was the case even during Covid for manufacturers, bank branches, doctors, hospitals, police and firefighters. So it concerns the remaining 40%. There are certain jobs that allow you to work from home. I think there’s a whole function of jobs where people are doing two or three days where it’s unclear. You have to be very specific. Does it work for the company? The clients? There are negatives; it’s not just binary. How do you learn as a young person? It damages spontaneity and creativity. It slows down management decision making. Most people learn because they are part of sales calls or meetings. We are 60% full time, all MDs are full time and we handle the rest. If it doesn’t work, we’ll get rid of it. This is not about the squeaky wheel that determines what is good for JP Morgan’s clients.
India pushed for crypto regulation at the G20 summit. The RBI wants a ban…
They are right. You need to break the world down into crypto that does something – foundations for smart contracts or data that can be easily moved so that it creates value somewhere. I think that happens a little bit. If it takes the form of currency, which is supposed to be a store of value, then that is fraud; it should be closed.
The other problem in the G20 was the high cost of sending money across borders through banks…
You are absolutely right. It’s especially a problem for America because many people send money home, which costs too much money and takes too long. I think the government can help the solution by allowing international accounts to be moved in real time for small consumer accounts with the right protections. There are a number of fintechs that are solving the problem. It is not the big banks that receive these fees. These are other money movers.
