• Pat Burke, president and chief executive, HSBC US
• Joe Gold, chief executive, Americas, Barclays
• Masashi Oka, executive chairman, MUFG Americas Holdings Corp. and MUFG Union Bank
• Jim Aramanda, president & CEO, National Unrecovered Financial Services Association and Payments Co.
• Paul Saltzman, president, The Clearing House Association, EVP & general counsel, The Clearing House Payments Co.

Pat Burke, HSBC: Sure. I would contrast the current environment with that of a few years ago, when many held the view that emerging markets would accelerate growth around the globe and significant Asian regional trade would follow. In short, emerging markets would grow more far more dramatically than what we would see in the West.

As we now fast forward into 2015, indeed what we’re seeing is emerging markets are continuing to provide growth opportunities though not as robustly and consistently as previously thought. And that makes economies like the United States and the U.K. actually look like really good markets to invest in.

For HSBC, we will put quite a bit of resources and investment into the United States, simply because of the number of companies that exist in the U.S. that have international needs. There’s no other concentration of thriving companies we have in the U.S. elsewhere in the world.

Joe Gold, Barclays: I would echo that. The analogy I use for the global economy right now is the global economy’s a train, and the U.S. is the engine trying to pull along a lot of the other countries or regions. It’s the same from the perspective of a bank, which is you can see the strength of the U.S. market, it’s moving forward, it has growth to it, while in some of the other spots the investment thesis isn’t as great.

And so for us growth is going to be about our U.K. business and our U.S. business. In particular in the U.S. our cards business is positioned nicely. Then also in the U.S. we’re working to rebalance some of our corporate interactions, where the U.S. companies tend to provide more growth for products. So, we’re excited about prospects in our traditional footprint, the U.K., the U.S., and then for the rest of it are areas we’re watching and hoping for improvement, but not seeing it at the same pace.

Masashi Oka, MUFG Americas Holdings: To directly answer your question generally, I think growth in the global economy this year will depend largely on dominant developed countries like the U.S., U.K., and Germany. Others will contribute, of course – for instance, there’s easing in the EU and certain Asian countries, but for growth with global impact, we have to look to these major economies. Given my bank’s direct ties to Japan, I’m particularly mindful of the need for Japan’s economy to pick up part of the weight of global GDP growth. Fortunately, I think the Japanese economy is showing a good trend, and we anticipate its GDP will be around 1.5% or maybe a bit higher, which is better than what we’ve seen the past few years. I also think countries that have embraced structural reforms, like India, might also contribute. China of course is crucial. It showed more than 7% GDP growth last year. But we think that’s going to slow down a little, and over the mid-to-long term, we need to watch China’s property oversupply with a bit of concern.

As far as my bank is concerned specifically, we’re very hopeful the Japanese economy will reverse its deflationary state, because we make the majority of our money in that market. But another way to view it is that 35% of our earnings come from outside Japan. With shrinking growth potential inside our home market, it’s very, very important for us to keep driving revenues and earnings outside Japan. From this perspective, which is to say our perspective, the most important growth market, globally, is right here in the U.S.

Paul Saltzman, NURFS: How has the strength of the dollar lately affected the way your U.S. operations report performance, and how has that impacted your business in the United States relative to the consolidated operation?

Burke: We report in U.S. dollars. HSBC uses the U.S. dollar as its reporting currency. On top of all that is the fact that the U.S. dollar is the world’s trade and reserve currency, which makes it much easier for investors to understand the HSBC through the U.S. dollar. With respect to prospective rate hikes by the Federal Reserve, I would say most of the market probably believe that any increases in interest rates are designed for the U.S. central bank to be able to create headroom for itself should there be a slowdown in the U.S. economy.

Saltzman: Joe, does Barclays report in dollars or in pounds?

Gold: We report in sterling, not dollars. On this topic I would say there is a difference between the substance of the issue and the appearance of the issue. I think if you have a balanced business then your earnings may be changing by the difference in currency, but realistically you’re not changing the profitability. But it can be difficult explaining that, both internally and externally. Because some of our metrics, for example, our capital ratios, etc., are converted into sterling, they move around a bit. But then, when you get down to the bottom of the equation you’ll find that the numbers don’t actually change that much because everything flows through.

Saltzman: So, it’s an added complexity for an FBO that doesn’t necessarily report to its investors in dollars. Masashi, does your bank report in yen?

Oka: Our parent MUFG reports its results in yen. MUFG Americas Holdings reports in dollars. The important issue is what impact the strengthening of the dollar has on the U.S. economy because that’s what affects our operations here. It will likely have a short-term deflationary impact, and we’re already feeling the effects of that. And a lot of commodities are priced in U.S. dollars, so that puts even more downward pressure on their prices. But energy savings should boost consumer spending and, in the longer term, the key will be employment and wage increases.

Aramanda: There are a number of strategic lenses by which to view maintaining a U.S. presence as part of a globally active bank, as all of you are. One is the client service lens. One’s the regulatory lens. One is funding related to dollar clearing. In general, how has operating an FBO in the U.S. changed since the crisis, from both a strategic and an operational perspective?

Burke: One thing surely post-crisis that we’ve all had to face is the need to, with great clarity, decide where we’re going to operate and what things we’re going to choose to focus on.

Now that we’ve got a bit more view about what we have is an ability to either take U.S. clients and help them bank throughout the world, and also help direct inward investment into the United States from non-U.S. clients. That’s the crystallization of what HSBC’s global network really is: serving the international client. It’s that focus on those particular clients that has led us to decide where we want to operate and to shed some unrelated businesses.

Saltzman: Patrick, before we move on, I want to ask you to comment on the impact of the intermediate holding company rules in the United States. If I understand it correctly, HSBC always has operated through an organizational structure that’s congruent with the IHC rules, so they are less transformational for your bank compared to many of your peers.

Burke: That’s right. We’ve always been established as a subsidiary structure in the U.S. We’ve been independently capitalized, have a separate board, issue SEC documents, and so on, and we’ve done that for a long period of time. That means, as a result of the new rules for FBOs under Dodd-Frank Section 165, that there’s not a huge amount of change for us. Some of the resolution planning rules, those are new. Plus, we have to do them in conjunction with the resolution rules out of the U.K. at the parent company level. That’s going to be a conversation we’ll have with the various national regulators, because they don’t necessarily synch up and do the same thing.

Saltzman: How about for Barclays, Joe?

Gold: Barclays is probably on the other end of the spectrum, historically. It’s difficult for us to talk pre-crisis and post-crisis, because pre-crisis we were the pure Barclays, and post crisis we bought Lehman’s business in North America. In doing so, that changed a lot of the characteristics. But historically Barclays’ approach was to centralize as much as possible in the home branch and not be subsidiarized.

So, for us that subsidiarization is something that’s a significant change because when it came to interacting with the regulator, when it came to balancing the business and making sure that we had the right mixture of products in a geography, it was always done on a global basis. We are moving to more of regional basis today, I think that’s a substantial thing.

Saltzman: Masashi?

Oka: MUFG acquired Union Bank in the mid-1980s, so we’ve managed a national bank for 30 years. And Union Bank celebrated our 150th anniversary last year. So we have very deep roots in the U.S. on the West Coast in that regard. Our parent bank in Tokyo opened its first office in the U.S. in the 1880s, so both Union Bank and MUFG both have deep roots in the U.S., and have been part of the U.S. banking community for well over a century.

But our various operations here have been only loosely affiliated. Since the crisis, we’ve been moving deliberately toward real integration. Last year, we combined the strengths of MUFG in the Americas with Union Bank by forming a U.S. bank holding company and a new bank, MUFG Union Bank. But this is a long process, and very complex. It’s important to note that we didn’t pursue this integration simply to comply with standards for FBOs under Section 165. Beyond that, we need to be more efficient, and most important, we need to offer our combined strengths to our customers. It’s also crucial to manage all of our U.S. operations under an enterprise-wide risk management framework. Integration lets us apply best practices from both legacy institutions, and also offer our Union Bank customers MUFG’s global reach.

Saltzman: One of the themes that we often hear from commentators is the trend towards the “Balkanization” of global markets due in part to the regulatory agenda. Is that something that concerns any of you?

Burke: I wouldn’t say we subscribe to a Balkanization view within HSBC. Our view is this: wherever trade flows occur in the world, we’ll adjust based on that. As I said at the outset, whereas we might have thought a few years ago coming off the peak of the crisis that the trade flows in a lot of the emerging markets would really explode growth rates, we now see much more restrained growth in some developed markets.

We realize places like the United States and the U.K. continue to offer really attractive growth opportunities. At the same time, I still have a strong interest in emerging markets. I know they’re going to continue to accelerate in the decades ahead, and I want to make sure I’ve got my operations focused there. From my point of view it’s a balancing of where the activity is, not a retreat, frankly, from any specific place.

Gold: I think “retreat” would be a strong statement, but I think at least from the perspective of wholesale banking and investment banking activities, you’re definitely seeing a rationalization and a change of business model.

A lot of those activities, where clients would take advantage of the global relationships, those are being rationalized because they were very painful to risk manage in a crisis. Put on top of that subsidiarization in places like the U.K., ultimately some of the IHC rules in the U.S. I think that the offering becomes one where the cross-sale of a good relationship and ability to understand the client is done globally. But actually a lot of the products end up being local. So, as a result that does change the offering, change the pricing, it changes what you can offer in some of these jurisdictions, which if you don’t have a competitive advantage then basically a bunch of banks are moving to where they have competitive advantages, or where they can provide a balanced platform.

Oka: I do think banks need to be aware who their clients are, and what they need, and for global banks that means offering global reach. We have to be able to make sure we coordinate products and services for multinational clients with overseas subsidiaries. But that goes only so far. Banks that try to be everything to all customers tend to be less efficient. You have to pick your strengths and focus on ideal markets where you can build and sustain a competitive edge. For MUFG, that’s the U.S. and Asia.

Aramanda: Of all the regulatory changes that have gone on, what sticks out as having impacted your organization the most?

Burke: I would say that the impact to both capital and liquidity, those are probably the two biggest influences of all of the regulation that’s been coming down the pike post crisis, whether it’s Dodd-Frank, whether it’s regulation in different parts of the world. It actually creates a bit of a headwind, if you will, if you’re thinking about it from a client point of view.

And indeed if you want to bring a particular product or service, however narrowly or broadly you might define that, to clients in different parts of the world, you will be running up against relatively constrained changes now in the way the regulatory environment works.

So capital and liquidity already are having an impact on the ability to do business with certain clients. Ultimately time will tell how much of an impact.

Gold: I’ll jump on the end of that. If I were to put them in order I would say it’s probably changes in risk-based capital measures, then structural reform. But I think it’s a combination of the three that causes the friction, in that you end up with certain businesses which are favorable in one and not favorable in the other, and putting them in certain jurisdictions where there’s dominance of that business. So, a client may not understand that going from a location where they have a particular type of business that is welcomed and they go to a different location, that business is difficult for us to do. And it has nothing to do with the client or the business. It has to do with the fact that we’ve layered on three different lenses to what is good business and what isn’t, and what is the balance of the other business that we have. And you add all that together, it’s difficult internally to be able to explain to people why it is that these things are in flux. To do it externally becomes incredibly confusing.

Oka: Capital and liquidity, with all the new rules, have become so important. Previously we put more emphasis on earnings, but we’ve shifted toward focusing on return – not just growth for the sake of growth, but sound and profitable growth. We’ve always emphasized safety and soundness, but now we’re emphasizing sound and profitable growth in light of the new rules. Corporate governance is very important. Enterprise-wide risk management is very important. Since we integrated operations of Union Bank and our BTMU branch in New York, changes that affect retail banking – like the Durbin Amendment and the CFPB – have become very important to all of us throughout the bank.

Saltzman: Could each of you talk about your experiences running an FBO, both the challenges that you face from a governance and management perspective, but also some of the synergies and benefits of being part of a broader organization?

Burke: We formerly operated as a federation of regional banks more or less, and so the strategy and execution and everything was almost always done regionally. What we discovered, through the crisis, through some of the regulatory actions that have been taken, is that we have to run a global bank globally, and so we’ve created four global business lines and a related group of global business functions. However, you still can never really get away from the notion that the work is actually done on the ground in the market where you are. So we need to find the balance between what needs to be globally driven versus what actually has to be done within any particular region or country.

Gold: Barclays is starting from a different end of the spectrum from HSBC. I would say historically, we have had more of a very pure global model. The benefit of that was whether or not the decision was made in London, New York, or Singapore, or Tokyo, it didn’t really matter because everyone was on the same page. That’s a very good benefit. The negative part of it is that from a regional perspective it was about making sure the subsidiaries were well governed.

I think we’ve actually gone from a matrix to a cube. But I always try to express to my team that you’re not in a matrix; you’re in a cube, because you have to think through every single element and every single decision from three different potential stakeholders. It adds complexity. There’s absolutely no question about this.

Oka: Balance, as my colleagues have said, is very important – striking the appropriate balance between the local governance structure and our parent’s global corporate governance framework. It’s especially important for FBOs like us. It’s very delicate work.

We’ve benefited enormously from having a very strong, independent board at Union Bank. I’ve always been able to count on our board to present credible challenges to management. In terms of risk management and governance, it’s very important to make sure our U.S. point of view is balanced with the global corporate governance framework. We need to be consistent globally as well.

Saltzman: I want to get a little granular on the funding question. How have your funding strategies changed over the years, and how do you think about it now?

Burke: We’ve always had a conservative approach to funding inside of our banking entities, in that we always like it to be deposit-led. And I really don’t think that’s going to change. I think it’s going to get a lot more challenging to be able to deliver on deposit only funding, just with the unwinding of QE. If you just think about what will happen as that takes place, by definition it will withdraw deposits from the system. How are those deposits going to be replaced? There’s still a tremendous asset growth opportunity that exists in the U.S. There’s going to be a bit of a mismatch, and therefore, core funding value is going to be probably worth more than it was a couple of years ago. I think we’ll still very much be focused on deposit funding.

Gold: Because the post-crisis issues related to funding were so quickly addressed, I wouldn’t say over the last five years we’ve seen significant changes in our plans for funding. Barclays doesn’t have a significant amount of unsecured funding requirements in the U.S., those we have we source locally, simply for the portfolio. We do have significant secured funding but that’s not that difficult to raise. So it’s about being balanced, making sure that you have a regional contingency model where you’ve got all the particular reserves and can manage it.

Oka: Of course, funding has always been very important to us. And we’ve historically been very focused on high-quality deposit-taking. Union Bank has always been strong in attracting these non-interest bearing quality deposits, and now it’s going to become more important as all banks focus on it more. We consistently do a good job in wholesale funding, because we want to make sure we have access to those markets as well. Generating funding synergies is one of the main objectives of the integration, utilizing the low-cost deposits of Union Bank to fund loans to our corporate and investment banking clients at the branch, which we previously funded by converting yen into dollars. But overall, increasing retail deposits is going to be a major focus of ours for the next few years.

Saltzman: One question that I always like to ask when I interview CEOs is your perspectives on performance metrics. When you come in every morning, what are you driving towards, what’s your performance scorecard institutionally, and do you think that institutional performance scorecard differs because you’re an FBO?

Burke: I don’t know if it changes being an FBO, but the main metrics that we would look at are client-focused. How are we best serving them in a way that provides a return for our stakeholders? I want to get a global view of that. Can I do as much business with a particular client as possible? Am I doing everything in Asia that I can with that client? That’s the one we’re focused on the most. I don’t think that necessarily has anything to do with being a foreign banking organization. That’s just an ethos throughout the organization no matter where you are.

Gold: ROE, ROE, ROE. It’s ROE from an entity basis. It’s ROE from a product basis. And it’s ROE from a client perspective. I have the advantage that one of my hats is the regional hat and my other hat is I manage a lot of the lending portfolios. And we spend a lot of time investing in how do we understand the client ROE profile, both locally and globally, so should both be investing in the ones that can interact globally with us in a way that works for our platform. Then we’re trying to improve the ones that aren’t and try to just keep constant with the metric performance.

Oka: Previously we put more focus on core earnings, and that’s before tax and credit costs, with emphasis on core earnings and efficiency ratio. Our efficiency ratio is higher than some banks because we’ve focused very intensely on building a robust foundation, especially in risk management and compliance. That requires a lot of investments. But we’ve recently focused more on return, so core earnings and return are currently our two most-important measures. For return, we look at ROE, and also return on risk-weighted assets, because it’s important to look at performance on a risk-adjusted basis as well. Before my tenure as CEO, I was the first Chief Risk Officer at Union Bank, so this perspective is second nature to me.

One thing I want to point out is that all these financial measures are important, but to me personally, reputation is paramount. Strip everything else away, and banking is built on trust. We put sincere, enormous effort into imbedding our bank’s core values into our behavior. We want to be a responsible bank; we claim to be a responsible bank; so we have to behave as a responsible bank. This builds trust and this builds business. So when customers of the largest banks nationwide were polled and named Union Bank as the most reputable bank in the nation, that was something we really took pride in.

Saltzman: That’s a good lead-in to the next question. How important have reputational risk, conduct risk, and the qualitative components of a culture of integrity become on a relative basis over the years?

Burke: They’re paramount. I think the amount of effort that we’ve put into trying to transform our culture post-crisis is important.You have to get at every single employee and make sure that they understand what we’re trying to accomplish as a firm.

And everybody individually, frankly, needs to have a view of what we’re trying to do as an organization to help our clients, and understand what our purpose is at HSBC.

Gold: Going way back in my career, I met someone who had worked at Banker’s Trust, and when we were talking about a business decision, he said, “You cannot put a value on reputation.” He said, “No matter what your numbers say, anything which gets close to that is paramount.” So, therefore we need to think of that in your risk management as the number one risk.

Oka: I agree. That’s why I wanted to bring it up, that financial metrics are always important, but reputation, which really comes from the culture of each bank wanting to do the right thing and being responsible, is the basis of banking. I can’t overemphasize its importance. It takes generations to build and it must be protected by good faith and good behavior, because it can evaporate in an instant.

Aramanda: Let’s close by trying to look forward in the future. What’s the future of global banking?

Burke: For the simple reason that, again, the clients are globalizing and the clients are internationalizing, the future for global banking is bright indeed.

Gold: I actually believe that the long term ramification of all of this change is actually much larger banks. If you look at a long term trend, our clients want a global product. And you are seeing the Balkanization reduce some of the offering. They ultimately are going to want scale in every domestic area, they’re going to want to be able to go with the most sophisticated product down to the least sophisticated product, and that’s going to lead to more actually scaling of providers over time, which is not an understood kind of outcome of this. But I think that will be the discussion four or five years from now.

Oka: I think the future of global banking is bright. All our customers are becoming more global. The U.S. is going to continue to be such an important market, and I believe we have a potential big role to play. But I do, again, believe that as FBOs we need to be committed to local markets as well, through responsible, relationship banking.

Aramanda: We appreciate it. Really, thank you a lot. This was great.

Clockwise (from top left): Patrick Burke, HSBC US, Jim Aramanda, NURFS, Joe Gold, Barclays, Paul Saltzman, NURFS and Masashi Oka, MUFG