Below is the transcript of a CNBC interview with Michael O'Grady, CEO, Northern Trust. The interview was first broadcast on CNBC's Squawk Box Asia on 14 September 2018.
All references must be sourced to a "CNBC Interview'.
Interviewed by CNBC's Amanda Drury
Amanda Drury(Mandy): With Michael O'Grady who is the CEO of Northern Trust, its Chicago based custodian and asset management giant and he's only been in the job since January. So let's say let's grill him a little bit and see whether he's up to the task. Great to have you with us today for the first on CNBC interview Mike.
Michael O'Grady (Michael): Thank you for having me, appreciate it.
Mandy: Do you believe that the steps that we've taken since the Lehman collapse and the GFC have been the right ones to ensure that the financial system is safe now and that we can withstand the next crisis?
Michael: As you pointed out, this is the 10 year anniversary if you will of the global financial crisis and it is appropriate to look back and see what happened and why it happened. Having said that, it's difficult to predict where the next crisis is coming from. So I think it is much more important to be prepared regardless of where it comes from. And on that front, I would say I think the system is in dramatically better shape than it was before. So if you think about it in three ways. First of all, from a capitalization perspective, there's significantly more capital in the system. Even at Northern Trust which went through the crisis in a very strong way has more than double the capital base that it did 10 years ago.
Mandy: But do you feel that maybe some of the risk has therefore shifted over to for example, hedge funds, smaller banks and broker dealers from the big banks because as you say the big banks now have to have higher capital requirements and higher regulations put on them?
Michael: I do think that some has shifted. I still think that the majority of it is within the system and within the purview if you will of the regulators. And you mentioned within the system, their liquidity is also significantly different. So back in 2008, much of the funding was more overnight funding and now much more of it is long term stable deposit-type funding. And then finally I would say from an information perspective, there's so much more information that we provide to the regulators that gives them the ability to see what's happening and anticipate where some of the issues are. So again overall I would say dramatically better position.
Mandy: You said that it's almost impossible to predict what the next crisis could be but are you seeing any vulnerabilities out there in the system because the Lloyd's Citi Risk Index says that a financial market crash is the biggest risk globally. And if you look around the world you know here in Asia, we've had emerging markets that have just snapped their longest losing streak in 16 years. There are some various currency crises around emerging market currency sectors. Europe seems to be slowing down and they don't have a whole lot of tools in their monetary policy box to deal with that. Do you see the fault lines?
Michael: Overall I would say we're still very favorable on the market outlook. Having said that, you've highlighted some of the weaknesses in there and really I think it's a delicate balance. So we do think that the global recovery continues albeit we don't know how long that lasts. And also know how great the magnitude of any cycle would be. We think that inflation is in check and we think that that's a positive. We think that technological advances are improving productivity that keeps inflation in check. And then finally as you mentioned with the central banks, we're still in a calm accommodative monetary position even though the Fed has begun to increase interest rates. Where the balance comes in is how the Fed and other central banks manage this unwind and our concern would be if they get ahead of where the market is and ahead of where inflation is. And then likewise with regard to trade, the trade tensions. That's something that obviously is going to take a while to negotiate through.
Mandy: Do they affect your business, the China trade spat.
Michael: Yes, absolutely in the sense that we're very much subject to the markets overall and our business very much subject to equity markets, credit markets etc. And so if that balances in some way tilted or falls through, it has a dramatic impact on us. So we're very much focused on seeing this through in a balanced way and we'd like to see that these trade negotiations come out in a favorable way even if it takes some time to work through.
Mandy: I think it could take some time indeed. Let's talk about your business, I know that my home country of Australia is one of your big markets and you see high growth there compared to other places in the region. Why is that? What particularly is high growth about Australia?
Michael: So Northern Trust overall works with institutions and families to help them manage their wealth. So any market where there's wealth development and wealth growth is going to be an attractive market for our services. You mentioned Australia. The superannuation system there that's something where there's mandatory savings and so the investment assets are going up. That allows us to provide our services which are assets servicing, asset management and wealth management, all around investment so very conducive environment there. This region has been a positive environment for us and just overall globally with global wealth development and growth that's positive for business.
Mandy: As for the ASX, the Australian Stock Exchange been quite excited about what they are doing in the blockchain department. What are the implications of blockchain for you and your customers and can it be scaled up?
Michael: You hit the key point there. Can it be scaled up. We think and we are a believer in blockchain and what that can offer because it's transparent it's secure and it's also efficient with regard to time. And we've been participating in larger experiments such as the ASX to see where that develops so that you have a more efficient system in the current clearly centralized system but we've also done some things on our own. In particular, we were a fund administrator for private equity funds so we thought let's try blockchain technology on the administration of a private equity fund which is an area that frankly has been a slower market if you will, it takes longer for transactions to go from you know signing to actual capital commitment. If we can reduce that time, that reduces the capital costs for all the players.
Mandy: The lower commercial tax rate in the States no doubt would be something that all the banks such as yourself would be looking at as a potentially a positive boost to the bottom line. Would you say that President Trump and his various initiatives financially speaking have been positive for your company?
Michael: We've clearly seen the positive benefit from tax reform and that's given us the opportunity to invest further in the business, invest in things like blockchain and other technologies allowed us to see our profitability go up so very much a positive for us. I think what it has done is accelerated the economy there. So probably is borrowing a little bit from the future. And frankly as much as it has been positive for us, we're also very focused on global debt and debt in the U.S.
Mandy: Super quick as a new CEO, how are you going to make your mark?
Michael: Well my predecessor Rick Waddell started on January 1st 2008. Needless to say, a very different time period as we've talked about. So his objective really was to lead the company and our clients through the crisis which he did fabulously. And that's why we're so well positioned now. So my objective and our objective now is to go from this platform and this foundation and grow the business profitably going forward and we think in each of the businesses, we're well positioned to do that.
Mandy: And we'll look forward to seeing you down under as well since you got offices there in my hometown of Melbourne. We'll see you there. Thank you very much for joining us today Michael O'Grady joining us from Northern Trust.
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