A transcript of the FT’s interview with John Thain, chief executive of Merrill Lynch. He speaks to US managing director Chrystia Freeland on emerging markets, the world economy and John McCain.
FT: Chrystia Freeland, US managing director
JT: John Thain
FT: What are the biggest opportunities you see for Merrill outside the United States?
JT: I think the best opportunities right now are outside the United States. You see where the world is growing. So on the wealth management side, almost all of our wealth management business at the moment is in the US.
There’s a tremendous amount of new wealth being created, whether it’s in India or China or Russia or Brazil or the Middle East. All of those parts of the world we can compete in terms of managing financial assets for wealthy individuals, as well as for entities.
Also I think on the investment banking side and on the sales and trading side, we just have expanded our presence in Russia; our office in Moscow I was at last week.
FT: Do you think there will be a recession in the United States this year?
JT: Yeah; that’s the whatever – very big question right now. There’s no question the US economy is already slowing down. Whether or not there will be a recession is anyone’s guess. I certainly think that the Federal Reserve’s actions last week as well as today, the stimulus package that the Administration is putting together, that will help cushion the slow down.
Whether or not there’s a recession, we’ll find out a couple quarters after it has taken place, but the US economy is definitely slowing down and exactly how much I think we don’t know yet.
FT: What about 2009? Should we be worried about that, too?
JT: Well, I think it depends a lot what happens. So if the US economy really goes into a significant recession and that recession continues, then I think that the impact on the rest of the world will be a concern in 2009.
There’s a lot of focus right now on well, if the US goes into recession isn’t that going to impact all the emerging markets and the growth in the rest of the world. I think that if the US really went into a significant recession, it would take some time to impact the rest of the world.
India’s growth, China’s growth, Russia, Brazil, those economies are not slowing down anytime soon. I don’t believe that they’re decoupled from the US, but I do think that their growth would sustain the worldwide growth at least for a while.
FT: What’s your bet for this year and for next year? Will a slow down in the US significantly bring down the rest of the world?
JT: Well, you know, I’m more optimistic than I think many in the financial sector right now. Many of the corporate CEOs –
FT: Because you just arrived at Merrill two months ago.
JT: No, no, but I talk to a lot of the corporate CEOs and I think the US will slow down, but I think the rest of the world will continue to grow. So I’m actually more optimistic that even with a slow down in the US and it’ll impact global growth, but still global growth will still be positive. I’m more optimistic about 2008 and 2009 going forward.
FT: Have the Fed and the Treasury acted quickly enough?
JT: Well, you know, that’s always a great question, especially with 20/20 hindsight. It’s always hard to know what data the Fed is seeing because of course they see data before we see it.
I do think that with the cut last week and the cut today they are doing the right things. I think the stimulus package will also help. So I’m supportive of their actions.
FT: You travel a lot and you’ve just come back from Davos, how do you judge the attitude of the rest of the world to the United States right now?
JT: Well, you were there as well so you could answer this, too. You know, it’s interesting. When I was in Davos there was a lot of discussion about the world economy, the US economy slowing, what the impact will be on the rest of the world, but there was none of that animosity towards the US that had been there historically. There was very little discussion about Iraq, which was interesting. Several years ago that was the topic of discussion. So I think that the world is now operating a bit more cooperatively. I think everyone understands.
All they had to do was see what happened to the world equity markets a week ago.
FT: You’ve been a big McCain supporter. How do you rate his chances now, especially after the big Florida win?
JT: Well, he’s doing great. I’m very optimistic that he will be the Republican nominee and that he will be the next president. I’m very supportive of that and he’s doing really, really well right now.
FT: Who’s the tougher Democratic candidate for him?
JT: I think that’s hard to answer. Both Hilary and Obama are very credible candidates. They have very different constituencies. They present an interesting choice to the Democratic Party and to the Democratic voter base.
FT: How would you characterise that choice?
JT: Well, no different than how they poll. So, the appeal to younger voters versus older voters. It’s interesting just the – someone whose been in the political world for a long time versus someone who is a bit newer and fresher. I think it’ll be interesting to see who gets the Democratic nomination.
FT: Even given your history of support for Senator McCain, isn’t it hard to imagine, given what’s happened in Iraq, given where the US economy is going to have the party currently in power be re-elected?
JT: Oh, no; not at all. Particularly given McCain’s stance on Iraq. John McCain was really the only candidate who said, “We cannot afford to lose. This is important for generations going forward.”
He was really the only candidate who supported the surge. He was heavily criticised for that and that hurt him in his campaign and yet he’s turned out to be correct.
The fact is the surge is working, situation is getting better and I think as we think about the future of this country, having someone who has the experience, has the knowledge and really is focused on US’s position in the world, I think he’s the right guy.
FT: Would you serve as his Secretary of the Treasury?
JT: First of all one never knows who would be interested in doing that job and I’m right now been in my job for two months and I’m happy staying where I am.
FT: What reception have you encountered at Merrill? A lot of people before you arrived talked about the thundering herd and Merrill’s historically very strong internal culture. What’s it been like coming in from the outside, especially at this vulnerable moment?
JT: Well, it’s interesting. They have a very strong culture. Its been a really positive and fun for me to get to know that culture, to get to know the people here at Merrill. I think the strength of the culture and the optimism and both the belief, but also really the love for this company, that’s a great thing.
FT: Are you going to have to reduce the number of those employees?
JT: Well, when we look across our various different businesses, there will be some spots where we will shrink. We actually on the mortgage origination side we’ve already shrunk that pretty significantly. But there will also be areas that grow. We talked a lot about the emerging market area. The wealth management business has continued to grow. So, net net, will there be significant head count reductions? No.
FT: Apart from Merrill, which is the financial institution you most admire right now? Whose done the best?
JT: Well, it depends in what area one is looking at, but you of course always have to look at my prior employer and Goldman Sachs is doing great in lots and lots of different areas.
FT: Does that success leave them vulnerable right now?
JT: I don’t know. Whenever you’re on top people are always looking for you to stumble, but Goldman’s been doing great. So I think Goldman’s is doing very well.
FT: Is Merrill going to stay downtown?
JT: For the foreseeable future.
FT: Does that mean five years? How far can you see?
JT: Well, I would say as far forward as I can see we’re going to be downtown.
FT: Thank you very much, Mr. Thain.
JT: Thank you, Chrystia.
FT: Now we’re going to play long/short. Are you ready?
FT: US dollar.
FT: European banks.
FT: Barack Obama.
FT: Hilary Clinton.
JT: Hm. That’s a good one. Hm, hm, hm. Am I allowed to say neutral?
FT: We’d prefer not, but we can’t force you.
JT: Hm. Short.
FT: Black Rock.
FT: Mitt Romney.
FT: Thank you very much.
JT: You’re welcome.