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From uncertainty to opportunity: The future of EMEA dealmaking

Louise Bennetts: Hello, you're listening to What's The Deal? on J.P. Morgan's Making Sense. I'm your host, Louise Bennetts, head of J.P. Morgan's board advisory team in EMEA. Today, we're discussing the European dealmaking outlook for 2025. And we're very pleased to be joined by Conor Hillary, the deputy CEO and head of Investment Banking for the EMEA region. Conor, thank you for joining us.

Conor Hillery: Thanks, Louise.

Louise Bennetts: So Conor, 2024 was a year of considerable geopolitical and economic uncertainty. We had multiple elections across the globe, ongoing and escalating conflicts, persistent inflation. And typically, this type of uncertainty and volatility in the market is not conducive to dealmaking. But yet, paradoxically, we saw a resumption of dealmaking. And it was, in fact, a much better year than 2023, particularly on the M&A side with high levels of activity overall. So Conor, what factors do you think drove this? And here we are in the second month of the year in 2025. Do you expect this trend to continue?

Conor Hillery: Yeah, we did indeed see a significant recovery in dealmaking in 2024. And the key driver behind that was improving confidence in the economy. So 18 months ago, inflation was near or at double digit rates in most major economies. Interest rates were continuing to rise, elevated far above levels at which they had been for many years before. And we had the spectre of U.S. recession and global recession. Then during the course of 2024, companies in the markets and the markets saw inflation moderate, saw interest rates coming down almost an inflection point. And with that, an improved economic outlook, which underpinned more confidence in corporate profitability. And crucially, we also saw a normalization of debt financing markets. So those things coming together really did spur on an increase in dealmaking into 2024. And as we go into 2025, we expect to see that momentum continue in dealmaking. We're seeing a healthy pipeline of activity in our business in the first quarter of the year, consistent with the improved economic outlook. There's an abundance of liquidity in debt and equity markets, both public and private markets, to support good deals. Now, good deals, the bar is still high, but the liquidity is undoubtedly there. And debt financing costs should come down a bit further. The other boon to dealmaking, I think, as we look ahead, is the expectation and hopefully the reality of a more favorable regulatory environment. So we're seeing that in the U.S., but also in the U.K. and Europe, which should support more sensible M&A transactions. So confidence is growing, risk appetite is increasing a notch further. And there are companies who want to get on with doing things that they deferred in very uncertain times, whether it's IPOs, M&A, capital raising and so forth.

Louise Bennetts: And in your view, what are companies worried about?

Conor Hillery: Yeah, look, I think there's still plenty of things to worry about. I've said some quite positive things there, Louise. There's still plenty of things to worry about. There are plenty of unknowns. And I think top of that list is inflation. I said it's coming down. The evidence is showing that, including the last number of weeks. But there's still an anxiety as to how sticky it might be from here. So that's one big variable. The impact of tariffs, unknown. The specificity, timing, direction of them. That is another major uncertainty. And then obviously, we've got global conflict running very high levels, well beyond what we've seen in many decades, which brings additional anxiety and uncertainty to the world, as well as the hardship it brings to so many people. So there are still quite a number of uncertainties out there, notwithstanding the tailwinds that we're expecting to see for dealmaking.

Louise Bennetts: So you see these geopolitical issues, and they're almost become like a new normal. What do you see as the main drivers of deal making regionally this year?

Conor Hillery: I think one thing we'll see more of is cross-border deals, especially given the strength of the U.S. dollar, pro-business, pro-growth agenda from the U.S. We're also seeing many U.S. companies trading at higher valuation levels than European counterparts. So between share prices going up, interest rates coming down, and a strong U.S. dollar, it's just got cheaper to acquire overseas if you're a big U.S. company. I think that is a trend we're likely to see. Private equity, I mentioned earlier. Private equity is likely to be a big driver of deal activity, as they sell assets more easily than they could have over the last couple of years and look to deploy. And We're seeing more private equity involvement in public company situations. We've seen that over the last year. And the level of private money available, it really is a whole new paradigm for the market compared to the historic reliance on stock markets and public markets. We're also expecting IPOs to be more prominent in 2025. The IPO market reopened last year. The majority of companies listed have traded well in the aftermarket in terms of share price performance. And equity investors still have high levels of liquidity to put to work for the right situations. So I think there are a number of factors that should drive transactions. Tariffs is the one, is a big question. Will that be an accelerant to M&A activity or will it be a deterrent? And it very much depends how they play out because they could well be a catalyst for M&A as a response or mitigant to the kind of commercial and strategic impact they could have on some companies who may see the need to diversify geographically or by business line and so forth. So there are a lot of things out there that could be a good underpin to this deal activity continuing to pick up during the course of this year, which is kind of very much what we're expecting.

Louise Bennetts: Yeah, so that's interesting. And I think last year, when we were going around the region and sort of having conversations with particularly board members in our case, one consistent theme amongst European board members was a nervousness around the perceived competitive advantage that their U.S. competitors would have over European players. Obviously, as you've said, that can also have a positive aspect, but there is a little bit of a sense that European corporates have been falling behind. And I know that you've had a long career as an industry banker and in your current role, you spend a lot of time speaking to these people. How are leadership teams and boards in the region feeling about the year ahead?

Conor Hillery: Boards have had to contend with really extreme levels of uncertainty for the last five years. You think about COVID, the various wars and conflict, multi-decade high levels of inflation, rising interest rates, and then a lot of political and electoral uncertainty. But there are two particular comments I would make. Firstly, notwithstanding the multitude of headwinds and uncertainties, many of the larger European companies have managed in a very resilient way over the last three or four years. Profitability has held up and balance sheets have remained robust and liquid. So that is a good foundation for better times ahead and for more confidence as we go into potentially a more stable economic environment. And the second thing I would say is, although there are some big uncertainties lingering out there, and uncertainty is the biggest deterrent to corporate activity and investment. There is now less uncertainty than we saw 12, 18 months ago. The global economy is growing, the economic outlook is less uncertain. And even if you look at all the electoral activity, there's still quite a bit to come. We've got Germany in a few weeks' time. But 8 out of 10 of the most populous countries in the world have had their elections in 2024, and the result is known. And we've seen the positive news of a ceasefire in the Middle East recently too. So there are reasons why boards may be more proactive and prepared to take a bit more risk because some of the fog is beginning to clear. But there are still big risks out there that cannot be denied.

Louise Bennetts: We've had quite a bit of interest from some of our large corporate clients in the region around discussions around relisting or re-domiciling in the U.S. or even setting up significant subsidiary operations. Now, some of that's driven by the tariff issues we discussed, by the Inflation Reduction Act, these kinds of pieces of legislation that sort of encourage onshore operations in the U.S.. But do you see this as a bit of a fad, or is it a beginning of a longer-term trend? As you say, there will be some interest in European corporates as well from the other side.

Conor Hillery: Yeah, we've seen quite a number of companies going to the U.S. to move their listing to the U.S. But it's not for every company. Companies that have gone there have done so because there are demonstrably higher valuation multiples in their sector, which is not always the case. And they've tended to be fairly large companies with significant U.S. operations. So I think it's quite case-specific rather than a general trend. And I would say we have a lot of company clients who want to list in Europe, including in London, over the next 12 to 24 months.

Louise Bennetts: So you mentioned the U.K. in particular. Let's do a little bit more of a deep dive there. The government has recently put in place a number of what they described as pro-growth measures, but the fiscal challenges remain. What steps do you think the U.K. should be taking to improve sentiment?

Conor Hillery: Yeah, look, there is undoubtedly some strain in the public finances here in the U.K. But I think the government has implemented a raft of measures, and there's more to come in the coming weeks, to encourage more investment and promote growth in the U.K. So you're seeing a reform of planning legislation. The Chancellor has talked about pension fund consolidation to stimulate more investment in the U.K. economy. We've had the implementation of reforms to make London a more attractive place to list public companies. And then there's a general shift in regulation to focus on growth as well as risk and safety. The other thing I would say about the U.K. is London will always be a major financial centre because of the depth and pool of expertise, specialist expertise, the very stable, well-established and trusted rule of law. And, you know, the time zone, the history, the attractiveness as a place to live. So there are undoubtedly some challenges, but the medium term prospects are strong.

Louise Bennetts: We recently released our Corporate Compass report, and in an episode on this channel a few weeks back, Rama Variankaval discussed how U.S. markets have historically rewarded growth more than other developed markets. In Europe, we see equity investors ascribe a premium of 20 to 30% for scale. Is it fair to say that the U.S. markets reward high growth potential and European ones longevity and scale, or is that too simplistic a picture?

Conor Hillery: I think it probably is a bit simplistic. There are some trends, but look, the data firstly shows investors do ascribe a higher valuation to U.S. companies. If you look at the S&P, it's trading at the moment around 22 times forward earnings. The S&P 500, the FTSE 100 here in the U.K. about 11 times and the stocks 60, the European index about 13 times. So there really is a differential almost running at double the level. But you have to remember there are more high growth companies in the U.S. So colleagues here have looked at some of that data. The aggregate level of growth expected to be delivered by companies in the S&P 500 is two times higher than you're seeing in the Stock 600. So a lot of that is tech companies, companies that are being driven by the AI revolution and so forth. But it is a fact. But we've also looked at the data more deeply. There is some evidence that in the U.S. markets, there is a slightly bigger valuation premium paid for growth. So I think, look, for some companies that does present an opportunity, particularly companies set a moment ago with significant U.S. exposure. But it's not for every company. I think you have to look at it on a very case specific basis.

Louise Bennetts: And we discussed at the beginning, you know, the picture you painted around the potential for 2025 deal making was quite rosy across the region. One observation I've sort of had in my role is that European boards historically do tend to be quite risk averse when it comes to assessing transactions. And we've seen transaction based risk increase from a number of angles. You know, you have activism, you have antitrust authorities, and timelines have been extended on some of the assessments for deals to close, debates over valuations.

Louise Bennetts: So Conor, final question for today, how can boards best prepare for and manage these risks so they're able to take advantage of this environment?

Conor Hillery: No, look, I think the last five years in particular have reinforced how uncertain the world can be. Economically, socially, politically, climate, pandemic, and so forth. And what we're seeing boards doing more of is planning for a range of scenarios. There isn't really kind of a confident base case anymore. A range of scenarios around, you know, economic outlook, interest rates, maybe they'll be higher for longer, tariffs, trade, regulation, climate, the extent that impacts your business, impacts nearly every business, your prospective funding and capital needs, AI, you know, threat or opportunity. The list goes on and on. But more introspection and challenge as to where the kind of really big risks out there. What are the scenarios that could be significantly adverse from our base case? And what does it mean for our business, for our strategy, for our balance sheet, for our profitability, for our competitive position? And clearly you can't legislate for every outcome, but we're just seeing more companies thinking ahead and being better prepared. And a lot of companies actually came into the challenges we've faced over the last couple of years, the economic challenges, well prepared. You know, during the height of COVID, hundreds of companies went out to the market. They raised liquidity preemptively. They raised capital preemptively. In case it was needed for very challenging times. And that stood them in very good stead. So I think that that's what we're seeing more of. Not necessarily conservatism, but really challenging themselves as to what's the rainy day scenario here. And then more positively, how can we put ourselves in a position of strength when the opportunity arises to invest, to grow, to do acquisitions and so forth. So that you are well prepared when the moment comes.

Louise Bennetts: Thank you, Conor. So I think to summarize the takeaway here, we can see that the European environment may remain challenging, but it does provid a lot of opportunity for increased consolidation, for deal making. And so we look forward to a busy 2025. Thank you very much for your time.

Conor Hillery: That sounds like a great summary Thank you very much, Louise.

Voiceover: Thanks for listening to What’s The Deal? If you’ve enjoyed this conversation, we hope you’ll review, rate, and subscribe to J.P. Morgan’s Making Sense to stay on top of the latest industry news and trends – available on Apple Podcasts, Spotify, and YouTube. This material was prepared by the investment banking group of J.P. Morgan Securities LLC and not the firm's research department. It is for informational purposed only, and is not intended as an offer or solicitation for the purchase, sale, or tender of any financial instrument. © 2025 JPMorgan Chase & Company. All rights reserved.

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High tides lift all boats: Connecting for success at J.P. Morgan's Board Summit 

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Rebecca Thornton: Hi. You're listening to What's The Deal?, our investment banking series here on J.P. Morgan's Making Sense podcast channel. I'm your host, Rebecca Thornton, head of Director Advisory Services at J.P. Morgan. This podcast is a special episode, spotlighting J.P. Morgan's Board Summit.  For the past 13 years, J.P. Morgan has hosted this annual event that convenes influential public company directors to explore critical business issues. Later this month, we're thrilled to welcome board directors back for an in-person gathering, offering insightful discussions with leading experts. As we look forward to the Board Summit, we're delighted to have Jan Singer with us today. Jan has held C-suite and board director seats in various consumer-facing companies. She currently serves on the boards of Acushnet Holdings and Brown‑Forman Corporation and previously on the board of Kate Spade. Jan was most recently the chief executive officer of J.Crew and, prior to the role, Chief Executive Officer of Victoria's Secret lingerie and Spanx Incorporated after having spent a decade at Nike. Jan, thank you so much for joining us.

Jan Singer: Hey, Rebecca. Thank you for having me today.

Rebecca Thornton: Before we dive into the Board Summit, could you take a moment to share a brief introduction about yourself and your professional journey?

Jan Singer: Thanks, Rebecca. In terms of my background, I had about 20 years to start in luxury goods, specifically in beauty and mostly on the brand marketing side with companies like Chanel, Prada, Calvin Klein. And then from there, transitioned into more of a product creation role in sports of all things, which was first with Reebok, a quick stint there. And then ultimately had the most incredible decade of my career with Nike, where I headed up their global footwear business and then reset their global apparel business. Which means spanning everything from innovation, design, engineering, sourcing manufacturing, and product merchandising at an incredible brand, as we know. From there, I had the unbelievable opportunity to take a leadership role in great brands like Spanx and J. Crew and Victoria's Secret.

Rebecca Thornton: And tell us a little bit more about how all these experiences connect?

Jan Singer: I always think about, you know, what did beauty and maybe basketball shoes and, if you will, bras have to do with each other. But the fact is that these are incredible brands and all of them do a couple things alike. They put the consumer at the center, and they really drive business through innovation. And to do that, they all embrace different perspectives and different types of leadership in order to find a new high ground. So, there is a connective thread through all of that and it's been a great journey.

Rebecca Thornton: It's an incredible cross-section of brands, particularly at pivotal moments in their growth. So we're gonna dig into your experience across that value chain. But I wanna circle back just to the Board Summit. Obviously, we're thrilled you're coming back to join us for this year's summit. Maybe you could share with our audience a little bit about what brings you back year after year. Observations maybe from past experiences, what you found most valuable about the event, or things maybe you're able to bring back to your boards as learnings.

Jan Singer: Well, it all starts with the firm. I mean, J.P. Morgan for me, just like the brands I worked with, premium, really steeped in progressive and innovative thinking and best in class in terms of information and knowledge. In these times especially, there are a few trusted sources we all go to try to find patterns that are happening in the world and a path forward. And so I have a trusted belief in the firm and the program that you're going to put together. I was so impressed with the last summit. And at every hour, minute of that program, there was information or introductions or conversations that were not just inspiring but super informative and helped me shape many things. Whether it was how I show up in boardroom and the topics we should cover, because there were actual workshops. Or whether it was, really, just connecting. Because frankly at this point in my career and in these types of roles, there is not a lot of community in terms of being in the same place at the same time. Everybody's busy. Boards, funny enough, for me when I started, I realized go very narrow and deep. Narrow, meaning concentrated amount of time and very deep at the time we're together and we are diligent but then we disperse, right? Because we're not management. And then we come back together. And so you really don't have a lot of intersection with people outside of your boards. And so having an opportunity to come together and share best practices, talk about topics that are trending, and really just the time is a gift. So, I am super excited. I know it will be very helpful as I kind of navigate the next year-plus in today's economy and today's environment.

Rebecca Thornton: Yeah. As you teased earlier, it really is kind of a team sport-

Jan Singer:  (laughs)

Rebecca Thornton: ... to play on your basketball experience early on, and the importance of community in terms of just sharing best practices and what others are seeing in boardrooms is really the intent behind the summit. So thrilled that you have found that content and community for our summit. I wanna go back to your executive career, if we could, for a few minutes. You've worked across the entire value chain, from product creation to new sources of growth. How have you found these experiences have translated into the boardroom and what value does that experience bring to boards?

Jan Singer: A great question. I mean, I think the first thing that people should always be curious about with board when you're exploring that opportunity is what voice you can bring to the table. And does that match with that particular board needs at that time? My core voice is really centered around consumer, definitely around channel retail, but also around the sourcing and manufacturing and product development complexity. I think having a subject-matter expertise in a certain pipeline or competency is important. And at the same time, when you've worked across the whole value chain, you can appreciate the conversations that are happening at the table. You can appreciate the management complexities or challenges, and even the tailwinds that they're having, and you can contribute. So, I think it's a balance of finding where your core voice is in that room for that board, but also having a full value chain understanding so that you can follow the conversation. I actually think that is more valuable than actually having mirror the actual business that you're sitting on the board of. So, it's not necessarily that I sit only on, let's say, an apparel retail or footwear board. I can sit in any category. It's more of the subject matter that's needed and how it's applied to their business that I think is critical.

Rebecca Thornton: What I think I hear you saying is how important the diversity of thought is and that pattern recognition you see across businesses, perhaps more so than a spike in a particular industry segment.

Jan Singer: Totally. And I think a great board has a great culture and they're very connected. And that help is really derived from the lack of redundancy at the table. Redundancy is easy for the CEO because it's familiar and they can sail through a conversation, but it doesn't give you a different perspective. So, I do think it's the diversity of voice and functional expertise that makes for the right governance and the right culture at the board level.

Rebecca Thornton: You've had the benefit of seeing the board in action from both sides of the table, as a member of management and as a director. I'm curious, once you became a CEO, did your views change at all on what makes a good director?

Jan Singer: Oh, definitely. I think the boardroom can be kind of a mystery for most of management, short of them participating maybe once or twice a year to present. I'm not sure it's very clear for everybody what the function of the board is versus management and what the work is of the work for a board member. And so as a CEO, you learn that very quickly because you're thrown right into the mix and it's really interesting. I think there are CEOs who really find it energizing and actually helpful and at times even inspiring to have the right board. And then, I think there are CEOs that probably feel it's pretty taxing. I would say that my perspective now is to make sure that that relationship is really seamless and always with mutual admiration and respect but is a relationship that is value added. And that happens when roles are really clear, and people embrace that and there's a lot of conversation. One of my boards goes as far as bring the board into a strategy conversation annually, not so the board can run the business but so that the board can understand where the business is going and weigh in. And not all CEOs feel comfortable with that. I think it's a very healthy dynamic when there is this very flowing dialogue between the board and the CEO. But if you don't know that, when you're not sure the role of the board particularly. Or you don't have a board that knows their role. That could be very challenging. So I did learn a lot being on both sides. I also think I can provide a unique perspective for the CEO in translating some of that back and forth and for the board to understand what the CEO might be facing. Not all members of boards have been CEOs or been operators on that cross-functional level. So, yes, lots of learning on both sides, and more than happy to share what I'd learnt along the way.

Rebecca Thornton: The role of a board is often around strategy, but most directors I know speak to the importance of succession planning. So on that theme, I'm just curious how maybe your views have evolved about the skills it takes to be a CEO. And how, if at all, you see those criteria specifications changing in the coming years with continued technology disruption, AI, et cetera. I mean, It's tough out there. We've seen high turnover in the CEO rank already this year. Your thoughts?

Jan Singer: Yeah, I think you're right. I think we're gonna see a lot more churn because people are retiring, people are tired. They are people who've done quite well through crisis and those have struggled, and that's all fatiguing on either side. None of it has been easy. The strength of the CEO bench is critical conversation in the boardroom right now because of that, and we are at a huge inflection point yet again as a global economic model but also, political, social issues, so many things changing, the workforce, that this pivot is going to be huge. And you have to kind of have the fresh legs to get after it. So, a big conversation in the boardroom is about the CEO succession planning. It is the job of the board to ensure real talent at the top and a real pipeline and an ability to understand how the business is either developing, acquiring, or retaining that talent so that bench of that CEO is strong. So, yes, things are changing quickly, and that conversation should be one that is always on the agenda, at least as a touch base if not a deep dive for the board. For the CEO themselves, I think never before has a CEO had to manage so many different dynamics at one time. I think it used to be this CEO was deliver or die, and now delivering is not enough. You have to deliver, but you also have to really be aware of the dynamics in the organization culturally. You really have to be very crisp around talent and work develop so that you can deliver. And you're always navigating what to weigh in on and what not to weigh in on in these times of social conversation and change. So, I think the role of the CEO has never been more complex, along with their management team, specifically the CHRO. And I think never before has the board needed to be so diligent around the health and wellness of that CEO, particularly the person. And also the bench strength and talent pipeline leading up to that role, really critical.

Rebecca Thornton: Yeah, well said. As we think about talent pipelines on boards, I'm curious what some of the key skills or trends you're seeing as boards look for their next generation of directors.

Jan Singer: I love this question because it speaks to what I really believe in in general with org development in any way, which is, if you're looking for new directors, and we're always looking for new directors, it's always change, the competency part is not the hard part. Everyone who is a candidate has the competency to sit on a board. If you've been a CEO or CFO, COO, CMO even, you have the competency. The big question becomes chemistry. And chemistry because the culture and the health and wellness of that board is paramount to the speed of decision-making, the complexity of issues that we're facing, and frankly, the pressures of the management teams to deliver and drive a very productive and world-class culture. So chemistry really comes down to many things. It comes down to the thing we talked about earlier, which is, do we have the right voices at the table for what we need right now? Do we have diversity in those voices and not redundancy? Do we have a tone that is of mutual admiration, if you will, respect at the very least? Do we have good listeners? Do we have people who are curious, who will continue to seek how to do governance even better than they do today? You know, constantly life-long learning around this? But that is the chemistry conversation, and really relative to the management team and relative to the dynamics the business will be facing, that chemistry is important. Because these are not easy meetings, and the last thing you want to have is a board that burns a lot of time on their own dynamics and isn't value-adding to the management team or able to return shareholder value.

Rebecca Thornton: I love everything that you said and I would just maybe add a culture that's not afraid to disrupt itself, whether that's from a product, a business issue, or frankly even from an activist. So creating a healthy culture that's not afraid to disagree but can link arms and come out of the room aligned around the same decision, I think, is critical. I wanna shift to a space that you know much more about than I do, which is consumer dynamics. And these trends are constantly evolving with the advent of social shopping, the AI boom, value-conscious spending habits, et cetera. What specific trends have you noticed, and how do you see those impacting boardroom strategies? Do you think these trends are specific to business-to-consumer companies, or will they have a wider impact across industries?

Jan Singer: There's so much change right now happening. I was thinking about it last night, Rebecca, I remember Y2K and we all thought overnight the world was gonna change. In a strange way, I feel like all of that change we were anticipating has happened now. And whether that's a tech evolution again or whether it's just the landscape of consumer behavior, there's a lot happening, as we all know. First and foremost, from a very specific consumer space, I would say we all are seeing the shift from purchasing items to purchasing experiences and ideas. And there's a lot of implication to that around business models. First of all, if businesses sell goods, the goods input costs are going through the roof and the labor costs are going up as we know. And yet the consumer doesn't wanna see the price increases continuing, and it's actually creating quite a separation on many levels. The model is very pressurized in terms of delivering against the expectations of margin expansion or other metrics that are critical. So moving from a model that was very product-centric to a lot of businesses having to add into that experience is a pivot. And it is a costly pivot because developing experience or destinations or memories, if you will, is not just something you can gift-wrap, put in a shopping bag, and have people walk out. So it's capital intensive, it's labor-intensive, it's experience intensive from a training perspective and service. That's a huge expectation from the consumer. So know me, solve my problems, and serve me all day long, but it doesn't just happen with a little item in a bag with tissue paper any longer. So I think that's a big pivot. And there are many others. You know, obviously the introduction or the accessibility of AI is going to bring new ideas and opportunities as the consumer becomes more focused and understanding of what it could do. I think the advent of the gig economy and the really boom of being an entrepreneur and creating your own business has shifted quite a bit of business around from your usual big, branded, bold businesses into millions of small disruptors that we need because they bring innovation and new ideas. But at the same time, they do disrupt the usual churn of big business. So there are so many things happening, but I think those two things are critical from a consumer perspective and then have impact on the businesses. And for the boards, they just have to understand what those disruptors are for management and really get aligned with management on the path forward to combat them or get on board with them.

Rebecca Thornton: So you've just named some of the tensions and opportunities in the consumer sector. As we zoom out to more macro issues such as geopolitics, supply chain disruptions, and the future of work, how are boards and management teams navigating some of these real-time challenges? Do your boards have clearly defined roles when it comes to these events and issues?

Jan Singer: I think it's something to watch for, the growth is always a conversation in the boardroom of course, and growth is slowing in certain major geographies that companies have relied on, and so companies are looking for new sources of growth. And that can come from new geographies, or it can come from new methods of making whatever product or service they're providing. But with new becomes exposure, and also, risk. So, it's really critical that the Board's role is around governance and very clear and crisp, especially in the audit space, understanding of the exposures the company might be facing, and to be able to have strategies and actually plans and programs in place to mitigate or eradicate any risk at all. Now, that's whether you're opening up commerce in new geographies, or you're actually going into manufacturing in new geographies. You know, sometimes it's the tiniest thing, and it seems like in a faraway place that's not gonna get you in trouble that actually can take you down. So, I do think as the global marketplace shifts, from both a commerce side and a manufacturing side and a sourcing side, the Management team and the Board have to be very diligent on how they get into those businesses or into those countries and how they manage the exposure and any liability in that space.

Rebecca Thornton: As we wrap up today's podcast, I wanna go back to where we started, which is our upcoming Board Summit. Jan, is there a particular issue, topic, theme that you're looking to dive into later this month?

Jan Singer: I would say there are two things. So, one, just tactically, I'm always very interested in what JPMorgan and the speakers you assemble, the workshops we do, have to say about where this global economic model is going. Everybody wants to know, everybody is all ears. And in an election year, on a global stage, we all would like to hear, coming out of a pandemic. There isn't a better moment to kind of hear people's thoughts, who have the subject matter expertise about where we're headed so we can cotinine to collect another data point and put that into our thinking as we govern going forward. So, I'm very excited about the information. But really, I'm excited about the people that you invite. You always seem to pull together; I'll call it quite an assortment of leaders and directors. I love the connecting part of this. It's not just my connecting, it's connecting people with other people. And my dad has always said to me, "It's always been about people helping people." Just as you do, Rebecca, in the board practice. It's really important that we continue to connect the dots for up-and-coming people, connect the dots for people who have been in the mix and can add value, and even connecting the dots on people who are really starting to wind down but have incredible wisdom. So, I love walking in and seeing who's there, and learning about who they are, or reconnecting with people who I've known in my past and connecting those people to others who can add a lot of value to our landscape. So, I'm very excited about that.

Rebecca Thornton: Well, we love that theme of high tides lift all boats. We believe, truly, in the power of community and connection and we're thrilled for our connection with you. So, thank you so much for providing such valuable insights on your experience, your insights on your history with our Board Summit. We really appreciate you joining us today and look forward to seeing you at the Board Summit.

Jan Singer: Thank you, Rebecca. Thank you for having me and thank you for hosting such a great podcast.

Rebecca Thornton: To our listeners, thank you for tuning into another What's The Deal? episode. We hope you found this conversation insightful. I'm your host, Rebecca Thornton. Until next time, goodbye.

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Are there more optimistic times ahead for Europe? 

[Music]

Louise Bennetts: Welcome to this edition of J.P. Morgan's What's The Deal? podcast. I am Louise Bennetts, the head of J.P. Morgan's Board Advisory team in EMEA and the host of today's podcast. I'm joined today by Karen Ward, J.P. Morgan's chief Market Strategist for Asset & Wealth Management for EMEA.  Karen was previously the Chair of the UK's Council of Economic Advisers and currently serves on the UK Chancellor's Economic Advisory Council. Thank you so much for joining us, Karen, and welcome.

Karen Ward: Thank you. Thanks for having me.

Louise Bennetts: Today, we will be discussing a topic of increasing focus, at least on this side of the Atlantic, which is the relative economic performance or underperformance of Europe in regards to the United States. We will also be discussing the impact of geopolitics, structural impediments to economic growth, inflation, and other issues facing the region. So Karen, before the pandemic, Europe had had a difficult decade. Between 2010 and 2019, we saw that the US grew at 2.4%, but the Eurozone managed just 1.4, and the region's asset performance was similarly underwhelming. In your opinion, what are the reasons for this underperformance?

Karen Ward: Yes, absolutely. I think it's fair to say that Europe had a difficult decade. I'd argue that it's largely that Europe felt the aftermath of the global financial crisis both more acutely and for a much longer period. There's a few reasons for that. One is that Europe as a region is much more heavily dependent on its banking sector. It doesn't use capital markets in quite the way the US does. So following the financial crisis, when the commercial banks were recoiling, the effect of that on the private sector lasted many years and was particularly acute. But then, of course, in Europe, we rolled from the financial crisis a couple of years later into the sovereign crisis. So the bailout, the support for the financial system impacted public sector debt, government sector debt concerns emerged and there were concerns about the region breaking up in fact. And therefore many of the sovereigns in the region, particularly in the south, were forced to embark on some pretty extraordinary austerity programs in order to reconvince the bond markets to lend to them. And I really wouldn't underestimate the role that that austerity played in weak growth, low inflation, because the public sector accounts for something between 20% and 25% of employment in many of these economies. And so the public sector on a pay freeze for 10 years, employment contracting, governments not investing in the economy, I think that was a pretty crucial part of the story. So in essence, we just had the financial crisis took many more years to heal.

Louise Bennetts: And we also can see that the region has been dealing with a war on its doorstep after the Russian invasion of Ukraine. How is this affecting the region economically, and looking further ahead we've seen the tragic events of this weekend, how will that impact the region more broadly?

Karen Ward: Well, the first channel of impact is via the energy markets. Europe was incredibly dependent on Russia for its energy. 40% of its gas came from Russia direct via pipelines. So the invasion of Russia and Ukraine and that severing of relationships with Russia was dramatic and extreme. So energy prices rose significantly. There were concerns that actually Europe would literally run out of gas. At one point, the expectation was that in this year Germany would contract by 5%. Running out of gas, that was the big concern. Now, in fact, what's happened is that Europe has coped, I would say, remarkably well. A response by governments to put together new gas storage tanks, liquefied natural gas was bought in largely from America to replace that Russian pipeline gas and actually therefore we got through the last winter much better than I think most analysts would've expected. There was no absolute rationing. We're obviously heading back into winter now, and those concerns about how we will cope without Russian energy supply are very much still there. But there's been a degree of luck in that the weather has been mild, both through the course of last winter and over the course of the summer, those gas storage tankers are full. Therefore, assuming the winter isn't particularly cold, which of course forecasting the weather is even harder than forecasting economies, then Europe looks well placed. Now that being said, that means we will not run out of gas, but the structural problem is that we are living with higher gas prices than we had in the past. So if we go back to pre-Russia's invasion of Ukraine, both the US and Europe had similar gas prices. They're up about two-thirds in the US, they're up seven times in Europe. Our companies are just coping with this materially higher cost. The one silver lining is that the region has been really galvanized to come together in the face of Russian aggression, and some programs have emerged at the multilateral, at the institutional level to cope. Particularly those are things like the EU Recovery Fund, and this is promoting many of those green projects, those infrastructure projects and these build on many of the pandemic-related projects in order at the government level to support activity. This is actually really quite important, Louise, because I said to you that one of the problems we had last decade was investors really questioning whether the Euro as a construct could survive because there wasn't this pact at the government level, a fiscal pact. But Almost the troubles, the trauma that we have been through in the last couple of years have forced policymakers to come together, almost begin that creation of a fiscal union. So I would say at the institutional, at the political level, in some ways, the Eurozone is stronger than it has been certainly when we look back at how we were in the solvent crisis.

Louise Bennetts: So then perhaps let's look at the one country outside of the Eurozone, the UK, also now outside of the EU. Do you think that the UK has been a particular outlier in Europe in terms of growth or inflation?

Karen Ward: Many of the themes I would say are the same. We have like the continent, although much of our gas is piped from Norway, we've still had to compete in global markets. We have had this energy shock, this headline inflation shock, which has really damaged both household and business spending. And that's working its way through the system like it is on much of the continent. But as you say, the UK is also dealing with its Brexit situation. I would say where the UK perhaps stands out slightly in terms of the current concerns about weak growth and elevated inflation is that our labor market does seem to be struggling to recover from both the pandemic and our Brexit relationship. Because our participation, the number of people here and looking for work does seem to be structurally damaged. That is then promoting wage growth, although wage growth sounds like a good thing, obviously when we're worried about inflation, it's not such a good thing. So the Bank of England, I think, are treading a very fine line. They have a difficult balancing act to play in terms of not slowing the economy too much when the economy is already struggling in the face of high energy prices. But also being cognizant of this deep-rooted underlying inflationary pressure that's coming from some real structural problems in the labor market.

Louise Bennetts: So then let me ask you on that point, Karen, should interest rates have been hiked sooner?Karen Ward: I think all the central banks failed to see, and I put the Fed in this bucket as well, was that a cost shock would actually then become more embedded in the economy because the labor markets were so strong. We've been through a decade where workers never really asked for more pay, and they became a bit complacent, I think, about our ability domestically to generate inflation. Whereas actually what happened is workers were hit with a 10% rise in their cost of living and they asked their boss for more money. And therefore the what economists call second round effects of inflation, they were underestimated. I would say that is true here in Europe. It is also true in the US, and for that reason, that sort of degree of complacency about the second round effects, yes, the lift off from zero interest rates, the exit of quantitative easing, all of that could have been earlier. They've obviously caught up significantly now. I do think we are getting to the point where the central banks have probably done enough. We will see inflation moderate here in Europe and catch up with the downtrend that we've already seen in inflation in the US. Because I think it's worth remembering that here in Europe the energy base effects they are coming through much later. So the US has had a beneficial tailwind for inflation that we will get in the coming months here in Europe.

Louise Bennetts: So on the topic of the United States, you've been a bit skeptical about what you've described as the Goldilocks narrative when it comes to the US economy. Explain what you mean by that and also how likely you think it is that Europe, the US and the UK will avoid a recession going forward.

Karen Ward: The market narrative swung so incredibly quickly. This time last year, the market narrative was, "Oh, it's the 1970s again. We're going to need really deep recessions in the US and in Europe in order to get rid of inflation." Then by February that narrative had switched towards, "Oh, inflation's going to go away all of its own accord. We don't need any weakness in activity. The central banks are going to be able to bring interest rates down to support growth." So what I mean by a skepticism about the Goldilocks narrative is this idea that growth will remain resilient even in the face of 500 basis points of interest rate hikes and that resilience will not result in lingering inflation. So usually, if we look back over multiple decades, when the central banks have slammed on the brakes, the result has been a recession. That recession is what gets rid of the inflationary pressure. That's the normal cycle. And I just think that's still the world we're in. They have raised rates, growth was slow. I still think a recession is more likely than not in the US. I think we are further through it, actually, I would say, in Europe. Our activity is weaker than in the US. Our consumer hasn't stayed as strong as has happened in the US, and, therefore, I'm skeptical on this idea that everything will soft land and we are at the beginning of a cycle and all will be well. I think we should still brace ourselves for some weakness ahead.

Louise Bennetts: And you've also expressed concerns about the increase in oil prices with OPEC’s recent actions. Is this still a concern for you going forward and what do you think the likely impact of that is?

Karen Ward: Yes, absolutely. There's the direct channel by which higher oil prices eat into consumer spending power and how that slows activity. But I also think it's just a strategic challenge for the central banks. They've all had inflation above their 2% targets for well over two years now. And it's fine for them to say, "Look, OK inflation's above target, but it's coming down, it's under control." But of course rising oil prices sends headlight and inflation back up again. We've already seen it start to pick back up again in the US. I think for the central banks, that's a much harder narrative for them to claim victory when, actually, even if core inflation is suffering, headline inflation is picking back up. So I think rising oil prices, any rising costs just adds another ripple to the inflation problem that we are still working through and certainly increases risks, as I say, that actually it's not such a soft landing.

Louise Bennetts:  And in terms of the structural impediments to economic growth, I think there are some quite big distinctions between the Europe and the US as you touched on in in the first response. Can you elaborate a little bit about more on what those are and how we are likely to see them addressed or not as the case may be?

Karen Ward: Yes. Partly they are the deep-rooted building blocks of how our economies grow, which is that our economy grows either by having more people or those people are more productive. And Europe's demographics aren't as strong as the US. The US still has a marginally increasing working population. Europe's population is on aggregate going to decline over the next 20 or so years in the region of 10 to 15% on current forecasts. So we would have to be even more productive in order to keep up. Now, that could happen. But I think the energy transition will be at least in the short-term relatively difficult. That's another impairment to structural growth. I think the other thing that Europe is going to need to manage is its geographic orientation. It had done a very good job of reorientating its activity towards China as a growth engine. But China's emergence from the pandemic is not as strong as anyone anticipated. Much of that export demand heading towards China just doesn't look like it's going to be coming back as strongly. So I think it's partly our capacity to grow, but also where our end consumer is, where our end demand is. But I don't think we should be too pessimistic because, as I say, I do think one of the big problems in Europe, which was really exposed in the sovereign crisis, was this idea that we had created a monetary union without a fiscal union. I think what's happened in the last couple of years in the face of this adversity, from the pandemic and from Russia and wars on our doorstep, is that actually the institutional architecture of the Eurozone has really improved. And therefore, as the recovery fund gets spent, that will start to support growth in the region. I think there are structural concerns that we've known about for a very long time, but actually incrementally to me, we're just putting together our long-term capital market assumptions which are our projections for the next 10 to 15 years. And I have actually been revising up my forecasts for the Eurozone and for the UK just because I think actually some of those foundations are better than they were a few years ago.

Louise Bennetts: On that optimistic note, we will end today's podcast. Thank you very much to all of our listeners.

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