JP Morgan Chase allays BPO fears

American banking giant JP Morgan Chase, a key foreign banking player and a big business process outsourcing (BPO) employer in the Philippines, has reaffirmed its commitment to the country while offering a sanguine view of how business tycoon Donald Trump’s rise to power could affect this part of the world.

Singapore-based Rohit Chatterji, JP Morgan head of investment banking for South and Southeast Asia, said in an interview with Inquirer on Friday that setting up an offshoring hub in the Philippines offered a good value proposition for American companies which won’t necessarily unwind their operations now that Trump has been elected new US president.
JP Morgan itself has 15,000 employees in the Philippines, mostly those handling outsourcing operations.

“Those decisions are made based on medium- to long-term view of a certain relationship and I don’t think that changes now with just some rhetoric that may be short-term. Let the relationship play out between [Philippine President] Duterte and Trump,” Chatterji said.

“We’re here because it makes sense. And I don’t think the value proposition has changed. I don’t think our commitment at all will wane unless something changes quite dramatically,” he said, adding that it was unlikely for JP Morgan to unwind its operations here involving 15,000 employees.

Investors concerned

Many investors have aired concern on Trump’s isolationist and protectionist rhetoric during the presidential campaign given the potential impact on the BPO industry, which employs more than a million Filipinos and generated $21 billion in revenues in 2014.

“We have not changed our plans for the Philippines. In fact, we continue to grow,” said JP Morgan executive director and head of banking-Philippines Carlos Ma. Mendoza.

Still optimistic

“Our chair (Jamie Dimon) loves to say we invest in a country for the long term and we’ve stood by that. And the Philippines is no exception in this case,” Mendoza said. “When the rhetoric dies down, there will be a thoughtful look at this and a pragmatic view on this despite political leanings, so I’m still quite optimistic.”

On the potential impact on trades, Chatterji noted that the United States was typically a big trading partner of almost every country in Southeast Asia.

“To the extent that there are natural barriers to trade, it hurts,” Chatterji said. “But if you think about it from the Philippines’ perspective, if you imagine that you first focus on those countries where the trade surplus with the United States is the biggest—because that’s where actually you can claim it feels like it’s a one-away relationship, then the Philippines is not that.”

With the Philippines’ trade surplus with the United States at only $1.5 billion, he said this was a “fairly balanced trade.”

A bigger implication for emerging markets is seen by Chatterji on potential currency volatility arising from an increase in US interest rates. This early, 10- and 30-year US treasury rates have spiked in anticipation of Trump’s fiscal spending program. As borrowing goes up, cost of debt likewise rises, thereby exerting pressure on inflation.

So for sovereign issuers with a lot of US dollar-denominated debt or those with a lot of foreign investors in their domestic markets like Indonesia, the banker said there could be a long-term impact.

On US Fed rates, the consensus view is that the next interest rate increase would come by December. However, Chatterji said there was a probability—although still low at this time—that the US Fed might hold rates if markets became too volatile. “In the face of volatility, the best is not to act in a hurry,” he said.

As to whether this currency volatility would affect the pipeline of offshore funding deals out of emerging markets, Chatterji said that for a country like the Philippines, it should not matter that much.

Strong remittances

“With very strong remittances that are still coming into Philippines, domestic investors’ bid for US dollar assets from local corporations will still be strong, and therefore, that dependency to US investors is not going to increase to a level where they will become vulnerable,” he said.

After a long period of low interest rates, Chatterji said it was Ok for US interest rates to go up a bit as long as it would not create vulnerabilities in other parts of the world.

On overseas remittances, Chatterji noted that the Philippines was not much dependent on remittances from the United States, noting that most Filipinos based in the United States were permanent residents living with their families there. “As long as it doesn’t create a bad effect on the rest of the world where there are OFWs (overseas Filipino workers) who actually remit money to the country, I think we’ll be OK. That dependency on the United States is not that much,” he said.