Bank of America CEO Brian Moynihan speaks with Yahoo Finance
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Bank of America CEO Brian Moynihan speaks with Yahoo Finance

In a wide-ranging interview with Yahoo Finance's Julie Hyman, Bank of America CEO discusses inflation, supply chain shortages, the economy, and the future of remote work.

Video Transcript

JULIE HYMAN: Brian Moynihan is the CEO of Bank of America. He leads a team of more than 200,000 employees, serving individuals, companies, and institutional investors across the globe. Moynihan is active in many organizations that focus on a wide range of economic and social issues, including the World Economic Forum, the Business Roundtable, and the Smithsonian's National Museum of African-American History and Culture.

I'm Julie Hyman. And Brian Moynihan is joining me now. Thank you so much for being here, Brian. I want to talk first broadly about what we are seeing in the US economy and how it relates to Bank of America. And let me start with rising interest rates and inflation.

Last quarter, you all reported net interest income was up by 10%. And certainly, higher rates are something that helps Bank of America, can help Bank of America, and help the financial industry more broadly. You said in a recent interview that inflation is clearly not temporary. And we could, of course, see the Fed starting to raise rates perhaps as early as next year, by the end of next year perhaps. So on balance, as you think about inflation, is it good for Bank of America? How concerned are you that it might prevent a bigger increase in consumer spending, for example? How are you thinking about inflation more broadly?

BRIAN MOYNIHAN: Good morning, Julie. You know, the question is why is the inflation occurring. And if inflation is occurring because there's a strong economy and growing fast, which is what we have now, that means that it's occurring for the right reasons, so to speak, and rates have to rise to offset that. But it could also occur in odd situations, stagflation, things like that, which are much more detrimental to everything.

So you have to step back and think about our company. We have $2 trillion in deposits. We have a trillion in our consumer business alone. Half of that's checking accounts, which are non-interest-bearing checking accounts in any market. So as rates rise, of course we'll make more money because, frankly, as rates fell, we lost $2 billion a quarter because the value of lending those deposits out to our clients to help them run their businesses and do things is less. So it's a pretty straightforward equation as to why you make more money as rates rise. It's not what they term in the financial markets as asset sensitivity. It's actually reliability insensitive because we have so much non-interest-bearing deposits. And then I think, if you want to talk broader about the economy, what we're seeing in the company is pretty interesting right now.

JULIE HYMAN: Yeah, so let's talk about that because you guys have customers in half of all the households in the US. You're the top small business lender. So what are you hearing from your customers about how they're feeling right now, effectively, about the economy?

BRIAN MOYNIHAN: So when we look at our customers, we have prime American consumers, we have wealthy American consumers, and then we have companies from very small businesses to the largest companies in the world, and we have investors that work with our markets team. But focused on the consumer side, a lot of people focus on credit card and debit card payments, but that's only about 20-odd, 25% of all the ways consumers spend money. If you actually look across how consumers spend money-- writing checks, taking money out of the ATM, you know, Zelle payments, HGH payments, wires, everything-- that's, for us, so far, through October year-to-date of 2021 is about $2.8 trillion of activity.

And it's up 20% over 2020, and 20 plus percent, like 23%, over 2019. And so that's a very strong growth rate, the strongest we've seen in the last many, many years. We track this every Friday we get this report. And so the consumers are out spending money. And it changes, and ebbs and flows from different times. Like travel is up fairly significant. Domestic travel, obviously, you're seeing that happen. Whereas eating in restaurants ebbs and flows, depending on how things are going in a particular community relative the COVID virus.

But all in all, the simple fact is the economy, as big as it was in 2019, nominally, it's growing, predicted to grow at two to three times the rate it was predicted to grow then. Consumers are spending at really twice the growth rate in our consumers, which is a broad base. And then the question is, you know, is it all because of stimulus and their money. If you actually look at our consumer checking accounts, for the last six months, people have average deposits of 10,000, even $15,000 and less.

Their deposit balances have grown for the last six months each month, and then even in the last month, from August to September, grew by a couple percent, which means even after stimulus largely stopped, you're still seeing their accounts grow, which means they're accumulating cash in excess of their spending. And so the American consumer is in very good shape. Delinquencies on the credit side are down. Credit markets are wide open for companies and individuals. And it's a pretty strong backbone, the economy, which is driven by the consumer.

Now, we have shortages of things that could affect it. Inflation, as you said, and consumer expectations of inflation could affect it. There's a lot of things you can always look at, and we get paid to look at and say what could go wrong. But right now, you, fairly straightforward, have a strong consumer base in America. Unemployment's down to 4.8, and continuing to come down. New claims are down to multi-- pre-pandemic level-- lows, in other words, during the pandemic, the lowest level, moving towards pre-pandemic levels. It's a fairly good picture, as long as-- as long as the COVID virus stays in check.

JULIE HYMAN: Yeah, that sounds like a pretty rosy, optimistic picture that you're painting. Is inflation, as you mentioned, is that the biggest risk to that upside scenario and continued growth?

BRIAN MOYNIHAN: It-- you know, if-- the Fed has the tools to deal with inflation, but those tools generally don't feel good when they have to be applied. And that's one of the questions. So the Fed always tries to engineer a very soft movement, and make it all sort of happen, but sometimes it's harder than not. And that's the question on the table that the markets are going back and forth on every day.

But we feel good. If you look at like loan growth, whereas two or three quarters ago we were saying we may be at the bottom of the loan trough, you know, post-pandemic because basically, coming into pandemic, loans were here, they went up dramatically because of the panic borrowing that went on around the start of the pandemic, then fell dramatically as people sort of said, well, geez, it's not going to be bad, I don't need all this cash.

And then they hit a stabilization through the end of the year and the first part of this year. We saw an annualized growth rate double digits last year-- last quarter. And that's with continuously growth into this quarter. Deposits are growing. So that kind of activity shows that companies are doing more and more. And labor markets are tight. Inflation, if they have to raise rates quickly to offset it, that can have an impact on the economy, which traditionally is not pleasant. But the reality is that if they can stay ahead of it, it works.

And central banks around the world are all fighting this question of how to stay ahead of it, given a different circumstance with the uncertainty of a virus that-- and a virus and a set of response to a virus that are unprecedented in every direction. Fiscal, monetary, shutdowns, everything is just different. And so that's the challenge for everybody to think through. But you'd rather have that challenge being thought through as loans are growing, deposits are growing, consumers are spending more, the economy is as big as it was. And so taking the accommodation out of the economy by slowing down purchases or raising rates is different in that kind of strong backdrop.

JULIE HYMAN: You talked about monetary policy. I do want to ask one question about fiscal policy because there was reporting that emerged over the weekend that Democrats are aiming to potentially include a tax on billionaires' unrealized gains to help pay for their spending package. I guess I would ask, first of all, do you think that is likely to even get through? And if it does, how damaging or how concerned would you be about that kind of a measure?

BRIAN MOYNIHAN: Well, I think I'll leave the political system, what gets through, because there's a lot of negotiation going on, but you have to step back. The requirements, the way the budget process works, you have to pay for things. And they're trying to figure out revenue sources to pay for the packages in the legislative process. And I think we just have to let it play through and adopt after it. You know, I don't-- you know, people are worried about broad-based corporate tax increases or personal tax increases because that could be at the wrong time for the economy. And that's why I think you're seeing much more specific recommendations come up.

But you have to start back from the basic things, that we have a lot of debt in the United States. We are still running significant budget deficits. And we need to make sure we're starting to pay for things to keep the strong fiscal position of this country. We've got to make sure the debt ceiling doesn't cause a problem.

And the next time it comes up, it's six weeks away or whatever it is again, we need to get that push so we can continue to operate the country well. But on top of that, we also have to be, I think, a little more careful now that the COVID crisis is moving behind us to make sure that we're spending on things that have good payback. And the infrastructure bill that we're on record of being for, the first infrastructure bill, and things can do it. But we've got to pay for it. And that's what I think the debate is about these types of taxes. And let's see it play out.

JULIE HYMAN: I want to get back to consumer spending for a minute, or the health of the consumer, if you will, and how it relates to the bank and what we saw last quarter from you all. So last quarter, you guys really got a boost, as did many of your peers, from investment banking advisory fees, from equities trading. That was another strong area for Bank of America. Loan growth has still not quite come back. What signs are you seeing that it may? When do you expect it to happen? And kind of what are you seeing percolate through your business?

BRIAN MOYNIHAN: Well, the good news is, as I said a little bit earlier, you know, if you go from first quarter, second quarter to the third quarter, now that we're-- we've now installed all three of them, you saw at the end of the first quarter we could see the stabilization. And then we saw growth in the second quarter, and we saw that growth really at twice the annualized rate in the third quarter, second to third quarter. And that's good news. Now, at the end of the year, basically loans are flat now. So the trough is formed, and now you're coming out of it.

But it's a demand question. And it's interesting-- so what do I mean by that? The line usage by our commercial lines, whether it's small companies or medium-sized companies, large companies-- and we serve a lot of all those-- the line usage, the amount they draw as a percentage of their line commitments, so 100% commitment, they used to draw at close to 40% of that, on average. Now they're drawing 30. Now, why is that true? They basically were very careful during the pandemic not to overextend themselves.

They are now only gathering employees back to do the work. Frankly, the shortages in supply chain means they don't-- they can't get hold of materials to buy to put up on those lines. They wish they could use those lines to do that. And things like auto inventories, because we finance a lot of people who sell cars for their businesses, are way down because the inventories are low. So I think these shortages are affecting credit. But the good news is, at Bank of America, second quarter, third quarter, we saw loans grow. And we continue to see the loan growth into the-- as we go into the fourth quarter here through-- over the weekend. We still are seeing all that loan growth hold and then grow beyond that, which is good news.

JULIE HYMAN: I want to ask about the technology side of the bank, too, because you now have 41 million active digital banking users, 32 million of them on mobile. You guys have 4,900 patents. And so you have a strong technology piece to your business, but there does seem to be this divide in the public consciousness, and in the markets, for that matter, between big banks and fintech. Do you think that divide is justified? And do you think of Bank of America as a technology company?

BRIAN MOYNIHAN: Well, we're clearly a technology company. I mean, we spend about $3.5 billion a year on new code implementation, new products and services that are drive by technology. In the basics, our company is a great group of teammates, 200,000 plus teammates who are just very excellent teammates, doing what they're supposed to do. A huge amount of data and information which they process on behalf of clients, and help clients conduct their business and live their lives, whether it's a big company or a small company or a person or a wealthy person. and so you use that computers and that data, and then we have a lot of buildings to keep them all dry so they can work every day. And it's really-- you know, that's what we are. So if we're not a technology company, we can't be in business.

Now, let me give you a-- fill in some of the blanks here. You know, you hear a lot about digital payments. Of that $2.8 trillion I talked about of consumers at Bank of America moving money around, well over half of that is digital. If you look at our sales, we had products last quarter, I think we had a million six in digital sales. About 45% were all digital. Over the last few years, we've been able to digitally enable mortgage transaction end-to-end, the opening of a checking account end-to-end, and all these things.

In fact, we have Merrill Edge, which is a-- you know, in the classic case was a-- back in the old days, was an online broker. You know, now they have different names for it, but it's effectively a $300 billion plus, growing rapidly, company that is in the online trading business and self-directed trading business for customers. So we have all these parts, and we drive them. And meanwhile, on the institutional side, you know, almost all our money moves digitally. You know, it is $3 trillion a day. So the idea of digital payments and stuff, that's been going on for years. Zelle was growing very fast, our company, about 80% year over year.

And I think we-- we hit new milestones last quarter. Erica, which is a voice-activated or, you know, or type-activated virtual assistant, artificially intelligence-driven, has, you know, 17 million, 50 million users or whatever it is, engaging hundreds of millions of times a quarter on it. We had a couple of billion dollars-- a couple of billion digital interactions last quarter. I mean, these are just huge numbers. But at the end of the day, you also have to remember what makes us unique is we also have 200,000 teammates. And so when those clients need people in our 4,000 branches that they need to have something go on at those branches, it may not be the old tasks, but the new task, they can come in those branches and get appointments.

And those can be set up digitally. And that is important. So we're high touch and high tech. When you get to the Wealth Management business, obviously a financial advisor of Merrill, and the private banker is a private banker. Tremendously important to client interface and the commercial businesses. You have the relationship manager. So the investment bankers you mentioned. So takes high touch, high tech, but at its core, we have a huge digital platform, a huge technology platform going on every day in this company.

JULIE HYMAN: Brian, finally, I want to ask you, you mentioned those 200,000 teammates. And of course, the bank, the world, those teammates, everyone has been having a tough 18 months. At Bank of America, you all orchestrated work from home for tens of thousands of those folks. You had a childcare reimbursement program. You had other pandemic-era benefits.

And so I kind of want to take a step back and say-- ask you how you view the role of a corporation right now. We sort of went from a paternalistic era for big business in the, say, 50s through 70s, then shareholder primacy. There's a lot of talk about stakeholder capitalism now. What do you think Bank of America's sort of reason for being should be at this stage in our history?

BRIAN MOYNIHAN: We talk in the company about having the principle of driving responsible growth. You've got to grow no excuses, you've got to do it in the right customer-focused base or the right risk, and it has to be sustainable. And that has three elements. One is to be the best place to work for our team because-- and they were-- as I said before, we're a people company. The second is to share our success in our company with our communities. That's our philanthropic and other types of development work we do. And then have operational excellence, which keeps our expenses in check. And so year over year, we had flat expenses and 12% revenue growth. That pays for all that good stuff. So that's what we do.

So when you start with that basic idea, coming into the pandemic, we had to get our teammates safe. So we first pulled the high-risk teammates out of the line immediately. Then we obviously had to bring all teammates home. 100,000 computers were deployed. We looked at teammates and said, what do they need to be successful? And people with kids in school got those kids dumped at home, and then had to try to keep their education on course while they were trying to work.

So we basically came up with a program, we gave our teammates the right to spend $100 a day at 100% our cost to hire someone to come in their home. And it could be a relative, a teacher who was out of work. It could be anybody, but just that they felt comfortable to get them in to help tutor their kids and help take care of that. That was $450 to $500 million we spent on that.

Then we said getting people to mask at home and getting people to-- just taking care of those that unfortunately got the disease. We had to do a great job helping make sure they got the right medical help. And then as you've gone through the time here, now we're in a different stage, which is how do you think about some of the benefits that we have. And we have a wonderful diversity and inclusion practice in our company, and just who we are and what we do. We then have looked at benefits even more for fairness. $21 an hour starting wage, plus full benefits for anybody, full 401(k), health care if you work more than 20 hours for us.

You know, we start, which means a high school kid gets a compensation package of $42,000 plus full benefits if they work full-time for us. And that's-- and then they get up-front tuition reimbursement. We give them the money, they take the classes so they can then further on in education, both externally and internally, with a lot of training we have. And so it's just a-- 10,000 teammates hired from low and moderate income neighborhoods over five years. Now we've recommitted another 10,000 over the next five years.

You know, it's just a whole bunch of programs which are really geared to making sure our teammates know that we're in it for them because they're critical to doing a great job for our customers. And so it completely aligns with the shareholder. Stakeholder capitalism is about all things and the balance about it is about all things. In other words, in our case, it's about our employees, about our customers, about our shareholders and society. And if you don't think of how you get the best in front of all those cohorts, you're going to fail. You're not going to do as well.

JULIE HYMAN: Right. Brian, thanks for your time today. Really appreciate it. Brian Moynihan of Bank of America.