Closing Bell - Closing Bell+ Exclusive: Bank of America Chairman & CEO Brian Moynihan 2/14/23

Episode Date: February 14, 2023

CNBC’s Sara Eisen sits down with Brian Moynihan, Bank of America CEO, in an exclusive interview to discuss his thoughts on consumer spending, 2023 expectations and mortgages.

I am here at the Bank of America Financial Services Conference with the Bank of America CEO Brian Moynihan. Thank you for having us here. Well thank you for coming in. Got hundreds of investors and a bunch of CEOs and others from companies giving their view of the future so it's good that you can be here to help put some of that out in the public domain. Okay good so let's talk about the view of the future. We got an inflation report widely discussed this morning. Seventh month in a row of cooling inflation, 6.4%.

What's your assessment of how fast it can come down from here? Well, I think the question is sort of the sticky or not sticky components and the different elements. But the reality is the labor markets are still strong. And you've heard Chair Powell and others talk about that because the rally is new claims for unemployment are low. There's a lot of talk about I'm not hiring as many people or I'm slowing down my hiring. There are layoffs, but you still don't see a major adjustment in terms of unemployment rate. And that job tightness, wage tightness and things is something they've got to see, but it's flattened out. And then rent is the other big one.

And rent sort of has a seasonal pattern to it. And you think about school changing in September, rent starts. So you usually have a kickup and then you have rents come down and they came down twice the percentage. They usually fall in the latter part of the year and they're down in January. So that's coming in line, but it'll be slow to get through. So as you look forward, our team has a recession predicted. They've moved it out another quarter recently to start in the third quarter, fourth quarter, first quarter next year. They've lessened the impact. And I think people are sort of coalescing on this idea that maybe this thing is a not a soft landing, i.e. no recession, but maybe

a more mild recession. And the delay is due to the strength of consumer and other things. But the Fed is going to have to get inflation where they want it. And that means they're going to hold rates higher. And that's the conundrum that's going around the market. But the big change was 0% to 5%. Yep. The next incremental is not as big. And I think one of the Fed voters a long time ago described to me, one of the great ones, said, this is like we're climbing a rock wall. It's handhold to handhold at points like this.

You're just looking for the data and see what's happening. Everybody thinks there's a grand scheme, but they've really got to react. And right now, the data is saying it's softening, but it's not tilted down yet to level or flattened out. No. But the market's all excited. Two more hikes, then a pause, maybe even then some cuts. Is the market too optimistic there? We don't have any cuts this year. No cuts. Yeah. And I think it takes, you're going to have to make sure it's choked down because it's much higher than we've seen. I recently talked to a central bank head that's not a central bank head anymore. He said, we died to try to get inflation over 2%. And so the idea is to get it back to where their targets will take some time to make

sure they manage it. So as far as the economy is going, you said you moved out the recession call, your team did. Consumer spending, you've got a good read on that. You said, I think six weeks ago, that January started strong. How has it been so far in early February and what are you seeing now? So if you take like the first quarter of 22 versus the first quarter of 21, the rate of increase was double digits, 14%, 12, 13% type of numbers. That's now in the fourth quarter of 22 versus the fourth quarter of 21 fall into 5%. In January, it's picked back up a little bit. So year-to-date, you have 5%, 6%, which is very consistent with a 2% growth economy,

very consistent with a low inflation economy. And that's what it was sort of in 17, 18, 19. It kind of ran at that level. So it's not going down anymore. It's not slowing down. It's actually year-to-year growth off of now a high base. And you actually look at it, it's solid. And so that means consumers are in pretty good shape. They have money in their accounts. They have a capacity to borrow. They're employed,

you know, 3.5% unemployment rate, plus or minus. The wage growth is still relatively strong. Inflation is tough on people who are, the rate of goods is exceeding their wage growth. And that should come back in line as they choke it down. But overall, the consumer is in very good shape in America. What about loan growth? Where are you seeing it strong and where are you seeing it slow down? Yeah, right now it's kind of bumping along because the economy sort of flattened out in terms of expectation. Businesses are being careful.

And so what do they borrow for? They borrow for to invest in people, invest in plant, invest in inventories and all that. They're trying to make sure that they're right on that. And that's been interesting. So line usage has flattened out a little bit, but we have mid-single digits and we're sort of consistent with that. But the overall market is sort of flattish in loans. This H8 data that comes out every week or so, you see it. But it's kind of bumping along now. And so we're seeing a little bit of growth in the commercial businesses, flatness in the consumer businesses, and then in the markets business.

That goes up and goes down, depending on what's going on. What about housing, which has been hurt by the higher mortgage rates, but some signs of maybe stabilization there as mortgage rates have come off the highs? Well, that's, I mean, we were going along in housing. We got back after the financial crisis, it fell back to sort of the 3% long-term rates and it spiked after in the pandemic as everybody ran for different question. It fell first and then spiked back up and now it's tipping back down. And so I think it's going to get back in a healthier balance. The rate structure move hits housing fast. And now you're, you know, since that started last summer, you know, in earnest last year, you're now a year away from it.

And so the first big moves in mortgages started slowing down housing. And now you're seeing a stability in sort of mortgage production. But it's down dramatically from where it was prior to the pandemic. And it should be. I mean, that's what the Fed's trying to do is cool down housing. It's a measure of wealth and it's a measure of inflation that they need to cool down. That happens first because it's so race sensitive. So we're here at an investor conference.

Obviously, you're talking to a lot of investors. Over the last three months or so, the bank's stock performance is higher, but you have lagged. Your stock is lower over the last three months. What is the issue? What are you hearing? We're up, I don't know, 7% or something year-to-date. I think the issue is we're the most sensitive to the interest rate predictions out there.

And so there was a belief that Iowa would grow in all the industry. What's happened is the balance of deposits were flattish third to fourth quarter, have drifted down in the industry by a couple percent. That's because the money is going into other investment vehicles that have higher rates to them, and it should in corporate balances and wealth management balances. So our company is so driven by deposits, that creates more around it. But we had a big run-up in the year leading into last year, into 22, on higher rates and enthusiasm than the concerns. But we're doing fine. We earned $7 billion in the first quarter, plus after tax, and credit's in great shape, and we'll keep driving earnings growth.

What is the outlook for deposits? I'd say the outlook for deposits now is you're seeing the H-8 data, and we don't look like it's down a little bit from the year end, maybe a percent or two. What we're in now is this position that happens every year in the first quarter, which is people pay their taxes, people get their year-end bonuses. so we'll see it settle out. But they're performing exactly as we thought they would, given our NI predictions for the first quarter, $14.4 billion. So it's happening exactly the way we thought it would, without much variation in terms

of rate paid or balances. And so we'll see it play out. But think about longer term. You've got to back up. We did a million new checking accounts last year, 100,000 plus banking products into our wealth management business. That's where the long-term value of our franchise is. Growing that core deposit base and the ebbs and flows of what's going on will happen. But long-term, that's what provides value. And that's why we grew deposits all during the last Fed tightening cycle. What we didn't have was the extra stimulus and

stuff. And that's moving around people's accounts. We'll see where it settles in. But the underlying business is strong. And digital, too, has been a differentiator. Do you feel like you've gotten credit for spending, I think, more than some of your competitors over the previous years? And you're ramping that up even more. The credit for that is actually in operating leverage, which is counterintuitive. But the way you generate efficiency and effectiveness in a company is you engineer out work. And digital is a fast way to engineer out work. Both our teammates working with each other and our customers. And so we've been engineering out work. So in 2010,

when the management team and I started together, we had 285,000 people, went to 305,000 people, reached a low of 205,000 people, we're up to about 215,000, 217,000 people now, managing that back down. But that's all by a digital enablement throughout the franchise and customer digital enablement. So 85% of our wealth management customers are now digitally interacting with us. 70-some percent of our consumer customers.

Half our sales are digital. More Zelle transfers out than checks written. These are major changes, but they just happen consistently. And so the idea is everybody says, well, it's going to change immediately. It just takes time and it takes continuous investment, like you said. So we've invested billions of dollars in these platforms. Erica, 18 million users. All the discussion about ChatGPT, Erica is an artificial intelligence, natural language

processing. We don't know Erica, we know chat GPT. Well, 18 million people are using ours a billion times so far, so there's a lot of people using. Finally, Brian, we did get the stress test scenarios out and there are a lot of questions, obviously 10% unemployment. And how do you expect to differentiate yourself there? And how do you think about buybacks in the context of what we learned? So the stress test come up every year. We've always been, I think every year, except for one, the lowest loss content from the portfolios by the stress test. And that's how we built the company under responsible growth. The 10% employment's not changed. And so

three or four years ago, there was a decision made that the debate was to use 5% raise, i.e. from 3.5% to 8.5% of employment, or to go the nominal amount, 10% it was, and they left it there. So that's not a new difference. The GDP is a change. And so we'll run through our models. They'll run through the models, and we'll come out. But the reality is we should fare better because of the way we run the credit side of the book and the market book and things like that,

and we've done that. Now, leave that aside. Our capital required level now is 10.4. It moves to 10.9 at the beginning of next year. We're at 11.2. We maintain a 50 basis points, a half a percent buffer over the capital minimums. So we're buying stock back at all times, and we bought stock back last quarter and buying back this year. But you don't expect the stress test to interfere with that?

Last year, it went up 90 basis points. We slowed down buybacks, and then we started them in again. And it may change if we have higher capital requirements. We'll wait and see, but we'll play that out. In the grand scheme of things, we've got more capital than we need. The industry has well capitalized. They've done a great job. We don't need incremental capital in this industry. And not because the benefits of that are offset by economic growth. What do we

need to do? We need to support the economic growth of the United States and help this country do what it can do. Well, I know you made some headlines on the buyback remarks in your presentation. Still going. Brian, thank you so much for taking the time here today. Thank you. Brian Moynihan, CEO of Bank of America.