Bank of America CEO talks earnings, bottlenecks, economy
third quarter earnings season kicking into high gear this week and the reporting season started strong last week with the major banks last week bank of america posting much better than expected results sending the stock higher earnings per share coming in at 85 cents on revenue of 22.87 billion dollars as the company saw growth across its business lines joining me right now is the chairman and ceo of bank of america brian moynihan brian it's great to have you this morning thanks so much for being here maria it's great to be with you here from london actually and you can see a wonderful view behind your studio here yes thank you so much for for being here while you're traveling brian look it was a great quarter all of your lines of business showing growth tell me what drove the quarter what you took away to be the most important driver of that growth well we grew revenue uh year over year for third quarter last year third quarter this year by 12 percent and kept expenses flat at 14.4 billion dollars basically the same number of expenses so obviously it had a nice rise in earnings what drove that was more loans more deposits strong investment banking revenue strong wealth management revenue across the board all and good trading revenue all the things that we do across the board all the businesses had good operating leverage in them and it's really a normalization economy and a continued uh drive by bank of america to win win the market no excuses yeah and you are winning the market brian uh let me ask you about loan demand we've been waiting to see loan demand pick up uh as an indicator of what's going on out there you saw it is this a turn do you feel like things have finally begun to change with regard to loan demand yes if you think about it from last year's third quarter this year's third quarter our loans are relatively flat in its core businesses but going in the first three quarters of last year you had a surge in borrowing around the pandemic and the issues related to it then the pay downs came then ppp came in and now that's being forgiven so but what we've seen is from the first quarter the second quarter the third quarter this year consecutive quarters where the loan stabilized in the first quarter started to grow in the second quarter and then capitalize that growth in for the third quarter and we grew you know almost a a double-digit core growth rate and loans annualized for the third quarter which is strong so what does that really mean that means our customers are borrowing a little bit more that means economy is reopening the economy continues to grow and all that's good news for america and for the world yeah but it's also your leadership i mean one of the key things that you've been able to do not just over this pandemic but over time that you've taken over for the for the ceo position was de-risk this bank um after all of those acquisitions under your predecessor you uh put safety above all else after that tumultuous couple of years around the uh financial crisis so tell me about the theory or the you know the sensitivity now at the bank are you done being in the safe corner are you ready to take on more risk has the notion changed among your managers in terms of where things go from here with regard to risk well we take a lo we take a lot of risk every day um we have a trillion 900 billion dollars plus an outstanding loans we have a 700 balance sheet with tom montag and the trading team in the market every day so we take a lot of risk in the operational risk to run the great franchise and take care of all the customers you know all that's there but we really think about it you know when the pandemic hit of course everybody had to hunker down but the great news is because of all the work the team's done we had great capital great liquidity and we are able to not only serve our customers and provide what society need from us uh deferrals on loan payments uh surge in borrowing the corporate sector driving people into the capital markets for the larger corporate sector uh keeping the wealth management uh customers under understanding the market all that happened while ever we were going through the pandemic like all all your uh viewers are too and then but then what happened is we basically turned all the underwriting back on and really in the latter part of last year the first quarter this year we went back to the standards we had pre pandemic because we could see that we had gotten through the risk and what that really enabled us to do is for about 25 billion dollars a year to date provide great returns and also return in this court alone 10 billion 12 billion dollars a capital our shareholders because we're so well capitalized so yes we're taking risk yes we're driving risk yes things happen every day that we work and drive harder but on the other hand we're producing the kind of earnings and returns for our shareholders allow us not only to see the stock price cut up but also to repurchase a lot of stock and continue to share the benefits with our communities our shareholders and our teammates so is this a priority for you now i mean and it's been a priority already but going forward in terms of returning money to shareholders via buybacks and and uh dividend increases yep it's been a priority uh continuously uh this is was my 48th quarter as ceo we've said the same thing since the beginning basically we had more capital than we needed to serve our clients and all the rules changed and all the adjustments came in and all and none of it's gotten easier it's just as hard now in terms of capital levels and stress testing as we had in 2010 11 or 12. so the rules have gotten tighter uh we've been able to manage it well but when we we are done at the end of the day we always want to spend our capital growing our business because that means our clients are growing we're with them but even with the growth of you know almost double-digit loan growth this quarter every year 12 revenue growth we had excess capital and we've been returning to shareholders and that helps us reduce the share count and get us get the dilution out from some of the deals a long time ago and continue to drive forward so it's always better to use the capital to grow the company but when you grew the deposits you over your 300 billion dollars and you're growing the loans that double-digit annualizing third quarter versus the second quarter you are doing what you need to take care of clients there's just a lot of capital left over that is incredible and no wonder the stock is up what 50 percent over the over the last year brian i want to get your take on pretty much the positioning going forward because i know you always take on risk you have to take on risk but i guess a few months ago you announced all those changes in terms of the management team it appeared to be 25 of top middle management team team changes and some analysts are looking at that as perhaps representing a change in the operating philosophy that now you'll be taking on more risk and now putting that sort of safety uh aside whereas that's where you were for so long after the financial crisis and and really de-risking the bank after all of those acquisitions from your predecessor well the reality is is we made management changes you know due to the fact that people retired so and and fanuc and our vice chairman is going to retire at the end of the year tom montague is going to retire at the end of the year and you know they're at the stage in their careers of working lives they wanted to retire from day to day active management bank of america andrea smith's going to retire and that set up of course a a series of elevations and a series of changes really putting in place a management team for the next 10-year run and that's what i've said to people is we have to be prepared to drive hard because the competition's fierce there's lots of new uh types of competitors out there there's the old competitors we've always had and we went against them but we have to have a team that's got a long view ahead of them and drive shareholder value and for a long period of time so last year last summer in the 20 we started putting people on the manager team getting ready for the day when we knew that just because of people's personal decisions in life they were going to change and then we had to adjust to it so we're we're all done with that the new team's in place and we're off and running and you know we'll still drive responsive growth like we've always done these teammates are the same teammates actually did all the work tom and ann and i and others you know are their managers but they do all the work that have driven the company and done it successfully matthew coder and the investment bank corporate investment banking uh jimmy tomorrow in the trading business uh andy ndc and katie knox of wealth management businesses and across the all the commercial businesses just a great team of people who've grown up in a company over the last decade really doing good business the right way and generating great returns for our shareholders well you've done a great job brian i want to get your take on the macro story these supply chain issues weighing on markets ahead of the holiday season bottleneck issues labor shortages making it hard for supply to keep up with demand even as inflation is becoming a real issue we've got a wall street journal survey this morning showing that economists are expecting these issues to continue well into the new year what's your take on how that slows down the consumer you've got a great vantage point and have reported terrific consumer spending up until now what's your take on what's ahead given these issues well i think let's start out from the broadest point which is the macro view which is our research team and and focus on the united states growth for because that's going to help drive the whole world's success our research team which is the best in business under candace browning's team you know they have this year the high fives five point between five and a half and five six percent gdp growth for 21 and then for 22 they have it between five and five and a half 5.2 to be precise and then for 23 it goes back more to trend growth so what is that telling you that's telling it the economy is as big as it was nominally in night as it was in 19 before the pandemic expect to grow at three twice to three times the rate for the next couple years so that's that's a pretty good place to be now what could derail it all the things that you were going through uh quickly uh maria's are all the things on the table now what do we really see in the consumers at bank of america today well through through the end of the september they were spending at 10 or 12 percent faster growth rate than in 20. you say well brian the 20 was a pandemic year but no 20 was bigger than 19 and it's over 20 over 19. so the spending is bigger it's
growing at a faster rate and if you see in the first couple weeks in october here we're seeing the same thing so are the consumers in the game and spending the cup the customers have in their bank accounts uh especially in the two to five thousand dollar range average checking average deposit balances so think of people who maintain that balance on sort of constant basis they have three times more money in their deposit accounts than they did before the pandemics they've there's lots of dry powder and those customers accounts to to spend to do something with the question is will the delays in shipping and will the delays in shipping not only ships which everyone's talks about but also the trucks you mentioned earlier and other means of logistics slow down the spending and the reality is you're seeing people spend it on experiences and goods and it'll shift around and we'll see what happens but all that could get in the way but right now you're seeing wage growth strong spending growth strong the economy is predicted to grow strong and i think the key is to make sure that the inflation stays under control and i think the fed has made it clear they're going to start moving and then secondly get to work on these bottlenecks to help the free flow of goods because those goods coming out of china and other places in the u.s by the biggest most powerful economy with the most consumer-led economy are important and also frankly we have europe growing at three percent uh uh this year next year which is also good because that means that big consumer-led economy can also participate that's all good for the world so i think all those bottlenecks have to get straightened out but i think the american consumer is pretty good at doing what they they do which is spend money and you're seeing them shift more to experiences and travel even with gas prices going up they're still driving more miles all this is good news the economy but we have to be careful those elements you talked about don't get in the way yeah and that europe story obviously great for merrill lynch and your wealth management business but brian you also stand out for your digital capabilities you've made this a priority investing in digital and the mobile economy am i right that 43 percent of consumer loans came from the digital channel versus 27 i know the analysts were very impressed with your smile charts uh that uh things are moving up again tell me about the charts as it relates to digital and what kind of capabilities do you want to see over the next five years at b of a well we we have been um since the iphone came out for example we've been embedded in it as an app uh way back and so we've seen our digital users grow well over 40 almost 41 million users now active digital users using the activity we've seen the digital sales get to 40 uh 44 of all the sales but importantly they're rising to a million plus sales a quarter now and so they're becoming a significant part a million six sales a quarter in terms of number i think it was this past quarter so it's it's sort of half the sales of all the consumer loan products and deposit products uh you see it in the uh the merrill edge products that you can see the hundreds of thousands of counts we form it but importantly it's also the way customers interfaces so this this past quarter the third quarter we had 2.6 billion digital interfaces between our customers and us and so what's happened in the pandemic is you've seen acceleration of the usage across cohorts that we're using pretty well and that's been good and so you're seeing the numbers go up but the basics are still going on strong we're down to 15 of checks deposits of bank of america by people handing it to a teller all the rest are going through either an atm or the phone those are important things for us to become more and more efficient and frankly spend more time helping customers with their day-to-day financial lives and the things they need to do as opposed to just depositing check because they can do that on our own so part of it's really the fun stuff uh we have five million users of our life plans product four million active last quarter we have zell which is growing very fast and you know already it's a major way people pay people in in the enterprise we have we have erica which is a virtual digital assistant that tens of millions customers use all those are wonderful things but you also got to get the basics right which have great teammates in our branches serving those customers every day and the team's doing a good job of that great financial advisors of mayoral great private bankers in the private bank and likewise with the commercial bankers and it's so it's a high touch high tech but we've been very encouraged by our digital capabilities and we're a big digital company i mean 2.6 billion digital
interactions last quarter alone is a lot of work and teams done a great job of of doing that and the technology is attracting new customers i'm sure it's a great growth story brian let me move over to regulation and the changes that we may see because we know that the biden administration is pushing to pass legislation that will require banks uh to report every six hundred dollar bank transaction of every customer uh it's causing some real privacy issues this proposal is uh uh facing pushback across the board even treasury secretary janet yellen is defending this proposal what's your take on this proposal uh what are you gonna do when and if this this law takes effect well being a regulated institution being subject to the laws of the united states if congress passed the law this is a matter of policy and congress has got to decide what to do you know we'll all have to follow it all the bank industry as you look at the debate the industry and other our clients and chamber commerce and others have made their positions clear but in the end of day you know if we have to fall off it becomes a loss so it's a policy decision for congress yeah well we'll see what that means for the industry i know that you're trying to protect people's privacy but at the same time there's not going to be much if in fact that that does take place also banking groups are united in terms of pushing back against some of this uh nominations of for biden's pick for key regulatory posts i want to put on screen what senator toomey recently said about the nominee for occ the the comptroller of the currency rather he says this is i've never seen more radical regulatory nominee than solei omarova your thoughts on whether or not we're going to see the banking sector face a much tougher regulatory backdrop brian we know that elizabeth warren is out there saying she wants to break up the banks look our company's been around since 1784 so it's gone through a number of changes in banking with a second charter uh back in the hamilton days so you know we we've lived through all different types of environments and we'll be here to it again tomorrow doing it again it's our job and it may answer your team's job to manage all those and it the the pendulum swings back and forth and i think but i think look the end of day the banking system is a great thing for america it is one of the reasons why our economy can be so big the ingenuity the capabilities it's one of the one industries where we have the best participants on a worldwide basis the competitors the key competitors i compete with the united states are the worldwide leaders in this industry and so if we want to have a big economy and we want to have a successful economy we want to have capitalism be strong you're going to have to have you need a strong banking system and i think we just proved that last year when our banking system was able to because the capital liquidity and capabilities have to step up and in our case do 70 billion dollars of loans almost overnight do do a half million ppp loans do two and a half million customer assistance uh programs and then do all the other work to also keep 200 000 people and their families which is 600 000 people safe and taken care of in this pandemic you know and all my colleagues did the same thing and so our industry is very strong and has done great work and it's the reason why america can be a strong economy so i think any idea to constrain that is is probably not the best idea for the long-term success of america yeah i would have to agree with that that's for sure brian real quick before you go you're seeing your competitors uh surge into china as much as they can i know that eight years ago as part of your de-risking process b of a sold its remaining stake in the china construction bank do you see they um re-entering the china market either through a partial or majority ownership of the bank in that market brian no we look we we we are in china today with a team that does corporate investment banking and markets both in hong kong and mainland china and and we're helping you know the largest companies in the country do things and we're happening american companies and companies from europe and the rest of the world do things in china that's really our business model frankly anywhere outside the united states and so the china construction bacon bank investment was a great investment for us but it was a it was a strategic relationship where we helped as the company went public helped them develop their their policies and procedures and banking systems and help them figure out how to become a huge bank that they are they're very successful company but you know our our role in china will be around those uh those types of activities and so we have you know the charters we have and how we do it we left a day-to-day activity but the reality is it's large companies and markets in china and by the way it's the same in europe and by the way it's the same in you know in africa in the same way in latin america we we do this you know consistently outside the united states inside united states the opportunity for consumer banking you have small business banking uh wealth management is so huge that we don't need to try to find something to do outside the country we have enough we grew our deposits 300 billion dollars or some number every year we have a 1.4 trillion dollars in consumer and wealth managed deposits alone in united states yet our market share is only you know thirteen fourteen percent and broad consumer and you know we can grow that significantly so outside in china in particular it'll be a it'll be a focused uh strategy which we think produces a great results for us and our clients well it sounds like you've got a long runway brian thanks very much for sharing the story with us it's good to see you this morning good to see maria thank you have a good day and to you brian moynihan is the chairman and ceo of bank of america
2021-10-19 18:16
