Brian Moynihan, CEO of Bank of America, spoke with Bloomberg TV’s Erik Schatzker about the bank’s earnings and performance.
Moynihan said that the efficiency ratio should be 500 BPS lower and the company has a plan to get it there. When asked about how he will do it, Moynihan said: “The headcount will come down because there were 60 percent people costs. There’s not enough other costs to save a lot of money, but question is how you do that.”
He added: “Every quarter just through normal attrition there’s four or 5,000 people changes in our company. And what we’ve been doing is when someone’s job comes up and someone leaves for whatever reason that’s a low attrition rate on 215,000 people. We basically say do we need to replace the job? And a lot of jobs you do and a lot of jobs you don’t.”
How Can Bank of America Drive Better Efficiency?
Moynihan: Core Earnings Power Was Always There
ERIK SCHATZKER: I’m here at Bank of America headquarters in Charlotte with Brian Moynihan. Brian, it’s a pleasure, good to see you.
BRIAN MOYNIHAN: And it’s great to be here. Thanks.
SCHATZKER: So you reported earnings earlier today. JPMorgan reported last week night, Wells Fargo. We’re in the thick of bank earnings season, but your results are noteworthy because for two quarters in a row you’ve had revenue north of $20 billion. And you’re averaging quarterly earnings of about $5 billion, consistency from a bank where shareholders haven’t been used to it over the past couple of years because — more than a couple, in fact, because you’ve had so much work to do. And you keep it up?
MOYNIHAN: Sure, sure. And it was — and so you have to step back a little bit and think about what we were telling people all during that time was underneath all the noise and the mortgage litigation, or pick your topic at the given moment, there was a core earnings power that was always there. And what — it got covered up by other stuff. And now is that’s come off and then gone down. And last year this quarter is when we said it would adjust (INAUDIBLE) four quarters that continue to stack up. You really have just seen that core earnings power come through.
Now that doesn’t mean we don’t have market share to gain, we don’t have hard work, we don’t have to manage expenses. The environment keeps moving around a little bit one everybody, but the reality is is that what was there was there, and now you’re seeing it shine through. And now the question is how can we improve upon that. And that’s where we’re focused on the company.
SCHATZKER: In a better environment, how much more money could this bank make?
MOYNIHAN: Well we talk about — a simple way to think about that is to think about in the U.S. if rates go up 100 basis points from where they are to 1.25 Fed funds rate and three percent 10-year treasury rate, very low rate structure, we make 4.6 billion pretax per year just for that first move. And so —
SCHATZKER: That incremental profit.
MOYNIHAN: Incremental profit. And that’s —
SCHATZKER: So that’s on a pretax basis over and above what you’re making now.
MOYNIHAN: And that we disclose each quarter. And that is because, effectively, we have a core franchise that’s taking deposits on the liability side.
SCHATZKER: That’s right.
MOYNIHAN: And they’re zero floors. And so we can’t charge customers. And so if we pay five basis points for deposit pricing and across the franchise and consumer business, but it can’t really go down anymore. So as rates rise you’ll be able to capture to spread with traditional (INAUDIBLE).
SCHATZKER: So I reference this before, for almost six years you have been the CEO, and you have been trying to get this company to a place. Is it there yet?
MOYNIHAN: It’s there. It’s there, but it’s not where we want it, because we — and we get up every morning, and you think about the last six years. And we try to get the frame on this. We trade — we have $15 share, $15.50, $15.75 share price today. We took $12 and charged on a per share basis in the last five, six years to fix the mortgage crisis, the hole that was left in the capital — all different things.
And that’s behind us now. Our capital ratios are where they should be. We’re generating good earnings. So is it fixed? Yes, it’s been fixed, but the question is how good it can be. That’s still ahead of us. And that’s what I sit back with the team, and we just go after and drive. And you see that every day in how we execute.
SCHATZKER: So what’s left to do?
MOYNIHAN: Well we have eight businesses and six of them are the growth engines for our company. Two of the businesses have constraints on them because in general retail banking we have to be careful that they’ll get the full relation of the customers and markets. We’ve constrained its size relative to our company and because we saw, or we thought we saw, or maybe we saw more than we should have seen, but we thought that there would be restrictions on capital and liquidity that would kind of keep in that check. But the other six businesses —
SCHATZKER: Was that right, or are you looking back on that saying it was wrong?
MOYNIHAN: That’s why LCR we’re compliant already. That’s why our SIFI buffers are lower than other people relative to our size. So we get what we need out of the business, serves the investors well, number one research platform in the U.S., just announced in the last few weeks.
So as you think about that, the other six businesses which are serving affluent customers, and wealthy consumers, and middle-market companies and small businesses, all those businesses just have to grow in our corporate investment banking. And that means more salespeople invest in those businesses. And that’s what you saw today.
We’re down — headcount continues to work its way down in our company. That’s the expense mantra that we all talk about. But the reality is in a — this quarter, we hired over 1,000 new students, new kids in from school. We added 1, 000 client-facing people. And we still were able to manage through hard (INAUDIBLE) work 1,500 net people out of the company.
SCHATZKER: You have been able to reduce expenses, to the point you just made, in part by reducing headcount dramatically over the space of the past five years. Yet, if I compare Bank of America to some of the other banks in your industry, the comparison could still be more favorable. Wells Fargo has an efficiency ratio, non-interest expenses as a percentage of revenue in the order of 57 percent. You guys are north of 60. Why can’t yours be 57 percent?
MOYNIHAN: We’re going to have — there’s going to be differences in business mixes, but ours should be better. And so we’re run —
SCHATZKER: Better than it is today.
MOYNIHAN: Better than it is today. And that’s going