Brian Moynihan: Fed Will Start Raising Rates In “September”

Brian Moynihan: Fed Will Start Raising Rates In “September”
By Bank of America (Own work by the original uploader) [Public domain], <a href="">via Wikimedia Commons</a>

Bank of America Chairman and CEO Brian Moynihan appeared with FOX Business Network’s (FBN) Maria Bartiromo during the debut of Mornings with Maria, to discuss the economy and the Federal Reserve. When asked when he thinks rates will rise Moynihan said, “our experts believe September” and that “It’s coming because the economy’s fundamentally better.  The unemployment rate is down; there’s a little bit of wage pressure.” Moynihan also commented on being a Systemically Important Financial Institution (SIFI) saying, “it’s not gotten easier, but you’ve got to remember that because we are a SIFI, we are regulated more heavily.” Moynihan also discussed managing their cost structure saying, “I think from the mortgage business, it’s pretty much in the rear-view mirror, so – and that’s been good, the litigation and things like that.”

Brian Moynihan on when he expects the Federal Reserve to start raising rates:

“Well, our experts believe September.  And that’s ebbed and flowed depending on the weekly data, so if we get strong numbers Friday, people may move it back and forth.  But you think about a company like ours, it’s been in business for 230 years, whether it’s September, October, or whatever, it’s coming soon.  And the good news is why is it coming?  It’s coming because the economy’s fundamentally better.  The unemployment rate is down; there’s a little bit of wage pressure.  And I think Chairman Yellen and the minutes and stuff are very clear what’s going to trigger them to move, and I think most people project that crossover towards the third quarter.”

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Brian Moynihan on accounting for the rate hike across their businesses:

“Well, I think if you think about our business, we are running our business to the good of our customers and clients.  And so consumer business, we didn’t adjust the business model dramatically even though it gets hurt by low rates.  The reality we’d just make more money and it will be easier to operate.  But the way we’ve been driving the business, technology implementation, mobile banking, all those things we would have done whether rates were higher or lower.  It’s just that it’ll make more money in a higher rate environment.”

Brian Moynihan on current consumer trends:

“Well, if you think about starting with the American consumer, so each month, about $50 billion is spent on Bank of America debit and credit cards.  And if you think about that, it’s up 3 percent through last Friday, May 2015 versus to 2014.  But importantly, what you see in that is there’s more discretionary spending and the necessary spending is growing at a slower pace, and discretionary spending is growing at a faster pace.  That means people are spending on things, travel, entertainment, and things that are more what they want to spend money on as opposed to food and gas and things like that.  So it’s very constructive.”

Brian Moynihan on consumer spending:

“Well, if you think about it, that money, in our basis, like $600 million $500, $600 million that month, but it’s spread among a lot of people, so it’s not going to change any one person’s $10, $15.  So it gets spent in the general flow. As it builds up over time, that purchase power then can be spent on a TV or a refrigerator.  So what you’re seeing is people are accumulating that money in their accounts, and the feeling is they’ll spend it as we move to the fall if it stays there.”

Brian Moynihan on spending predictions for the remainder of 2015:

“Well, the first quarter, it’s been well documented, was impacted by weather.  Those of us who live in northeast knew that we spent a lot of Sundays and Mondays in our homes…There was 100 inches of snow plus.  And so there was definitely an element there.  And there’s always a little bit of leakage in the first quarter, sort of you come off Christmas season.  So it was negative, but our economists believe that, for the U.S., we grow about 2-1/2, 2.4 percent for the rest of the year, which means we’ve got to pick up and grow nearly 3 percent or above for the rest of the quarters.  And they’re very constructive; they feel that business investment will pick up in the second half.  Oil prices will stay about where they are and that will provide a good background for growth in the second half.”

Brian Moynihan on employment:

“Well, if you think about our company, Bank of America, and you think about coming out of the crisis, it took us longer because we had more mortgage exposure, more work to do with the American consumer to modify and get our mortgage back in shape, and so as we come through that, what you’re seeing is the core businesses are growing. In terms of jobs, what’s been interesting in the financial services is the application of technology has had an impact that is pretty substantial.  And so while we don’t have jobs being created in some of the core activities, but what we are doing is spending $3 billion a year on technology development, both internal and external, which creates jobs in the industries that support us. So you’ve got to remember that as we come down on our jobs, it’s really through the application of technology to electronify work and that then changes the structure.”

Brian Moynihan on their capital markets business:

“Our capital markets business’ size is about is where we want it, and so we’re doing fine and we make good money there.  And so when people think about it, you said for the next 10 years, nothing’s going to grow and everything’s going to get worse, yep, you’re going to have to take care of expenses.  But the reality is we’re in pretty good shape, but we continue to manage our expenses carefully.  We’re in a business, in a company, that is still getting its cost structure back in line with its revenue stream after the crisis.”

Brian Moynihan on managing their cost structure:

“Well, I think from the mortgage business, it’s pretty much in the rearview mirror, so – and that’s been good, the litigation and things like that.  When you look ahead of what we have for growth, we have great businesses: number one, two, three positions, whether it’s mass market consumer banking or wealthy Americans or companies around the world.  We are very excited about the platform and the franchise, and so we’ve been investing heavily in that. So even though as we come down in headcount, we’re still investing in financial advisors, in commercial bankers, in people who sell at our branches.  And so that investment, even though it shows up and it’s substantial, it’s overcome by some of the work process improvements we’re making.”

Brian Moynihan on being a Systemically Important Financial Institution (SIFI) and regulation:

“Well, it’s not gotten easier, but you’ve got to remember that because we are a SIFI, we are regulated more heavily, us and the eight institutions in nine states.”

Brian Moynihan on SIFI:

“Well, that means we have a great, sizable franchise, and it’s good to have that because it makes us number one in a lot of businesses, and both the consumer space, wealth management, and commercial space.  But it means we are held to a higher standard, and we should be, because at the end of the day we’re larger.”

Brian Moynihan on SIFI dictating their balance sheet:

“Well, if you think about GE, they had a choice — they were an industrial company and a financial institution.  We don’t have that choice.  We are a financial institution: that’s what we do.  And so we’re going to be a bank; we’re going to be in banking and capital markets and securities.  You know, we’ve been in it for 230 years; we’ll be in it for the rest of the time we exist. And so there are choices people are making.  And if you back up, the choices that we made in our company were to simplify the company.  So if you thought about the time in the middle transaction, we would have been about $2.75 trillion in size.  We’re about $2.2 now. But the important thing isn’t just the size; it’s what we got rid of.  It was complexity.  It was consumer businesses outside the United States.  It was the private equity business; it was too way too big for our balance sheet.  It was a direct real estate investment business.  All these businesses that were built up, really take principal risk, are all gone.  And what you have left is a simpler, more easily understood, higher capitalized, higher liquidity business focused on its customers. That’s what the rules are intending to achieve and that’s a good thing.  Now, it’s a lot of work and a lot of cost, and we’re still getting them implemented, but the realities — from a standpoint of our industry and our company ,these companies have done a lot of changes to make themselves simpler and easier to operate and understand.”

Brian Moynihan on where the industry stands today:

“Well, you just saw it in a stress test.  When you really look at — they decide the process and everything like that.  The actual results are that this industry could take a huge recession without any warning, not be able to change its operations, keep paying dividends, keep buying back stock, and has enough capital to continue to lend money and support the real economy.  That’s what the Fed said and that’s a pretty good outcome.”

Brian Moynihan on the shape of the industry:

“Probably ever, in a context.  If you think about us, just make it really straightforward, our tangible common equity ratio is probably around 4 percent, 4-1/2 to 5 percent.  Back in the times in early 2000s, mid-2000s, we’d run 7-1/2 to 8 percent.  So just think of now the leverage difference in the company, and that is just one simple indication, doubling the capital, four times liquidity, and that’s a much safer company.”

Brian Moynihan on cyber security:

“Your money is safe.  If it’s with us of course, if you’re a client of ours.  But it’s safe.  But what we do is we spend whatever it takes.  There is only one area of the company where they don’t have intense scrutiny that we have on the rest of company on expenses and how money gets spent.  This area, if they need to spend money to keep our clients’ trust and money safe, they do it…And they’re wise about it.  They don’t spend money they don’t need to spend.  But it’s grown probably three or fourfold over the last five, six years, and it will continue to grow. But it’s, at the end of the day ,think about what that means — to keep the mobile operating system secure, or the online banking system secure.  There’s 30 million computer-based customers and 17 million mobile-based customers.  To keep that secure is a very critical thing for us, not only from the safety and security you’re thinking about, but also just the operating efficiency of the company.  Think how much more efficient we are.  If we couldn’t use those, we don’t have enough people to process all those transactions anymore.”

Brian Moynihan on whether he is going to start shutting down branches since they’re going more digital:

“I think if you look at it long term, you’re — the definition of branch is changing pretty dramatically in banking.  So you have — we had 6,000 branches the high, to 5,000.  You say, well, that’s 1,000 less.  We had 18,000 ATMs; we have 16,000 ATMs.  But what’s really changing is how customers use us.  We have seven million transactions — customers coming into the branch a week; 50 million phone calls.  We have several million online sessions, we have several million mobile sessions.  So everybody uses everything.  130 million times a week, people are interacting with us, consumers.  And so there’s no perfect answer.  And as you think about the future, you have service side branches and you have sales side branches; they’ll be bigger.  And if you go up and down 6th Avenue and see some our branches bigger with more salespeople, more destination shopping.  That’s the difference, and they’re all important.”

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